You’ll often hear people say that bear markets are great for finding bargains, and that’s true. With the exception of energy, every major sector is in the red for the year. For its part, the iShares Biotechnology ETF (NASDAQ:IBB) is down 13% year to date. While that’s better than the S&P 500’s 17% loss, investors with speculative funds should be able to find undervalued biotech stocks to scratch that itch.

Biotech is an exciting sector. Yet, investors must be willing to accept the risks that come with companies on the cutting edge of science and healthcare. No one knows for sure whether a groundbreaking therapeutic will pass clinical muster or a clinical trial will lead to commercialization. Companies that fail are relegated to the ash heap of history. Those that succeed can produce life-changing wealth.

To add a modicum of safety to the high-risk, high-reward endeavor of finding undervalued biotech stocks, the names below offer a discount based on traditional earnings metrics or GuruFocus’ proprietary calculation for fair market value. The underlying companies also bring other attributes to the table, such as balance sheet stability or strong income-statement performance.

Undervalued Biotech Stocks: Pfizer (PFE)

Pfizer (NYSE:PFE) saw intense bullish momentum in 2021 due to its messenger-RNA-based Covid-19 vaccine. But as coronavirus fears waned, so did the company’s stock price. Shares are down 16% year to date and about 20% from their 52-week high, made late last year. However, in the trailing month, shares gained more than 4%.

At the beginning of the month, the company reported stronger-than-expected Covid-19 vaccine sales for the third quarter and raised its full-year Covid-19 vaccine sales forecast by $2 billion to $34 billion. While this is impressive, Covid-19 vaccine sales are likely to slow, and the company will also lose revenue when patents on some key drugs expire during the second half of the decade. However, management points to new deals and drugs in its pipeline that should help offset this. This includes a vaccine for respiratory syncytial virus that has been shown to be effective in preventing severe RSV infections in infants.

PFE stock is trading at 9.5 times trailing earnings, which is less than half the sector median of 22. Shares are also undervalued compared to the sector on a forward P/E basis, with PFE clocking in at just under 10 times forward earnings versus a median of 15.6 for the sector.

Pfizer enjoys a stable balance sheet marked by an Altman Z-Score of 3.77, reflecting low bankruptcy risk. Both its three-year revenue growth rate of 27.8% and net margin of 29.8% rank among the industry’s upper echelon. All in all, PFE is a solid bet.

Regeneron Pharmaceuticals (REGN)

Regeneron Pharmaceuticals (NASDAQ:REGN) is another biotech stock that surged in popularity due to Covid-19. The company’s antibody cocktail was used to treat patients in the early stages of the pandemic. However, the company has shifted its focus away from Covid-19 and toward its promising eye disease drug. 

Investors clearly support the move, as the stock is up nearly 17% year to date. Yet, shares remain undervalued based on traditional metrics. REGN is trading at 15.5 times TTM earnings and 17.5 times forward earnings. Both stats rank better than two-thirds of the industry.

To be fair, GuruFocus’ proprietary calculation considers REGN “fairly valued.” However, I would counter that by stating that the company offers investors significant bang for their buck. For instance, the three-year revenue growth rate stands at 47.3%, beating out 82% of the competition. Also, its net margin of 39.2% is above 94% of the industry.

Undervalued Biotech Stocks: Incyte (INCY)

Incyte (NASDAQ:INCY) is another one of the undervalued biotech stocks that has outperformed the market this year, rising 6%. The multinational pharmaceutical firm with headquarters in Delaware and Switzerland develops and manufactures prescription biopharmaceutical medications in multiple therapeutic areas including oncology, inflammation and autoimmunity.

Its primary drug Jakafi has been approved for the treatment of a number of ailments including polycythemia vera and myelofibrosis, with Zacks noting there has been a steady uptick in demand for the drug over the past few quarters.

Shares trade at 19.8 times TTM earnings and 17.3 times forward earnings, ranking better than 61% and 67% of the industry, respectively. GuruFocus considers Incyte “modestly undervalued” based on its proprietary calculations.

In addition, the company enjoys a stable balance sheet. In particular, investors should note its cash-to-debt ratio of nearly 71. For comparison’s sake, the industry median is only 10.2.

United Therapeutics (UTHR)

A look at United Therapeutics’ (NASDAQ:UTHR) website tells you it’s probably not your typical biotech company. According to the company, it is the “first publicly-traded biotech or pharmaceutical company to take the form of a public benefit corporation.” The firm, which focuses on lung disease and organ manufacturing, seeks to “provide our shareholders with superior financial performance and our communities with earth-sensitive energy utilization.”

While I can’t speak to the latter part of that mission, shares are up more than 25% year to date, significantly outperforming the broader market.

The stock’s trailing P/E of 19.4 and forward P/E of 14.3 are both better than the majority of its peers. Meanwhile, its Shiller P/E ratio of nearly of 24.7 compares very favorably to the industry median of 40.1.

To be fair, GuruFocus considers UTHR “modestly overvalued” per its proprietary calculations. However, investors should note United’s return on equity of nearly 17. This stat ranks better than 92% of the competition, suggesting a high-quality business. Thus, UTHR is worth consideration as one of the undervalued biotech stocks to buy.

Undervalued Biotech Stocks: Exelixis (EXEL)

Exelixis (NASDAQ:EXEL) is a genomics-based drug discovery company. It’s best known for producing Cometriq, a therapeutic for medullary thyroid cancer, which the Food and Drug Administration approved. Since the beginning of the year, EXEL is down 10%. However, it may be in the beginning stages of a comeback. Shares are up more than 10% from their 52-week low, made in mid-October.

GuruFocus considers Exelixis “significantly undervalued” based on its proprietary calculations. Traditional indicators also back this assessment. For instance, EXEL is trading at 17.3 times trailing earnings and 11 time forward earnings, beating out 64% and 78% of its peers respectively.

Furthermore, the company enjoys a solid balance sheet. In particular, its Altman Z-Score of 8.5 reflects a very low risk of bankruptcy. Therefore, EXEL is a worthy inclusion among undervalued biotech stocks to buy.

Vertex Pharmaceuticals (VRTX)

Vertex Pharmaceuticals (NASDAQ:VRTX) is a leader in treatments for cystic fibrosis. It’s done so well in this market, in fact, SeekingAlpha contributor ONeil Trader notes that sales may peak soon “because the vast majority of cystic fibrosis patients will be on a Vertex product.” ONeil Trader points to Exa-cel, for the potential treatment of sickle cell disease and transfusion-dependent beta thalassemia, as key to Vertex’s future growth.

While Vertex will likely need to bring Exa-cel or another drug in its pipeline to market to continue its growth story, investors seem pleased with the company’s cystic fibrosis dominance thus far, bidding shares up 44% year to date.

At first glance, Vertex might not appear to be a natural candidate for a list of undervalued biotech stocks to buy. Per GuruFocus’ proprietary calculation, VRTX ranks as “fairly valued.” And its trailing and forward P/E ratios are only slightly below the industry medians. However, the company’s price-to-earnings-growth ratio is just 0.2. In contrast, the sector’s median PEG ratio is 1.4 times.

In addition, Vertex has a stable balance sheet. In particular, its Altman Z-Score of 15.7 reflects an extremely low bankruptcy risk. Additionally, the company’s debt-to-equity ratio of 0.06 compares favorably to the industry median of 0.13.

Undervalued Biotech Stocks: Enzon Pharmaceuticals (ENZN)

For those who really want to dial up the risk-reward factor in their undervalued biotech stocks, consider Enzon Pharmaceuticals (OTCMKTS:ENZN). According to the company’s website, it is a “public company acquisition vehicle, where it can become an acquisition platform and more fully utilize its net operating loss carryforwards and enhance stockholder value.” In other words, it receives royalties for marketing other companies’ drugs, including PegIntron for Hepatitis C.

Despite falling 19% in 2022, GuruFocus considers this penny stock to be “significantly overvalued.” That’s the bad news. The good news is that ENZN features a Shiller P/E ratio of 1.35 times, better than 97% of the industry. Also, the company’s price-to-projected free cash flow pings at 0.35, also better than 97% of its peers.

What’s arguably most attractive about Enzon, though, centers on its balance sheet. The company has no debt, affording it incredible flexibility during these choppy waters. As well, Enzon enjoys a meteoric Altman Z-Score of 27.81, reflecting extremely low bankruptcy risk. It’s a gamble, to be sure, but perhaps one that’s worth taking.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.