As fears of a tech bubble and stretched valuations become the talk of the town, investors are turning to Wall Street titans for guidance, namely Ken Griffin. Founding hedge fund Citadel in 1990, the firm now boasts over $35 billion worth of assets under management.
As a 19-year-old sophomore at Harvard University, Griffin began trading from his dorm room with a fax machine, computer and phone. Now, the CEO of Citadel, whose net worth stands at $15.5 billion, is known as one of the Wall Street greats. Looking at the fund’s performance during the COVID crisis, it’s even more clear why Griffin has legendary status.
Unlike the average hedge fund, which had a negative return of between 3-4% in the first half of 2020, Citadel’s flagship Wellington fund saw its returns land between 13-14% for the same period.
Bearing this in mind, we wanted to take a closer look at three stocks Citadel snapped up recently. Using TipRanks’ database, we found out that each ticker has earned a “Strong Buy” consensus rating from the analyst community. Not to mention all three of them boast massive upside potential.
AVEO Pharmaceuticals (AVEO)
Hoping to provide better outcomes for patients, AVEO Pharmaceuticals advances targeted medicines for oncology and other unmet medical needs. Following an important regulatory milestone, it’s no wonder all eyes are on this healthcare name.
Griffin is among those singing AVEO’s praises. Increasing its holding by a whopping 2,357%, Citadel bought up 383,720 shares in Q2. With the total position now landing at 400,003 shares, it is valued at $1,824,013.
H.C. Wainwright analyst Swayampakula Ramakanth reminds investors that on June 1, the FDA accepted the NDA for tivozanib, the company’s lead candidate, for review, based on the fact that the TIVO-3 study reported positive final overall survival (OS) data. In the study, AVEO’s therapy was compared to sorafenib, marketed as Nexavar by Bayer, for the treatment of advanced renal cell carcinoma (RCC) in the third and fourth-line settings.
Looking more closely at the data, which was presented at the ASCO 2020 virtual meeting, the final OS analysis resulted in an overall hazard ratio (HR) of 0.97, which favored tivozanib. Ramakanth was “encouraged” by the OS results as they “suggest tivozanib at least has a similar overall relative risk of deaths compared to sorafenib.”
“Considering that TIVO-3 study met both the primary endpoint of progression free survival (PFS) and the secondary endpoint of overall response rate (ORR), with comparable OS to the active comparator, we believe tivozanib would likely get a green light for the U.S. approval, which could be a major catalyst in the next 12 months,” Ramakanth opined.
Adding to the good news, the dose escalation for the Phase 1b/2 DEDUCTIVE study, evaluating tivozanib in combination with durvalumab, a monoclonal antibody against PD-L1 marketed as Imfinzi by AstraZeneca in hepatocellular carcinoma (HCC), has been wrapped up, with it progressing to Phase 2. As the CDC estimates about 33,000 patients suffer from liver cancer every year in the U.S., Ramakanth sees an additional opportunity.
To this end, Ramakanth rates AVEO a Buy rating along with a $12 price target. Should his thesis play out, a potential twelve-month gain of 163% could be in the cards. (To watch Ramakanth’s track record, click here)
Other analysts don’t beg to differ. 3 Buy ratings and no Holds or Sells have been assigned in the last three months. So, the word on the Street is that AVEO is a Strong Buy. The $15 average price target is more aggressive than Ramakanth’s and implies 229% upside potential. (See AVEO stock analysis on TipRanks)
IDEAYA Biosciences (IDYA)
Next up we have IDEAYA Biosciences, an oncology-focused precision medicine company that develops targeted therapeutics by using molecular diagnostics. Based on the strength of its technology, this name has scored several fans.
Reflecting a new position for Griffin’s Citadel, the fund pulled the trigger on 248,005 shares in Q2. As for the value of this holding, it comes in at $2,881,818.
Writing for Northland Capital, analyst Tim Chiang believes shares are “undervalued based on the future potential of its precision medicine oncology pipeline, which targets specific biomarkers.” Expounding on this, he stated, “IDEAYA is applying its capabilities across multiple classes of precision medicine, including direct targeting of oncogenic pathways and synthetic lethality – which represents an emerging class of precision medicine targets.”
Part of what makes IDYA a stand-out, in Chiang’s opinion, is the fact that its preclinical programs use its synthetic lethality (SL) platform, which targets tumors with MTAP gene deletion and homologous recombination deficiency (HRD) including BRCA mutations.
“We believe the longer-term upside potential with IDYA shares is significant given the potential utility of SL. The first clinically validated SL gene pair was PARP-BRCA1/2, and based on the efficacy of PARP inhibitors, the SL approach to treating cancer has achieved substantial commercial validation,” the analyst explained.
To back this up, Chiang points out that several PARP inhibitors have already been approved for the treatment of tumors with BRCA and other DNA damage repair alterations, including ovarian, breast and pancreatic cancers. These inhibitors include AstraZeneca’s olaparib, GlaxoSmithKline’s niraparib, Pfizer’s talazoparib and Clovis’ rucaparib. He added, “We estimate these four drugs generated over $1.6 billion in worldwide sales in 2019 and are expected to reach over $6 billion in sales by 2024.”
It should be noted that multiple IND filings are set to come within the next 4-12 months, with IDYA’s lead SL candidate, IDE397, which was designed to inhibit MTAP and MAT2A and thus cause the death of cancerous tumor cells, entering the clinic in 2021.
It should come as no surprise, then, that Chiang joined the bulls. To start off his IDYA coverage, he puts an Outperform rating and $28 price target on the stock. This target implies a possible twelve-month rise of 141% could be on the horizon. (To watch Chiang’s track record, click here)
Similarly, the rest of the Street is getting onboard. 5 Buy ratings assigned in the last three months add up to a Strong Buy analyst consensus. In addition, the $25.20 average price target puts the potential twelve-month gain at 116%. (See IDYA stock analysis on TipRanks)
Ocular Therapeutix (OCUL)
Using its patented bioresorbable hydrogel-based formulation technology, Ocular Therapeutix develops cutting-edge therapies for diseases and conditions of the eye. The progress of its clinical programs has caught Wall Street’s attention, with some arguing that now is the time to get in on the action.
Griffin and Citadel didn’t want to miss out on an opportunity. Snapping up 161,032 shares during Q2, the hedge fund gave the holding a 272% boost. The total position is now comprised of 220,269 shares and is valued at $1,718,098.
Representing Raymond James, 5-star analyst Dane Leone cites the potential to address the unmet needs in the dry eye disease indication as a key component of his bullish thesis. The company boasts two assets targeting the condition, OTX-CSI (chronic) and OTX-DED (acute). OTX-CSI incorporates the FDA-approved immunomodulator cyclosporine as the active drug in the intracanalicular insert, which is released for an estimated three months to increase tear production.
When it comes to OTX-DED, Leone argues OCUL was “clever in pursuing the development of OTX-DED (a low dose form of DEXTENZA, a corticosteroid intracanalicular insert placed in the punctum, a natural opening in the eye lid, and into the canaliculus to deliver dexamethasone to the ocular surface for up to 30 days without preservatives) for the treatment of episodic dry eye, as the prior safety data from the DEXTENZA approval enabled management to file a Phase 2-enabling IND by YE20.”
Speaking to the possible opportunity here, both products could “provide revenue generation for physicians in the treatment of dry eyes using procedure CPT code 0356T, which could provide incentive for rapid adoption in the dry eye space that is currently valued at $5.1 billion,” in Leone’s opinion.
As for the clinical and regulatory pathway, the Phase 2 trial for OTX-DED is set to kick off in 2H21, slightly after OTX-CSI, which will see a Phase 2 clinical trial evaluating two different formulations initiated by 4Q20. Based on the short treatment duration of OTX-DED, management thinks it will still be brought to market first.
To this end, Leone remains optimistic about the company’s long-term growth narrative. As a result, he rates OCUL a Strong Buy along with a $15 price target. This figure implies shares could rise 89% in the year ahead. (To watch Leone’s track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. With 100% Street support, or 3 Buy ratings to be exact, the consensus is unanimous: OCUL is a Strong Buy. The $13.50 average price target brings the upside potential to 70%. (See OCUL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.