We recently compiled a list of the 10 Most Promising Mid-Cap Stocks According to Hedge Funds. In this article, we are going to take a look at where Roivant Sciences Ltd. (NASDAQ:ROIV) stands against the other promising mid-cap stocks.
The S&P 500 May Hit 6,000 in 2024
September closed on a high note, opening a wealth of opportunities for investors. On October 1, Jay Woods, Freedom Capital Markets Chief Global Strategist, appeared in an interview on Yahoo Finance to discuss his predictions for the market.
Woods shares his anticipation for the elections and that the market will take its due course once the elections are over. He believes the technology sector is poised to strengthen as the market rotates from sector to sector. Nvidia, Apple, and Microsoft are currently 15%, 5%, and 8% off their highs and a strong tailwind may be in store for us.
September was stronger than expected and 19 out of 21 times the market hit a high during the month in the past, the market has gone way higher in the following months, or the fourth quarter. Woods reiterated that the setup for a strong comeback is there, especially with elections, and that rotational trade will continue.
Speaking of employment data, Woods suggests that the market has particularly been overreacting to data points and that anything jittery will adversely impact investor confidence. He predicts the unemployment rate to sit at 4.2% and hints that a percentage higher than this will lead to more discussions on bigger rate cuts. He advises that investors need to start blocking out some of these headlines and focus on how stocks have performed in the third quarter of 2024.
The Job Market is Extremely Crucial
On September 30, Matt Stucky, Northwestern Mutual Wealth Management’s chief portfolio manager for equities, appeared in an interview on Yahoo Finance to discuss his market thesis.
According to Stucky, the job market is extremely crucial and investors must focus on that. Since the beginning of 2024, employment data has been consistently declining to the point it may hint at a weakening economy.
On the flip side, the third quarter stood out. The third quarter of 2024 saw the market broaden to sectors other than tech. Five out of seven sectors on the S&P 500 experienced tremendous earnings growth, compared to only two in the second quarter of the same year.
As the market broadens, he expects the market to post earnings growth between 9% to 10% this year and 14% to 15% for the next year. Stucky’s expectations are rather optimistic and believes the economy will head to a soft landing. He also expects the average investor to be more inclined to stocks that have consistent high margin growth in 2025 and ahead. For this year, however, Stucky believes that the defensive sector, especially utilities, remained the strongest.
While the financial markets may remain uncertain, investors may look for cheaper and less-risky investments. That said, let’s look at some of the most promising mid-cap stocks according to hedge funds.
Our Methodology
To find the most promising mid-cap stocks according to hedge funds, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of 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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A research scientist in a lab coat examining a sample of blood for sickle cell diseases.
Roivant Sciences Ltd. (NASDAQ:ROIV)
Number of Hedge Fund Holders: 62
Market Capitalization as of October 10, 2024: $8.51 Billion
Roivant Sciences Ltd. (NASDAQ:ROIV) ranks first on our list of the most promising mid-cap stocks according to hedge funds. The commercial biotechnology company is engaged in drug development using technology. Some of its subsidiaries include Immunovant, Dermavant Sciences, Priovant Therapeutics, and Lokavant Inc., to name a few.
The past quarter has been quite a feat for the company. In the fiscal first quarter of 2024, Roivant Sciences (NASDAQ:ROIV) announced the completion of enrollment in a trial for its drug, batoclimb. Moreover, in June, the company completed the end of its phase 2 meeting with the FDA and shared plans to commence phase 3 trials for its popular drug, brepocitnib. VTAMA, its novel drug approved for the treatment of psoriasis, brought in revenue worth $18.4 million during FQ1 2024.
Since 2019, the company has executed 10 positive phase 3 trials. By March 2025, Immunovant, its subsidiary, is set to have registered 4-5 indications and/or programs and 10 by March 2026. To align with this goal, the subsidiary is expected to have registered at least 3 programs by the end of 2024.
Overall, Roivant Sciences Ltd. (NASDAQ:ROIV) spent $133.2 million on research and development during the quarter, up by $8.1 million from FQ1 2023. The company’s expansion strategy lies in establishing nimble subsidiaries to commercialize its drugs and technologies. One can say its strategy is working out fine, explaining why 62 hedge funds were bullish on the stock. In addition to that, analysts’ price target of $17 points to an upside of 48% from current levels, as of October 10, 2024.
Tourlite Capital Management made the following regarding Roivant Sciences Ltd. (NASDAQ:ROIV) in its fourth quarter 2023 investor letter:
“During the fourth quarter, the fund initiated a significant position in Roivant Sciences Ltd. (NASDAQ:ROIV), a biotech company specializing in consolidating promising drug patents, known as ‘vants’. Our thesis is based on the following framework:
Cash value: ROIV’s strategic acquisition of Televant (85% ownership) from Pfizer for $45 million in December 2022, followed by the sale of this asset to Roche for $5.2 billion in Q4 2024, showcases management’s ability for value creation Adjusting for the sale proceeds, Roivant has a net cash position of ~$8 per share…” (Click here to read the full text)
Overall ROIV ranks 1st among the most promising mid-cap stocks according to hedge funds. While we acknowledge the potential of ROIV 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 time frame. 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 is originally published at Insider Monkey.