3 Beaten-Down Stocks to Buy Right Now

Always look on the bright side of life. Not only does it put you in a better mood, but it can also help you earn some money. This is especially true in the current context of falling stock markets.

We asked three Motley Fool contributors to pick downed stocks to buy now. Here’s why they chose Modern (ARNM 1.57%), Pfizer (DFP 0.46%)and Zoetis (ZTS 4.17%).

Look beyond the pandemic

Prosper Junior Bakiny (Modern): The market is looking to the future. At present, he foresees problems for companies that partially or exclusively depend on their coronavirus vaccines or drugs to generate revenue. Moderna fits the bill, which is why its shares have fallen significantly this year. From 2023, the company’s sales will suffer. To be clear, however, Moderna’s revenue won’t drop to zero as COVID-19 is almost definitely here to stay.

Biotech has one of the most successful vaccines on the market, and it has targeted variants of the coronavirus with newer versions of its crown jewel. Moderna will remain a leader in the coronavirus booster market.

However, just as important, investors should try to look beyond next year. Moderna generates a lot of cash from its coronavirus portfolio; it had $17 billion in cash and cash equivalents as of September 30. This will allow it to advance its pipeline programs.

The company has more than a dozen non-COVID candidates, including three that have reached late-stage studies: potential vaccines against influenza, cytomegalovirus and respiratory syncytial virus. Moderna’s messenger RNA (mRNA) approach has an advantage because such vaccines tend to be faster to manufacture.

While we shouldn’t expect Moderna to bring its next products to market as quickly as it was during the COVID outbreak, the company is expected to register significant clinical and regulatory victories over the past five coming years. It should also continue to advance its ambitious start-up programs such as its HIV vaccines and vaccines targeting various cancers.

Will the company’s programs still run? Probably not. But with a diverse pipeline and the funds to see it through, Moderna’s future still looks bright, despite its poor stock market performance this year.

A large margin of safety

David Jagelsky (Pfizer): Having a good margin of safety is something you’ll often hear from billionaire investors Warren Buffett and Charlie Munger. It’s about giving you a buffer between where an investment is valued today and where you think it should be. Pfizer stands out as a stock that I think has a potentially large buffer.

Shares of this major healthcare company have fallen nearly 20% this year and trade at just nine times earnings. By comparison, the average healthcare stock is trading at a multiple of almost 22. There is a huge buffer to suggest that even if Pfizer’s earnings were to be cut in half, it could still be a good buy.

Investors are clearly preparing for a sharp decline in earnings. With COVID-19 revenue totaling $56 billion and accounting for more than half of Pfizer’s business this year, a drop could be likely as people become less concerned about the coronavirus.

But that’s a big guess as there are fears COVID cases will spike this winter. The US government is also examining whether Pfizer’s Paxlovid pill could be an effective treatment for long COVID.

Even if there is a drop, it probably won’t be as steep as what investors are currently pricing in the stock’s valuation. And Pfizer has not been idle. It has taken steps to acquire businesses that could enhance its long-term potential, including recent acquisitions of Global Blood Therapeutics (for the treatment of sickle cell disease) and Biohaven Pharmaceuticals (for the treatment of migraine).

Pfizer’s business faces some challenges: It will undoubtedly lose revenue from COVID treatments and products that lose exclusivity later this decade. But the downtrend surrounding the stock seems excessive. This is a company that quickly formulated a coronavirus vaccine, proving how quickly it can adapt to change and bring a product to market.

Investors shouldn’t dismiss the company’s track record of growth. While there is some risk ahead for the company, there is also plenty of headroom at its current valuation to make Pfizer a good stock to buy right now.

A world leader with great long-term prospects

Keith Speights (Zoetis): The year was particularly difficult for Zoetis. Shares of the animal health company plunged more than 40%. He faced several headwinds, including supply chain issues, staffing issues at vet offices, and the strength of the US dollar.

But Zoetis’ long-term prospects remain bright. More than 60% of the company’s total revenue comes from pet products. This market is expected to grow significantly as more people adopt pets and spend on their health.

Zoetis’ livestock business should also be a solid growth opportunity. Demand for protein in emerging markets, particularly China, appears likely to increase as overall income levels increase.

No company is better positioned to take advantage of these trends than Zoetis. It currently ranks as the global market leader in animal health for companion animals, cattle, fish and pigs. And it is the world’s No. 5 in the poultry market.

The company has delivered above-market revenue growth in recent years. CEO Kristin Peck said on the third quarter conference call that Zoetis has “the pipeline, market-leading positions, global scale and financial strength to continue to outpace the market.”

I think she is right. Wall Street seems to think so too: the 12-month consensus price target reflects more than 50% upside potential for this downed stock.

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