2 Stocks Down 17% and 21% to Buy Right Now

One way to earn above-average market returns -- which isn't always easy -- is to invest in companies that have lagged the market but are likely to recover over the long run. As the basic investing maxim goes, "Buy low, sell high."

That brings us to DexCom (NASDAQ: DXCM) and Regeneron Pharmaceuticals (NASDAQ: REGN), two healthcare leaders whose shares are down by 17% and 21% this year, respectively. Both have encountered company-specific issues, but despite the roadblocks, they appear to be attractive long-term bets. Here is why.

Image source: Getty Images.

1. DexCom

DexCom, a medical device specialist, develops continuous glucose monitoring (CGM) systems, devices that patients with diabetes use to track their blood sugar levels. The company encountered some headwinds last year as it reported worse-than-expected financial results. DexCom's U.S. rollout of its latest CGM device, the G7, came with faster rebate eligibility than it expected, leading to less revenue for the company.

And this year, DexCom is feeling the pressure from the threat of tariffs. That said, the stock remains a solid long-term pick for several reasons. First, DexCom's financial results have rebounded this year. In the second quarter, the company's revenue jumped by 15% year over year to $1.2 billion, while its non-GAAP (adjusted) net earnings per share came in at $0.48, 11.6% higher than the year-ago period. The rebate issue was largely a temporary one.

Second, DexCom still has significant growth prospects in a CGM market where it has established itself as one of the undisputed leaders, thanks to its devices being among the best. As CGM becomes more closely linked to better health outcomes for diabetes patients, more people are willing to use these devices, and third-party payers are increasingly willing to cover them for a wider pool of patients.

In the U.S., one of the more penetrated CGM markets, DexCom estimates that there are more than 4.5 million patients on insulin -- its primary target market -- who are eligible for coverage but have yet to opt for CGM.

Having launched Stelo in the U.S. last year as an over-the-counter CGM option for non-insulin patients (including those with pre-diabetes), the company sees even larger opportunities there. Third, DexCom has built a network effect due to having a large installed base and many third-party devices (insulin pumps, pens, etc.) integrated with its devices. Lastly, DexCom can manage the threat of tariffs with a multipronged approach.

The company arguably does have some pricing power (CGM devices are incredibly valuable for insulin patients and DexCom's are among the most effective), and with nearly three million customers worldwide, even a modest increase could be meaningful. It can also move its manufacturing around, among other options. So, tariffs shouldn't be a death sentence for the company.

Given its excellent prospects in the underpenetrated CGM market and its moat, DexCom looks like a buy right now.

2. Regeneron Pharmaceuticals

Regeneron, a biotech giant, dealt with a major patent expiration last year and is seeing declining sales for one of its former growth drivers, wet age-related macular degeneration treatment, Eylea.

However, the drugmaker is slowly getting past this problem. In the second quarter, revenue increased slightly, by 4% year over year, to $3.68 billion. The company's eczema treatment, Dupixent, and a newer formulation of Eylea, which is still under patent protection, are picking up the slack.

Further, Regeneron is expanding its lineup thanks to new approvals. In July, it announced that the U.S. Food and Drug Administration had given the green light to Lynozyfic, a medicine for multiple myeloma.

Regeneron has attractive programs across every stage of clinical development. In August, Regeneron announced positive phase 3 results for cemdisiran in treating generalized myasthenia gravis, a disease that can cause muscle weakness. Regeneron plans to seek approval for this therapy next year.

Meanwhile, the company's phase 2 candidates for weight management are progressing well. Although current anti-obesity drugs are highly effective, they have several drawbacks, including the fact that people who use them lose quite a bit of muscle. Regeneron is developing trevogrumab to help change that. The medicine, in combination with GLP-1 drugs, can help maintain muscle mass even as patients lose weight. Trevogrumab performed well in phase 2 studies.

Regeneron's gene therapy for deafness has also made progress, as it reported at the beginning of the year. Despite its current issues with Eylea, Regeneron has returned to top-line growth, enhanced its lineup with a new approval, and is expected to launch at least a couple more brand-new products in the next few years. So, the stock is well on its way to a rebound, making it an attractive pick at current levels.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Regeneron Pharmaceuticals. The Motley Fool recommends DexCom and recommends the following options: long January 2027 $65 calls on DexCom and short January 2027 $75 calls on DexCom. The Motley Fool has a disclosure policy.