Raymond James' 2026 Picks: A Value Investor's Lens on Biotech

Raymond James' 2026 picks must be viewed through a value investor's prism: intrinsic value, durable advantages, and a margin of safety. The macro backdrop sets a challenging stage. The S&P 500 trades at valuations in the 98th percentile, making earnings growth the primary driver for returns. In this environment, the firm's strategy is notable. It argues that 2026 is a year where broader equities outperform, not just AI, due to economic stimulus and growing skepticism about extreme AI spending. This view is a direct challenge to the market's current concentration, suggesting opportunities exist outside the most hyped narratives.

The firm's vetting process is rigorous. Each stock pick is a strong buy rated by top analysts and then reviewed by a committee for fundamentals, growth prospects, and downside risks. This focus on downside protection is crucial when valuations are stretched. The list itself is a study in diversification, spanning delivery, fast-casual dining, and financial markets, which aligns with the view that leadership will broaden beyond AI enablers.

Take DoorDash, for instance. The stock has already risen nearly 40% in 2025, reflecting momentum. Yet Raymond James' $325 price target implies a path forward built on overcoming near-term margin headwinds from investments and the Deliveroo acquisition. The intrinsic value case hinges on future catalysts like advertising growth and autonomous delivery, which are speculative but could justify a multiple expansion if executed. The margin of safety here is thin, priced in high growth expectations.

Shake Shack presents a more classic value setup. The stock has plunged roughly 34% since the beginning of the year, trading at a material discount to its price target and the low end of its historical valuation range. This pullback creates a potential margin of safety. The fundamental thesis is about comp outperformance and margin gains from high-return unit growth, which are tangible but not guaranteed. It's a bet on operational improvement overcoming a depressed share price.

Intercontinental Exchange offers a different profile. It's a capital-light business with secular growth drivers in energy futures and a cyclical recovery in mortgage origination. The valuation appears reasonable, and the business model provides a durable advantage in a niche market. The margin of safety comes from the combination of a strong business and a price that doesn't demand perfection.

The bottom line is that Raymond James is identifying opportunities where the market's focus has been elsewhere. For a value investor, the lesson is to scrutinize these picks not for their momentum, but for the durability of their competitive advantages and the tangible buffer provided by their current prices relative to intrinsic value. In a market where valuations are historically high, that margin of safety is not a luxury-it's a necessity.

Lexeo Therapeutics: A High-Stakes Bet on Gene Therapy

Lexeo Therapeutics presents a classic high-risk, high-reward investment thesis that sits at the extreme opposite end of the spectrum from a Coca-Cola. This is not a business with a wide moat or predictable cash flow; it is a clinical-stage biotech betting its entire future on a single gene therapy program. For a value investor, the question is whether the potential future cash flows justify the current valuation, given the immense clinical and regulatory uncertainty.

The core of Lexeo's story is its lead asset, LX2006, an AAV gene therapy for Friedreich's Ataxia cardiomyopathy. The early clinical data is promising, showing reductions in a key cardiac indicator. More importantly, the FDA has signaled openness to an accelerated approval pathway, a significant regulatory tailwind. This momentum has driven analyst optimism, with Raymond James initiating coverage with a Strong Buy rating and a $25 price target, implying substantial upside. The firm's model projects LX2006 revenue to grow from $14.1 million in fiscal year 2027 to $805.3 million by fiscal year 2032. This projected revenue stream, valued at an 11x forward EV/revenue multiple and discounted at 20% annually, forms the basis for the bullish price target.

Yet this future is built on a foundation of profound risk. The company has raised significant capital-approximately $153.8 million in a recent offering-to fund its development, but it has no revenue today. The clinical path is fraught with uncertainty, as evidenced by a reported safety signal in a high-dose patient. This event, noted in the company's prospectus, introduces a tangible risk to the pivotal trial timeline and regulatory approval. The stock's beta of 1.78 underscores the volatility inherent in this bet.

Viewed through a value lens, the investment is a binary option. The current market capitalization of around $710 million prices in a successful launch of LX2000, but it leaves no margin for error. The valuation gap between today's price and the projected 2032 revenue is vast, demanding flawless execution of the clinical program, regulatory approval, and commercialization. For a value investor, this is the antithesis of a margin of safety. It is a pure bet on a single asset's success, with the potential for massive returns if the therapy works, but the near-certainty of total loss if it fails. The choice is stark: participate in the high-stakes gamble of gene therapy's next breakthrough, or stick with the reliable cash flows of a business with a wide moat. Lexeo offers no middle ground.

Phathom Pharmaceuticals: Capitalizing on a First-in-Class Advantage

Phathom Pharmaceuticals has secured a rare and valuable asset in the pharmaceutical world: a first-in-class drug with a clear, defensible position in a massive market. Its approved drug, VOQUEZNA, is the only FDA-approved potassium-competitive acid blocker (PCAB) for Non-Erosive GERD, a condition affecting an estimated 45 million U.S. adults. This isn't just another me-too therapy; it represents the first major innovation in GERD treatment in over three decades. For a value investor, this creates a potential wide moat-a proprietary advantage that can command premium pricing and capture market share from established proton-pump inhibitors (PPIs) without immediate generic competition.

The commercial opportunity is substantial. Non-Erosive GERD is the largest segment of the disease, with approximately 15 million treated annually. VOQUEZNA's recent approval for this indication removes a key barrier to adoption, allowing Phathom to target the entire U.S. GERD population. The drug's clinical profile supports this ambition, having demonstrated a significant and rapid reduction of heartburn in its pivotal trial, with patients achieving 45% heartburn-free days versus 28% on placebo. This efficacy data provides a strong foundation for physician adoption and patient switching.

Operational execution is now the critical test. The company has shown early signs of commercial traction, having beaten Q3 earnings estimates and subsequently raised its full-year revenue outlook. This beat-and-raise pattern signals management's ability to translate regulatory approval into top-line growth, a crucial skill for a commercial-stage biotech. The high level of institutional ownership, with 99.01% of the stock held by institutions, reflects sophisticated investors' confidence in this execution path.

Yet the valuation implies a perfect future. The stock trades at a significant premium to many analysts' targets, with Raymond James' $28 price target implying roughly a 92% upside from recent levels. This pricing leaves little room for missteps. The sustainability of the earnings beat will depend on Phathom's ability to convert its first-in-class advantage into durable market share against entrenched PPIs, manage commercialization costs, and navigate potential payer pressures. The high institutional ownership also means the stock is likely to be sensitive to quarterly performance.

From a value perspective, Phathom presents a high-conviction growth story priced for perfection. The company has built a narrow but potentially wide moat in a large market with a first-in-class drug. The recent earnings beat demonstrates operational capability, but the stock's valuation demands flawless execution to deliver the promised growth. For a value investor, the margin of safety here is thin; the investment hinges entirely on the successful commercialization of a single drug in a competitive therapeutic area.

Comparative Analysis: Weighing the Two Bets

The choice between Lexeo Therapeutics and Phathom Pharmaceuticals is a stark illustration of the value investor's dilemma between pure potential and proven commercial execution. One company is a clinical-stage biotech with a value proposition entirely contingent on future trial success and regulatory approval, while the other is a commercial-stage player with a growing product and a clear path to revenue. The risk/reward profiles are fundamentally different.

Lexeo's setup is a classic high-stakes bet on science. The company has no current revenue and its entire value hinges on the clinical and regulatory success of its gene therapy programs, particularly LX2006 for Friedreich's ataxia cardiomyopathy. The path is long and fraught with uncertainty, with pivotal data not expected until the first half of 2027. The market has priced in significant hope, with a market capitalization of about $755 million and a $25 price target implying roughly a 137% upside. This premium reflects the potential for blockbuster sales, with Raymond James projecting revenue to grow from $14.1 million in 2027 to over $800 million by 2032. Yet the risk is substantial, encompassing clinical trial failure, safety signals like the one noted in a high-dose patient, and the immense capital required to bring a gene therapy to market. The stock's high beta of 1.76 underscores its volatility.

Phathom, by contrast, is a company in the execution phase. It has a commercial product, Voquezna, and is demonstrating tangible business momentum, with revenue of $49.50 million for the quarter and a recent earnings beat. Its market cap is $1.04 billion, and the Raymond James $28 price target implies roughly a 92% upside. The risk here is not clinical failure, but rather the challenges of scaling a commercial operation in a large, established market. Phathom must execute on sales and marketing to capture market share from competitors, manage costs, and navigate the competitive landscape of acid-suppressing therapies. The company's lower beta of 0.43 suggests its stock is less volatile than the broader market, reflecting a more predictable, albeit less explosive, growth trajectory.

From a value perspective, the comparison is clear. Lexeo offers a speculative, binary outcome: either its gene therapy works and the stock delivers massive returns, or it fails and the value evaporates. Phathom offers a more conventional growth story with a clearer near-term path to profitability, albeit at a higher current valuation. For a value investor, the margin of safety is vastly different. Phathom's commercial revenue and positive earnings provide a tangible floor for its business. Lexeo's valuation is a pure option on future success, with no current cash flow to support it. The decision ultimately comes down to tolerance for uncertainty. One is a bet on a scientific breakthrough; the other is a bet on a company's ability to sell a product it already has.

Catalysts, Risks, and What to Watch

For a disciplined investor, the path forward for these small-cap biotechs is defined by specific, near-term milestones that will validate or challenge their growth theses. The catalysts are concrete and time-bound, offering clear inflection points for the stock.

Lexeo Therapeutics' immediate catalyst is a dual-track clinical update. The company is expected to provide initial proof-of-concept data on its second asset, LX2020, in January. This data, if positive, would demonstrate the versatility of its gene therapy platform beyond its lead program, LX2006. More critically, the stock's movement in 2026 is anticipated to be driven by the finalization of the pivotal protocol with the FDA for LX2006. A finalized protocol would signal regulatory alignment and pave the way for the registrational study, a key step toward potential accelerated approval. The company's recent capital raise of $153.8 million provides a runway to fund these critical trials, but the stock's volatility, with a beta of 1.78, means these catalysts will likely cause significant price swings.

For Phathom Pharmaceuticals, the focus is on commercial execution and clinical progress. The primary near-term watchpoint is the continued adoption of its approved drug, VOQUEZNA. The company recently reported a quarterly revenue beat, and the key will be whether this momentum translates into sustained market share gains against established therapies. Simultaneously, investors must monitor the company's execution on its Phase 3 trial for a new indication. Positive data from this trial would expand the drug's addressable market and support a higher valuation. The stock's lower beta of 0.43 suggests it may be less volatile than Lexeo, but its performance remains tied to these discrete clinical and commercial outcomes.

The risks for both companies are inherent to the small-cap biotech model. The most significant is clinical trial failure. Lexeo's LX2020 data in January is a binary event; a negative readout could severely dent investor confidence in its pipeline. For Phathom, a negative Phase 3 result would directly challenge the commercial thesis for its growth pipeline. Regulatory setbacks are another major risk. Lexeo's path to accelerated approval hinges on FDA feedback, and any divergence from the current constructive dialogue could delay the pivotal study. Both companies also face the constant pressure of capital needs, requiring them to manage cash burn while advancing expensive clinical programs. For a value investor, the key is to separate the stock's volatility from the underlying business progress, focusing on whether each catalyst moves the needle on the company's long-term value proposition.