We recently published a list of 16 Best Mid Cap Growth Stocks To Buy Now. In this article, we are going to take a look at where Sarepta Therapeutics Inc. (NASDAQ:SRPT) stands against other best mid cap growth stocks.
50 Basis Point Reduction: Exaggeration or Hidden Benefit?
Recent discussions among financial strategists emphasize the current stock market dynamics, particularly regarding the upcoming US elections. Investors are encouraged to view dips in stocks of some sectors as long-term buying opportunities, as historical trends suggest that 10% corrections can be advantageous entry points.
While recent sell-offs were driven by sector-specific issues rather than broader economic concerns, the long-term outlook remains positive. Despite recession worries, the US economy is stable, with strong consumer performance and corporate profits exceeding expectations. This has contributed to a rebound in the NASDAQ and S&P 500.
Inflation has reportedly dropped to a three-year low of 2.6% in August, marking the lowest rate since March 2021. As inflation continues easing, there has been ongoing speculation that the Fed may begin cutting interest rates, potentially starting with a 25 basis point reduction.
Market analysts, including Gene Goldman and Craig Johnson, anticipate multiple rate cuts due to slowing inflation and economic growth. We discussed this earlier in our article about the 12 Best Small Cap Tech Stocks to Buy. Here’s an excerpt from it:
“Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated….
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.”
However, on September 16, Erika Najarian, UBS senior equity research analyst, mentioned that small and mid-cap stocks could potentially benefit from a 50 basis point cut.
Najarian attributes the recent underperformance of financial stocks to market concerns about the implications of potential rate cuts for economic stability, leading investors to question a less favorable economic outlook. She believes some anticipated cuts may already be reflected in money center bank stock prices due to their strong year-to-date performance. A 50 basis point cut could especially benefit mid-cap stocks affected by commercial real estate issues.
She explains that a 50 basis point cut would significantly impact net interest income. Money center banks benefit more from rising rates, while mid-caps are liability-sensitive and may see deposits repriced faster, favoring them if rates are cut aggressively.
The recent Basel III news with lower capital thresholds triggered negative stock reactions, exacerbated by JPMorgan’s comments on reduced investment banking and trading growth targets. Factors included ongoing Basel III discussions since December 2023 influencing pricing, a leading bank suggesting consensus net interest income expectations are too high, casting doubt on other banks, and emerging signs of consumer weakness potentially spreading beyond lower-income segments.
Najarian highlights the challenges analysts face in predicting net interest income due to shifting rate expectations. While higher rates have traditionally benefited bank profitability, potential cuts create uncertainty about financial performance. She points out that banks must choose between cutting rates to remain competitive or maintaining volume, complicating forecasts for net interest income.
As Najarian emphasizes the uncertainty surrounding interest rate cuts and their effects on the financial sector, and investors await clarity from the Fed, we’re bringing you a list of the 16 best mid-cap growth stocks to buy now.
Why are we interested in the stocks that hedge funds pile into? 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 laboratory technician in a white coat holding a microscope and examining a vial of biopharmaceuticals.
Sarepta Therapeutics Inc. (NASDAQ:SRPT)
Market Capitalization as of September 13: $11.89 billion
Number of Hedge Fund Holders: 55
Sarepta Therapeutics Inc. (NASDAQ:SRPT) is a commercial-stage biopharmaceutical company, focused on helping patients through the discovery and development of ribonucleic acid (RNA)-targeted therapeutics, gene therapy, and other genetic therapeutic modalities for the treatment of rare diseases, to advance the field of gene therapy and provide meaningful treatments for patients with rare genetic disorders.
The company focuses on two key treatments for Duchenne muscular dystrophy: Elevidys and phosphorodiamidate morpholino oligomer (PMO) therapies. As one of the few companies developing proprietary exon-skipping technology, it is positioned to expand its valuation by addressing other diseases as well. If Elevidys maintains strong sales and PMO continues to broaden treatment options, the company could experience significant growth.
In June, it obtained approval to make ELEVIDYS available to over 80% of patients living with and dying from Duchenne muscular dystrophy in the US. In the same month, its partner, Roche, announced that the European Medicines Agency had accepted the ELEVIDYS submission for review.
In the second quarter of 2024, it generated $362.93 million in revenue, which recorded a 38.93% year-over-year growth. The earnings per share came out exactly as Street estimates, with a value of $0.07. Net product revenues for ELEVIDYS remain at ~$122 million for the quarter. Net product revenues for the PMO franchise were ~$239 million.
Sarepta Therapeutics Inc. (NASDAQ:SRPT) is poised for significant growth, having successfully launched multiple therapies and achieved cash flow positivity. It has grown at a compound annual growth rate of 150% since 2017. The company is set to expand its market reach and drive revenue growth, making it a top mid-cap stock to buy now.
Bronte Capital Amalthea Fund made the following comment about Sarepta Therapeutics, Inc. (NASDAQ:SRPT) in its Q3 2023 investor letter:
“The FDA is widely considered to be the world’s foremost regulator of drug products, with a stringent and rigorous process for evaluating new marketing applications. Disagreements between the FDA and regulators in other developed markets (such as the European Medicines Agency or the Australian Therapeutic Goods Administration (TGA)) are rare, and when they do occur, it is usually because the FDA has taken a more critical view of the applicant’s evidence.
For a drug to be approved in the US, it must meet the statutory requirement of “substantial evidence of effectiveness” under the Federal Food, Drug, and Cosmetic Act. There are essentially three ways to meet this requirement. Normally, the FDA expects the sponsor to succeed in two “adequate and well-controlled studies”. Alternatively, the sponsor can rely on success from a single study if the results from that study are “very persuasive”, or if they are combined with some sort of independent confirmatory evidence. For the most part lobbying from the cohort of patients, the “patient voice”, has played a relatively minor role in the FDA’s decision-making process and the agency has been prepared to make tough but rational decisions when the “substantial evidence” standard is clearly not met.
However, this was not the case in 2016 when the FDA famously overruled its own review team and external advisory committee to approve Sarepta Therapeutics, Inc.’s (NASDAQ:SRPT) controversial drug for Duchenne muscular dystrophy (Exondys 51). At the time, Sarepta had completed a single phase 2 trial in just 12 patients which, per the FDA Commissioner (Robert Califf) himself, had “major flaws” in both its design and conduct. Ellis Unger, director of the Office of Drug Evaluation at the FDA, declared that the drug was a “scientifically elegant placebo”, and that patients and their families were taking on unknown risks for likely non-existent benefits…” (Click here to read the full text)
Overall, SRPT ranks 3rd on our list of best mid cap growth stocks to buy now. While we acknowledge the potential of SRPT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SRPT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.