2 Beaten-Down Stocks That Could Be About to Rally

What's better than investing in a stock with a promising outlook? Investing in a beaten-down stock with a promising outlook. Scooping up shares of great companies after they have experienced setbacks but before they make a strong comeback is a great way to earn above-average market returns over the long run.

And investors looking for corporations that fit the bill should strongly consider Novo Nordisk (NYSE: NVO) and Regeneron Pharmaceuticals (NASDAQ: REGN). Here's why these two drugmakers could be about to go on a run.

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1. Novo Nordisk

Novo Nordisk has several catalysts that could help the company bounce back from its poor performance over the past 18 months. First, the Denmark-based drugmaker has some candidates in late-stage studies that are likely nearing regulatory submissions. The most important here might be CagriSema, a medicine that mimics the action of two hormones: GLP-1 and amylin. It showed improved efficacy compared to Novo Nordisk's famous semaglutide in phase 3 studies, though it fell a bit short of market expectations.

Still, this newer medicine should generate $15.2 billion in annual sales by 2030, according to some projections. Progress with that program will be a welcome sight for investors.

Second, Novo Nordisk could launch an oral semaglutide formulation for weight management, pending approval. This new version will help the company's dwindling competitive position, at least compared to its main rival, Eli Lilly. Oral semaglutide should be cheaper (pills are easier to manufacture) and will increase access, especially for cash-paying customers.

That will allow Novo Nordisk to compete with online pharmacies that offer compounded versions of its GLP-1 medicines -- competition that has eroded sales and margins for the drugmaker. That's why oral semaglutide in weight management could be a big deal. And there are a couple of label expansions that Novo Nordisk recently earned for existing products, which will start making material impacts on its financial results.

Novo Nordisk's revenue and earnings growth remain stronger than most of its similarly sized peers. Together with the upcoming catalysts, it could help kick-start a sustained rally for the stock, especially considering valuation.

NVO PE Ratio (Forward) data by YCharts

Now is as good a time as any to invest in the company, seeing as the stock is about as cheap as it has been in two years.

2. Regeneron Pharmaceuticals

Regeneron has been dealing with biosimilar competition for Eylea, a medicine for wet age-related macular degeneration. However, despite this headwind, the company has maintained decent financial results.

Third-quarter revenue grew 1% year over year to $3.75 billion. The company's non-GAAP (generally accepted accounting principles) earnings per share declined 5% year over year to $11.83, but that was due to a $0.68 hit from acquisition-related expenses. In other words, it's nothing to worry about. Overall, Regeneron's results were well ahead of analyst estimates.

In fact, they were so strong that the stock soared by about 10% after the earnings announcement. Could that be the start of a strong run for the biotech? Maybe, especially considering other potential catalysts. Regeneron's newer formulation of Eylea is still under patent protection, still growing its sales, and is looking at label expansions that could help provide another boost to the company's revenue.

Regeneron's other growth driver, Dupixent, continues to record strong sales growth. The company shares the rights to Dupixent with Sanofi. It hasn't been that long since Dupixent earned a major label expansion in treating COPD, an indication analysts believe would add a few billion dollars in annual revenue. And Dupixent's core eczema market is still driving solid revenue growth.

The company is also making significant clinical and regulatory progress. In July, it earned approval for Lynozyfic, a brand-new cancer therapy, and has provided updates on some late-stage candidates that could earn approval in the next few years. These will help it move beyond the problems related to the older version of Eylea.

Overall, the company's financial results look set to improve significantly as it continues to rebound from recent poor performances.

Prosper Junior Bakiny has positions in Novo Nordisk. The Motley Fool has positions in and recommends Regeneron Pharmaceuticals. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.