Dark clouds are looming over Wall Street, and the storm only appears to be intensifying. The market was dealt another blow on Wednesday April 15, with all three of the major U.S. stock indexes sliding on grim economic data and disappointing earnings reports from banks.
According to a Commerce Department report, March saw retail sales fall sharply, 8.7% to be exact. This marked the largest one-month drop since 1992, when the department began tracking the metric. Manufacturing in the New York area also declined by its largest margin ever, reaching a historic low to exceed levels witnessed during the Great Depression. Add in lackluster first quarter figures from Bank of America and Citigroup, and you have a recipe for heightened investor concern.
Sure, the economic landscape appears gloomy, but if you look carefully, there’s a bright spot. COVID-19’s worldwide rampage has slashed the price tags of some compelling names, providing attractive entry points.
As a result, risk-tolerant investors have penny stocks on the mind. At under $5 per share, you get more bang for your buck and even minor share price appreciation can reflect huge percentage gains. However, due diligence is important here as Wall Street pros remind investors the bargain price could be a sign that a particular name faces overwhelming headwinds.
Bearing this in mind, we used TipRanks’ database to pinpoint three Buy-rated penny stocks that have earned a thumbs up from members of the analyst community. Not to mention each boasts substantial upside potential of over 50%.
AcelRx Pharmaceuticals (ACRX)
AcelRx’s unique approach involves using a single-strength tablet in a distinct dosing unit to deliver drugs, which are designed to avoid the types of medication errors associated with injectable opioids. Shares have surged 53% in just the last month, but at $1.29 apiece, several analysts believe this stock is still undervalued.
Writing for H.C. Wainwright, five-star analyst Ed Arce cites its Tetraphase Pharmaceuticals acquisition as a major positive. He argues that the deal could help ACRX establish a hospital-based commercial drug portfolio as Tetraphase’s only commercially available product, XERAVA, achieved Q4 sales of $1.5 million. As this result reflects a 49% sequential gain, Arce thinks “the drug is on a sustainable growth trajectory.”
Arce doesn’t dispute the fact that there’s some concern surrounding Tetraphase’s financing risk and that its modest revenue and significant cost basis could signal a long path to profitability. “However, by combining DSUVIA and XERAVA net product sales under one streamlined cost structure, we believe the combined company may realize both revenue synergies (access to more areas across the hospital to promote both products) as well as more obvious cost synergies by removing duplication across operations, especially in sales and marketing,” he commented.
Arce added, “Further, in addition to the acquisition which is expected to close in 2Q20 (see financial details below), the companies have agreed to enter a co-promotion arrangement effective immediately. As such, the companies plan to eliminate about 40 sales positions immediately (roughly half from each company), which provides an immediate cost savings of $8 million annually, before additional efficiency benefits from the acquisition itself.”
To this end, Arce stayed with the bulls, reiterating a Buy recommendation. That being said, he did trim the price target from $9 to $7, but this still leaves room for 443% upside potential. (To watch Arce’s track record, click here)
All in all, the rest of the Street is on the same page. Receiving 3 Buys and 1 Hold over the last three months, ACRX earns a Strong Buy consensus rating. At $1.29, the average price target implies shares could soar 381% in the next twelve months. (See AcelRx stock analysis on TipRanks).
OPKO Health, Inc. (OPK)
Hoping to address the unmet needs of patients, OPKO Health has developed innovative products, comprehensive diagnostics laboratories, a robust research and development pipeline and unique pharmaceutical business solutions to achieve this goal. With a price tag of $1.63 per share, analysts believe that now is the time to pull the trigger.
Part of the excitement surrounding this healthcare name is related to the interim results of two clinical studies for its Rayaldee therapy. On March 25, OPK published data from a Phase 4 clinical trial evaluating Rayaldee compared to three other treatment regimens for secondary hyperparathyroidism (SHPT) in adult patients with stage 3 or 4 chronic kidney disease (CKD) and vitamin D insufficiency and a Phase 2 clinical trial of Rayaldee for SHPT in adult patients with stage 5 CKD who need hemodialysis and have vitamin D insufficiency.
The Phase 4 trial results were encouraging as they showed that at the given dose, the therapy could increase serum total 25-hydroxyvitamin D to the level required to effectively suppress elevated plasma intact parathyroid hormone (iPTH) in CKD patients. Not to mention the drug showed a robust safety profile.
As for the Phase 2 trial, Laidlaw analyst Yale Jen noted, “The results so far achieved its initial goal of: 1) this level of drug is tolerable; 2) calcifediol, the active ingredient in Rayaldee can be activated in patients with absence of kidney function; and 3) SHPT can be treated in ESRD patients with this medication (>30% response rate).”
The outcome is especially promising as it opens the door for Rayaldee’s use in end-stage renal disease (ESRD). “We are encouraged by the activation of calcifediol in ESRD patients possibly due to elevated activities of ex-renal enzyme as renal enzyme no longer functions. This could be an important discovery that might change the dogma of conventional understanding. The preliminary interim results of the Phase 2 in ESRD patients bode well, in our opinion, for the future second part of the Phase II study (n=300) given some of the key potential hurdles might have been removed,” Jen explained.
Even though the company will need to discuss the Phase 2 data with the FDA and progress through the second part of the study before it can initiate pivotal trials in 2021 or 2022, Jen sees big things in store for OPK.
As a result, the analyst left a Buy rating and $6 price target on this penny stock. Should the target be met, a twelve-month gain of 258% could be in the cards. (To watch Jen’s track record, click here)
Turning now to the rest of the Street, other analysts have also been impressed with OPK. With 100% Street support, the consensus is unanimous: the stock is a Strong Buy. Additionally, the $4.33 average price target brings the upside potential to 158%. (See OPKO Health stock analysis on TipRanks)
VEON Ltd. (VEON)
Switching gears now, VEON offers connectivity and digital services to millions of people all over the world. Like the broader market, 2020 has been rough on this company, but with a $1.61 share price, there could be an opportunity for Wall Street observers to capitalize on its recent weakness.
This is the stance taken by HSBC analyst Herve Drouet. He acknowledges that the company has faced significant headwinds related to both COVID-19 and recent weakness in many of its operating currencies. “The company issued a new trading update on 31 March 2020. The company expects COVID-19 led disruption to pose headwinds for roaming and equipment revenues. It also expects pressure on margins in Russia and Pakistan, while Ukraine is expected to continue its strong momentum,” he stated.
As a result of these challenges, questions have been raised regarding its debt and ability to maintain its dividend payment. While the dividend is a concern for the analyst, he isn’t as alarmed by the debt situation.
“However, in terms of its debt situation, we believe that the company should be able to refinance / meet its obligations using current cash and available credit lines. Furthermore, the company has capex flexibility – in case it is pushed to maximize cash flows for the short term. Any steps to rationalize its asset portfolio or improve margins in Russia should aid the stock,” Drouet commented.
On top of this, VEON’s valuation is a key component of Drouet’s bullish thesis. “…on an EV/EBITDA basis appears to be trading at 3.3x 2020e EBITDA – below its 1yr forward average trading multiple of (3.6x) over the last five years and close to past trough levels on EV/OpCF basis (See page 5). Current valuations imply that the market is assuming a cost of equity of c17% for VEON (HSBCe:16%) or USD-RUB exchange rate of c88 vs current rate of c76. Any positive news like limited COVID-19 impact, oil price increase, or RUB appreciation should bode well for the stock, in our view,” the analyst noted.
It should come as no surprise, then, that Drouet remains optimistic. Having said that, along with a Buy rating, he cut the price target from $3.10 to $1.80. (To watch Drouet’s track record, click here)
All in all, VEON’s Moderate Buy consensus rating breaks down into 2 Buys and a single Hold. Based on its $2.43 average price target, the upside potential comes in at 50%. (See VEON analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.