We’re halfway through the year, and while the markets have been volatile, investors are having a good time so far. The S&P 500 has gained 11% year-to-date, and the tech-heavy NASDAQ has gained 9%. With the Fed keeping interest rates at historic lows, stocks are offering better rates of return – and they are keeping ahead of inflation, as well.
But while the overall markets are up, individual stock performance can and will vary. Which means that in the midst of a general rising trend, it’s still possible to find solid stocks that are trading for rock-bottom discount prices.
Using TipRanks database, we pinpointed two such stocks. These are Strong Buy stocks, despite their recent slips in share value. The analysts have noted that each one has a path toward near-term gains, making the risk-reward factors suitable for return-minded investors. And with prices down lately, these are suitable for bargain hunters, too.
Aytu BioScience (AYTU)
We’ll start with Aytu BioScience, a pharmaceutical company whose primary focus is meeting the needs of children with pediatric onset conditions. The company has a wide-ranging portfolio of approved products in prescription therapeutics and consumer healthcare, and is even working on treatments for COVID-19. Even with a revenue-generating portfolio, however, AYTU shares have fallen 52% in the last 3 months.
The drop in share price has come despite a 64% year-over-year gain in the company’s revenue stream. This included an increase in consumer health revenues during the fiscal third quarter (coinciding with the calendar Q1) from $3.5 million to $8.4 million yoy, and in prescription revenues from $4.7 million to $5.1 million. The company attributed the strong consumer health performance – the division revenues were a company record – to a combination of product launches and e-commerce sales.
Aytu’s net loss, however, drew even as revenues were solid. At $1.41 per share, the net loss was almost as deep as in the year-ago quarter, and nearly double the 72-cent loss reported in F2Q21. Aytu attributed the increase in net loss to costs associated with its merger with Neos Therapeutics.
That merger deal was announced in December and closed this past March. The transaction, conducted all in stock, was worth $44.9 million and made Neos into a wholly-owned subsidiary of Aytu. The costs of the Neos merger were front-loaded for Aytu, and included a $15 million payment toward the debt notes held by Neos – but Aytu expects to realize gains of $15 million annually starting in fiscal year 2022 (2H CY21).
Finally, during fiscal Q3, Aytu added a new drug to its development pipeline, AR101, a new treatment for Vascular Ehlers Danlos syndrome (vEDS). This is a severe, pediatric-onset, genetic condition, causing weakening and splitting of the blood vessels and internal organs. Aytu acquired a global license for development of AR101 from Rumpus Therapeutics, and plans to submit an Investigational New Drug application to the FDA in 2H21. The company expects a pivotal study to begin in 1H22.
All of this adds up to a sound foundation for the stock, according to 5-star analyst Vernon Bernardino, of H.C. Wainwright. Bernardino rates AYTU shares a Buy along with a $24 price target. Should his thesis play out, a potential upside of ~407% could be in the cards. (To watch Bernardino’s track record, click here)
“We are particularly positive on the Neos merger, as it puts Aytu in strong position to enhance its footprint in pediatrics and expand its presence in adjacent specialty care segments. We also like the addition of AR101 for its potential to further grow Aytu’s pediatric product franchise in the area of pediatric-onset rare and orphan diseases. We are also positive on the $13.5M in net revenue recorded in F3Q21 vs. $8.2M in F3Q20, as it demonstrated the company continues to increase sales through organic product growth, and with the addition of products from Neos, positioned Aytu for accelerated sales growth in the coming quarters. We believe these milestones are underappreciated,” Bernardino noted.
In general, the rest of the Street is on the same page. 3 Buy ratings assigned in the last three months give AYTU a ‘Strong Buy’ analyst consensus. Shares are priced at $4.73, and the average price target of $16.50 suggests the stock has room for ~249% upside growth in the coming year. (See AYTU stock analysis on TipRanks)
Addus Homecare Corporation (ADUS)
Sticking with the healthcare sector, we’ll shift gears slightly and look at Addus Homecare. This company provides personal care services, in the patient’s home; such services include assistance with meal planning and preparation, feeding, dressing, hygiene, and medication. In short, Addus is a hospice provider, giving non-medical supportive services on a continuous, long-term basis. The company boasts a working relationship with 180 care agencies across 25 states.
This type of care is big business, and with the growing elderly population, long-term in-home care is also a growth-oriented business. Addus saw its top-line revenue increase 7.9% year-over-year for Q1, reaching $205.3 million. EPS, at 55 cents per share, was in-line with EPS results from the past 6 quarters, which have ranged from 43 cents to 63 cents.
Company management was pleased with these results, and pleased more by the overall growth prospect in the home care sector. Nevertheless, despite meeting expectations, ADUS shares are down 31% so far this year.
Covering ADUS for RBC Capital, 5-star analyst Frank Morgan notes that the recent weakness has created a buying opportunity.
“We do not see any fundamental issues that would drive the weakness. We believe business trends are consistent with management expectations… We also note that deal backlog remains robust, and we continue to believe that hospice census should continue to recover,” Morgan explained.
The analyst added, “We believe ADUS’ recent weakness reflects a short-term shift in money flow away from higher multiple provider names. That said, we reiterate our conviction that home health, hospice, and personal care have some of the most attractive secular tailwinds of all healthcare service providers.”
After making these observations, Morgan rates ADUS an Outperform (i.e. Buy), and sets a one-year price target of $136, indicating his confidence in 68% share growth. (To watch Morgan’s track record, click here)
Once again, we’re looking at a stock with Strong Buy consensus view, this one based on a 3 to 1 split favoring Buy over Hold. ADUS shares are priced at $80.75 and their $130.25 average price target suggests a 12-month upside of 61%. (See ADUS stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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