3 Bargain Stocks to Buy in a Market That's Priced for Perfection

How richly valued are stocks right now? Legendary investor Warren Buffett has built Berkshire Hathaway's cash stockpile up to roughly $277 billion. When Buffett is sitting on that much cash because he can't find appealing investments to buy, you know stocks are expensive.

There are exceptions, though. In a market that's broadly speaking priced for perfection, three Motley Fool contributors have identified what they think are bargain stocks to buy: Axsome Therapeutics (NASDAQ: AXSM), CRISPR Therapeutics (NASDAQ: CRSP), and Pfizer (NYSE: PFE).

A biotech with multiple catalysts on the horizon

Prosper Junior Bakiny (Axsome Therapeutics): Few things can jolt biotechs, especially relatively small ones, like solid clinical and regulatory wins. Axsome Therapeutics, a drugmaker with a market cap of about $4.3 billion, could experience quite a few of those in the next two years. It has already made tremendous progress since the start of the decade, going from a clinical-stage biotech to one with two approved products on the market. But it isn't done yet.

Within the next 12 months, AXS-07, a potential therapy for migraines, and AXS-14, an investigational treatment for fibromyalgia, could both earn regulatory approval. The company will also release results from multiple clinical trials in the coming months. Positive results could lift Axsome Therapeutics' share price.

Is the biotech a bargain stock? In my view, the answer is yes. While Axsome Therapeutics generates little revenue and is still unprofitable -- which isn't unusual for biotechs of this size -- its late-stage pipeline is incredibly promising. Before long, it should have a lineup with four to six products that will generate growing sales for years.

Axsome Therapeutics' valuation continues to lag the potential of its pipeline. Sure, it could experience clinical and regulatory setbacks -- indeed, it has already faced some. However, there is a good chance that it will generate strong returns in the next five years, partly because its likely successes aren't baked into its valuation. That's why I'd advise investors to buy the stock today.

A biotech with tons of upside

David Jagielski (CRISPR Therapeutics): Although it may seem like just about every growth stock is trading at a significant premium these days, there are some bargain-basement options available. One is gene-editing company CRISPR Therapeutics. It is down 24% this year, but optimism should be higher than ever for the business as it is on the cusp of some exciting growth opportunities.

Within the past year, the Food and Drug Administration approved CRISPR's treatment Casgevy for two indications -- sickle cell disease and transfusion-dependent beta-thalassemia. It could be a life-changing treatment for patients with these conditions as it provides them with a functional cure. That's part of the reason why its list price is as high as it is -- $2.2 million. CRISPR will split the profits on Casgevy 40/60 with its development partner, Vertex Pharmaceuticals.

Prior to this, CRISPR didn't have any approved products; now, it may have a path to profitability. But despite this, the biotech stock is trading around the levels it was at back in 2019. Casgevy has the potential to generate more than $1 billion in annual revenue at its peak and is likely to play a pivotal role in CRISPR's growth.

For investors looking for a real bargain, you don't need to look much further than CRISPR Therapeutics. The business is still in the early stages of rolling out Casgevy, and over time investors should expect to see stronger financial results from the company. As that happens, it could trigger a big rally.

Post-pandemic problems but a brighter future

Keith Speights (Pfizer): I won't sugarcoat matters: Pfizer faces some problems. Sales of COVID-19 vaccine Comirnaty have plunged as worries about the pandemic have subsided. Several of the company's top blockbuster drugs will lose patent exclusivity over the next few years. And Pfizer recently voluntarily withdrew its sickle cell disease drug, Oxbryta, from the market because of safety concerns.

Because of these problems, Pfizer's share price has fallen by more than 50% since late 2021. However, there have been two positive effects of this steep decline for investors. First, Pfizer's forward dividend yield has risen to 5.7%. Second, the stock's valuation has become much more attractive. Pfizer's shares now trade at 10.6 times forward earnings. That's well below the forward earnings multiple of 18.6 for the S&P 500 healthcare sector.

This low metric raises a question, though: Is Pfizer stock a value trap? I think the answer is a resounding "no." The company's future is brighter than you might think.

Pfizer recently returned to year-over-year revenue growth for the first time since late 2022, when its COVID-19 vaccine and antiviral sales were at their peak. Acquisitions have been key to this turnaround. Migraine drug Nurtec ODT, which Pfizer picked up with its 2022 acquisition of Biohaven, contributed $356 million in sales in the second quarter of 2024. Adcetris and Padcev, cancer drugs added to Pfizer's lineup with its 2023 buyout of Seagen, together generated $673 million in sales in Q2.

I expect new products -- both those developed in-house and those gained through acquisitions -- will more than offset the declines in revenue from drugs that lose their exclusivity over the next several years. Pfizer's pipeline, which features 33 late-stage programs, could produce other big winners.

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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in Berkshire Hathaway, Pfizer, and Vertex Pharmaceuticals. Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Axsome Therapeutics, Berkshire Hathaway, CRISPR Therapeutics, Pfizer, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.