Which stocks tend to polarize market watchers? Penny stocks. Out on Wall Street, investors have strong opinions when it comes to these divisive tickers, which trade for less than $5 per share.
The penny stock critics make valid points when defending their stance. Sure, the price tag may look like a steal, but the fact that shares are trading at such low levels could reflect overwhelming headwinds or weak fundamentals.
That being said, the fans offer up a solid argument as well. Not only does the low price mean you get more shares for your money, but hefty returns are also on the table. Even seemingly insignificant share price appreciation can result in colossal percentage gains that other more well-known or expensive names aren’t as likely to deliver.
The nature of these investments presents somewhat of a dilemma. How are investors supposed to separate the penny stocks that are ready to take off on an upward trajectory from those set to remain down in the dumps?
To help with the due diligence process, we used TipRanks’ database to zero in on only the penny stocks that have received bullish support from the analyst community. We found three inhabiting the healthcare sector that are backed by enough analysts to earn a “Strong Buy” consensus rating. Not to mention each offers outsized upside potential.
Clearside Biomedical (CLSD)
Using its patented SCS Microinjector that targets the suprachoroidal space (SCS), Clearside Biomedical develops treatments that could potentially be capable of restoring and preserving vision for people with serious back of the eye diseases. Given the strength of its platform and its $1.91 share price, several members of the Street believe that now is the time to pull the trigger.
Representing Roth Capital, analyst Zegbeh Jallah cites its technology as a key component of his bullish thesis, calling the platform “undervalued.” The microinjector is able to inject fluid into the SCS, which is between the choroid and sclera, so it can be effectively absorbed by adjacent tissues. This is important as it reduces off-target delivery.
To provide evidence of the device’s efficacy, Jallah points to the clinical data from the pivotal studies evaluating XIPERE, its first drug using the microinjector. “The potential of Clearside’s proprietary SCS microinjector to limit off-target delivery was evident by the lower rates of elevated IOP in patients treated with SC-injected triamcinolone due to lower concentrations of the drug flowing into the anterior chamber,” the analyst commented.
According to Jallah, this makes it very likely that the therapy will get the FDA’s stamp of approval in mid-2021 after the company resubmits the NDA by year end 2020. It should be noted that XIPERE is currently licensed to Bausch and Artic Vision, with CLSD also finalizing a licensing agreement with Aura in July 2019 and REGENXBIO in August 2019. The analyst argues these agreements “highlight the attractiveness of Clearside’s SCS microinjector.”
Looking specifically at the REGENXBIO partnership, Jallah stated, “Despite some loss of that momentum due to the pandemic and the announced pushback of XIPERE’s NDA resubmission date, we are bullish that promising data from the planned Phase 2 study by REGENXBIO, and Clearside’s planned Phase 1 study of suprachoroidal delivery of axitinib (CLS-AX) for wet AMD, which could provide significant upside to Clearside’s valuation, and make it a strong M&A target.”
To this end, Jallah rates CLSD a Buy, while setting an $8 price target. This target suggests shares could soar 319% in the next year. (To watch Jallah’s track record, click here)
Do other analysts agree with Jallah? As it turns out, most do. 3 Buy ratings and a single Hold add up to a Strong Buy analyst consensus. At $6.33, the average price target indicates 231% upside potential. (See Clearside stock analysis on TipRanks)
Proteostasis Therapeutics (PTI)
Proteostasis Therapeutics is developing CFTR modulator combinations to provide more drug options for people with cystic fibrosis (CF). As the company gears up for the release of clinical data in Q1 2021, some analysts believe that at $1.38 per share, its price tag reflects an attractive entry point.
Writing for Cantor, analyst Kristen Kluska tells clients that PTI completed enrollment and collected rectal biopsies for the CHOICES study, which features patients with ultra-rare cystic fibrosis mutations, before COVID-19 started causing delays. Currently, samples are being stored in liquid nitrogen until the company can conduct the ex vivo testing, which may take a few weeks, and the organoids are being tested in four labs in Europe.
Kluska noted, “Proteostasis is in weekly engagement with centers, and notes that timelines remain on track at this time… From our calculation, we think these timelines assume that labs will be able to re-open and complete the analysis by or around August.”
Additionally, Kluska points out that data in Q1 2021 may include ppFEV1, sweat chloride and safety measures. Expounding on the implications of the data readout, she said, “We think this will be a major catalyst for PTI considering results could help frame whether these assays are predictive in determining who best responds to PTI drugs (which could ultimately frame the basis for utilizing the personalized medicine approach across the MORE trial, which patients, physicians and regulators have encouraged).”
The readout will also represent the first look at the triplet data beyond 28 days, which unlike the doublet, kept demonstrating an increased benefit in ppFEV1. “We think a trial double in length of eight weeks will provide more context on the amplifier’s potential. Additionally, we believe there is a lower bar for efficacy for the ultra-rate mutation population (as patients are ineligible for all approved modulators), and results could help explain how many patients show some level of benefit,” Kluska stated.
With its $57.1 million in cash expected to support the company’s operations into 2H21, the deal is sealed for Kluska. In line with her optimistic take, she reiterated an Overweight rating and $4 price target. Should the target be met, a twelve-month gain of 190% could be in store. (To watch Kluska’s track record, click here)
Looking at the consensus breakdown, other analysts are on the same page. With 4 Buys and no Holds or Sells, the word on the Street is that PTI is a Strong Buy. The $5.50 average price target puts the upside potential at 299%. (See Proteostasis stock analysis on TipRanks)
Exicure, Inc. (XCUR)
Exicure develops a new class of immunomodulatory and gene regulating drugs that feature its spherical nucleic acid (SNA) architecture designed to unlock the potential of therapeutic oligonucleotides in a range of cells and tissues. Currently going for $2.72 apiece, the pros on the Street think that the share price presents investors with a unique buying opportunity.
Part of the excitement surrounding XCUR is related to its Phase 2 dose expansion evaluating AST-008 in patients with advanced or metastatic Merkel cell carcinoma (MCC) or cutaneous squamous cell carcinoma (CSCC) who have progressed on a single-agent checkpoint therapy. The therapy will be used in combination with pembrolizumab in MCC or cemiplimab for CSCC. With trial sites already open and enrollment kicking off during Q2 2020, focus has locked in on XCUR ahead of its presentation of updated PD and safety data on AST-008 alone and in combination with pembrolizumab at the AACR meeting on June 22-24.
Among the bulls is Ladenburg analyst Wangzhi Li. He tells clients the good news extends beyond AST-008’s Phase 2 trial. IND-enabling studies of XCUR-FXN in Friedreich’s Ataxia (FA), a rare autosomal recessive disorder that causes neural degeneration, especially affecting neural-muscular control, are expected to begin this calendar year. Given that there’s an estimated 5,000 patients in the U.S. and 15,000 patients worldwide suffering from FA and there aren’t any FDA-approved treatments, Li argues the therapy’s potential is significant.
“We see FA as an attractive indication for SNA, given SNA’s broad and extended distribution in brain and spine shown in prior studies. Exicure is also exploring additional neurological conditions, including spinocerebellar ataxia, Batten disease, amyotrophic lateral sclerosis (ALS) and Huntington’s disease,” Li explained. He also points out that XCUR will partner with Friedreich’s Ataxia Research Alliance (FARA) to advance the program.
If that wasn’t enough, XCUR is collaborating with Allergan on an SNA treatment from two programs for hair loss disorders. As per the terms of the deal, XCUR will screen and identify SNA candidates against selected targets for treating hair loss, and Allergan will pay XCUR $25 million upfront, up to $725 million in milestones and mid-single digit to mid-teens royalties. In addition, preclinical R&D activities for XCUR’s collaboration with Dermelix for Netherton Syndrome (NS) are progressing right on track.
Based on all of the above, it’s no wonder Li reiterated his Buy recommendation. With an $18 price target, shares could climb 562% higher in the next twelve months. (To watch Li’s track record, click here)
Like Li, other analysts also take a bullish approach. XCUR’s Strong Buy consensus rating breaks down into 4 Buys and zero Holds or Sells. Given the $10 average price target, the upside potential lands at 268%. (See Exicure stock analysis on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.