We recently compiled a list of the 7 Unstoppable Growth Stocks To Buy Now. In this article, we are going to take a look at where Summit Therapeutics Inc. (NASDAQ:SMMT) stands among the unstoppable growth stocks to buy now.
Should You Invest in Growth Stocks with Rate Cuts Around the Corner?
Growth stocks are shares in a company whose earnings and sales are growing faster than other companies and are expected to continue to grow. These stocks rarely pay dividends as management is eager to reinvest earnings to fuel further growth.
However, with higher growth potential comes high risks. Moreover, it is challenging to find hidden growth stocks as they are typically new companies that are constantly seeking the next big innovation. We recently covered the 10 Best Aggressive Growth Stocks to Buy According to Hedge Funds, which talks about various approaches used to identify these stocks. Here’s an excerpt from the piece:
When it comes to identifying growth stocks, there are several approaches that are followed. These depend on the business model and the fundamentals of the firms being analyzed. For instance, for profitable companies with a positive net income, the price to earnings ratio is used. However, a large portion of high growth stocks aren’t profitable as they reinvest their revenue into expanding market share. This leads to high operating costs, and these firms are valued either through the EV/Sales or EV/EBITDA ratios, depending on whether the firm generates a positive operating income or not.
Both the P/E and other ratios tell us the premium that the market is placing over a firm’s ability to generate money. For instance, one of the major semiconductor companies in the world, which ranks 6th on our list of Top 10 Trending AI Stocks on Latest Analyst Ratings and News, had a P/E ratio of 112x by the end of Q1 2018. This was before the age of AI, and its two peers in the chip industry had 37x for the chip stock that’s Wall Street’s AI darling and 19x for the struggling American chip giant that’s also the only leading edge US based chip manufacturer. Safe to say, the 112x P/E foretold the story of times to come, and since Q1 2018, the stock has gained a whopping 1,386%.
The recent slowing down of the macroeconomic environment and the hype of return on investment of artificial intelligence have questioned the viability of investment in growth stocks. Analysts and portfolio managers have variable opinions but they all converge to a single point “diversification”.
On August 15, Ben Snider from Goldman Sachs appeared in a CNBC interview and mentioned that he still prefers growth stocks over value stocks but emphasized on diversified portfolios. He pointed out that the base case is not the economy running into recession, it is quite the opposite as the data suggests. Ben Snider believes that the economy continues to grow and backed his arguments by mentioning the second quarter earnings season growth, the S&P 500 growth, and the Federal Reserve rate cuts. Therefore the base case as per Snider is higher equity prices by the year end.
While elaborating on his statement about growth stocks, Ben Snider pointed out that an environment of slowing but healthy economic growth along with falling interest rates have historically supported growth stocks over value stocks.
Most importantly, Snider emphasized that there is a risk for some extremely large stocks both from a positioning point of view and from their inability to maintain very strong rates of growth. In addition, the AI bubble problem along with very high analyst expectations have priced these stocks to an extremely overvalued situation.
The solution, as presented by Snider, is to adopt a more diversified approach and go for a selection of smaller tech stocks along with other high-growth industries. Some of the major growth industries mentioned during the interview were smaller tech stocks, the healthcare industry, and some other European stocks that are on the verge of cutting-edge innovation.
Our Methodology
To compile the list of 7 unstoppable growth stocks to buy now, we used the Finviz stock screener. We set the performance filter to year-to-date +50% gain and sifted through some of the high-growth industries to get a consolidated list of stocks. We then selected the highest gainers that were the most popular among elite hedge funds. The list is ranked in ascending order of the year-to-date performance of stocks.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A scientist inspecting the growth of cells, in the process of drug discovery.
Summit Therapeutics Inc. (NASDAQ:SMMT)
Year-to-date Share Price Gain as of September 11: 770.08%
Number of Hedge Fund Holders: 17
Summit Therapeutics Inc. (NASDAQ:SMMT) is a leading biotechnology company that develops new medicines for chronic diseases. The company has recently made a game-changing breakthrough as ivonescimab, a lung cancer drug received positive clinical trial results for its cancer experimental therapy.
The results show that ivonescimab is better off than the current standard drug Keytruda from Merck. Ivonescimab is a bispecific antibody, meaning that it can inhibit vascular endothelial growth factor (VEGF) that keeps the tumor from growing again. Investigators found that users of Summit Therapeutics Inc.’s (NASDAQ:SMMT) drug were 49% less likely to have worsened results as compared to the control randomized group that received Keytruda.
The stock of Summit Therapeutics Inc. (NASDAQ:SMMT) has been riding the wave of the breakthrough and has been up 770.08% on a year-to-date basis. Moreover, it was held by 17 hedge funds in Q2 2024, with total positions worth $218.86 million.
The drug is currently in phase 3 of clinical trials after which it will go through the FDA approval process. If all continues to go well, ivonescimab can become the standard care drug for many stage 1 lung cancer patients. The competitor treatment, Keytruda, made $25 billion in sales in 2023 and it won’t be wrong to expect the same results for ivonescimab.
Wall Street is also bullish on the stock. 3 analysts have a strong Buy rating on SMMT with their 12-month median price target of $25 presenting a 10% upside from current levels.
Overall SMMT ranks 1st on our list of the unstoppable tech stocks to buy. While we acknowledge the potential of SMMT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. This article was originally published on Insider Monkey.