David Sterman

If you want to invest in health care, then wait 'til next year. That's what investors are saying after seeing their stakes in seemingly robust health care stocks fall from grace this year. But as the calendar turns over, I see three stocks in particular that have caught my eye as potential major rebounders. Each of these stocks has at least 50% upside if a few headwinds turn into tailwinds, regardless of how the broader economy fares. Here they are...

1.  Intermune (Nasdaq: ITMN)
When pursuing up-and-coming biotech stocks, it pays to focus on companies that have significant market opportunities. InterMune, which is targeting the idiopathic pulmonary fibrosis (IPF) market with its Esbriet drug, could well be looking at billion-dollar sales levels one day. To be sure, such a milestone is still several years away.

Esbriet has received European regulatory approval (which helped propel its stock to $35 late last year), but initial sales have been slow to build. Quarterly revenue remains below $10 million and is unlikely to top this mark before next spring. The slow ramp and concerns about Esbriet's efficacy have pushed shares down into the mid-$20s. Yet analysts say InterMune could build a real head of steam, ending 2012 with a $400 million annualized revenue run rate.

First, those efficacy concerns are starting to abate. At a medical conference in September, InterMune released fresh test data that show a measurable improvement in patient outcomes. After attending the conference, Brean Murray's Brian Skorney concluded a rising number of physicians intend to use Esbriet with their patients. "Shares remain substantially undervalued for a commercial organization with the first approved therapy for IPF and believe launch metrics will justify an upside move in the next 12 months," he said. Skorney sees shares rising to $50, nearly double the current price.

U.S. regulators haven't yet approved Esbriet, though recently-released safety data has sharply boosted chances of eventual approval. Any such announcement could quickly propel shares up toward Skorney 's target price.


David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com
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