We recently made a list of the 10 Best NASDAQ Stocks Under $50 to Buy. In this piece, we will look at where Roivant Sciences Ltd. (NASDAQ:ROIV) ranks among the best NASDAQ stocks under $50 to buy.
The close of 2024’s third quarter is seeing Wall Street rejoice as the Federal Reserve finally delivers its highly awaited interest rate cut. The central bank decided to cut rates by 50 basis points, and while the immediate aftermath saw stocks close lower, the next day was the complete opposite. On the day after the interest rate cut, markets soared as investors digested the latest data set.
It saw the benchmark S&P index soar to a record close as it gained 1.70% and ended the day’s trading at 5,713 points. This wasn’t the only record set during the day, with the Dow blue chip stock index jumping by 1.26%. In terms of gains though, both of these were surpassed by the broader NASDAQ index which jumped by 2.61% during the day’s trading.
While some of these gains are naturally because of investors cheering an interest rate cut, there might be other factors at play here too. For instance, fund ClearBridge Investments head of economic and marketing strategy Jeff Schulze shared that “I think that this dramatically increases the odds of the Fed being able to stick the landing, which ultimately will be bullish for risk assets.” This might not be the end for the gains though, if we’re to consider historic data. As per Evercore ISI, the flagship S&P index has posted an average gain of 14% in the six months following an interest rate cut if the economy is not in a recession.
This market outperformance was also a reversal of the underperformance in the first five days of August which saw the flagship S&P tank by 6%. Explaining the weakness, BlackRock’s chief investment officer for global fixed income Rick Rider commented “I think the markets got ahead of themselves again in terms of interpreting that data was very soft.” Commenting on the state of the economy, which should be key for markets moving forward, he added that “Chair Powell said it’s a solid economy, and it is.”
Focusing exclusively on the NASDAQ’s performance, the composite and the top 100 stock index are up by 23.1% and 21.6%, respectively year to date. The next question to ask is, whether these gains are across the entire index or if they’re limited to just a handful of stocks. One of the narratives on Wall Street has been outperformance among large cap stocks as we covered in Goldman Sachs’ Best Hedge Fund Stock Picks: Top 20 Stocks. Using the Fidelity NASDAQ ETF as a benchmark, we find out that the top ten stocks in the index are up by 38.54%, 2.33%, 64.08%, 17.78%, 17.39%, 63.98%, 27.5%, 157.5%, 16.3%, and 22.56, respectively starting from the tenth stock to the first.
Within these, the top four stocks account for 40% of the ETF, and as the lowest of these top four stocks’ returns is still higher than the broader index’s year to date performance, it’s clear that outperformance among the largest constituents has driven the index’s return so far. Given that 50.4% of the NASDAQ is made of information technology stocks, the outperformance by AI stocks in 2024 has also driven the index.
Don’t believe us? Consider research from Bloomberg which shows that from the start of 2023 to June 2024 end, mega cap technology stocks were responsible for 60% of the benchmark S&P’s 40.5% in returns. This raises two questions. The first is whether mega cap stocks have more juice left in them, while the second is if this performance bifurcation creates an opportunity in other stocks such as small cap and value stocks. Well, banking behemoth JPMorgan believes that a “near-record discount in smaller-cap stocks may offer an opening.” Its ‘smaller cap’ stocks are defined as small and medium cap (SMID) stocks, and while the bank admits that these stocks often have high debt levels which increases their risk, the stocks with a “near record discount” do not have high debt but are nevertheless discounted.
To see how you first have to understand that small and mid cap stocks typically trade at higher price to earnings ratios than their large cap peers. This is because these stocks are inherently risky, and also because they offer a greater potential for growth. JPM’s data shows that for SMID and large cap stocks that are placed in the top 20% in terms of free cash flow margins, the SMID stocks’ forward P/E ratio relative to the large cap stocks peaked at 1.72x in November 1983 and then at 1.62x in April. Now, as of April 2024, it was 0.74x which opens up the potential for recovery as we move into the era of monetary policy loosening. This trend persisted in May 2024, with data showing that as of May 31st, the forward P/E ratio of small caps as a whole was 73% of large cap stocks, implying a 27% discount. Similar levels were previously seen around 2003, with the small cap P/E ratio soaring to roughly 125% of large caps after 2010.
Our Methodology
To make our list of the best NASDAQ stocks under $50, we ranked the 100 most valuable stocks on the NASDAQ in terms of market capitalization and picked out the top ten stocks by the number of hedge funds that had bought their shares during Q2 2024.
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).
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Roivant Sciences Ltd. (NASDAQ:ROIV)
Number of Hedge Fund Holders In Q2 2024: 62
Share Price: $11.57
Roivant Sciences Ltd. (NASDAQ:ROIV) is a biotechnology company that works with patents and develops medicines for commercial sales. This makes treatments under development and potential litigation win the two keys to its hypothesis, and provides it with a wide portfolio courtesy of its ownership stakes in 11 companies. On the former front, Roivant Sciences Ltd. (NASDAQ:ROIV) currently has three treatments under development through its Immunovant subsidiary. These are IMVT-1401 which seeks to help patients with immune system diseases, mosliciguat for heart problems stemming from lung disease, and a treatment for psoriasis called brepocitinib. The firm also entered into a $1.2 billion deal for its Dermavant business recently which offered it $175 million in upfront payments which will help Roivant Sciences Ltd. (NASDAQ:ROIV) manage operating and research expenses as it brings its drugs to the market after trials. The company could see additional catalysts if its drugs like IMVT-1402 are able to help patients with other diseases such as anemia and polyneuropathy. The performance of its treatments in trials and associated data could influence share price movements. Another catalyst could be a patent win against Moderna and Pfizer for raw materials used to make COVID vaccines.
Roivant Sciences Ltd. (NASDAQ:ROIV)’s management shared details for two of its under development drugs during the Q1 2025 earnings call:
“We have continued clinical development beyond that in our pipeline including in brepocitinib where we’ll be beginning our Phase 3 program in NIU shortly where we have data coming in namilumab and sarcoidosis and so on. We’re very much looking forward to. We’ll talk a little bit about VTAMA today, but the story for VTAMA for this year is really the expansion of the label with AD and some acceleration of psoriasis, certainly volumes and revenues are over time. And then we continue to be hard at work expanding our pipeline looking at mid-late-stage programs. I know there’s a lot of focus on that activity. We will be unveiling our much discussed so far undisclosed program just next month, so hold on for a few more weeks there. And then, continuing to work on prioritizing capital allocation we thinking aggressively around the use of capital to continue to buy back shares and so on.
We are super proud on slide 6 of the pipeline as it currently stands. And one of the things that — I’m sure sometimes you get all these questions about IMVT, but every time I look at our pipeline, we still have one of the best I&I pipelines without IMVT, so excited about the breadth of opportunities there, in particular excited about the next, call it, 18 months both in the [indiscernible], we’ll talk a lot more about today and then brepocitinib where we have pivotal data coming shortly. So, the main updates for the quarter starting on slide 8. One is on brepocitinib, which is that we’ve now completed enrollment in our Phase 3 study in dermatomyositis. It’s 241 subjects across 90 sites. It is the largest interventional DM study ever conducted.
And we can now say with confidence we expect top line data in the second half of next year that study completed enrollment a few weeks back.”
Overall ROIV ranks 3rd on our list of the best NASDAQ stocks under $50 to buy. While we acknowledge the potential of ROIV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ROIV 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 was originally published on Insider Monkey. All investment decisions should be made after consulting a qualified professional.