As the number of new COVID-19 cases climbs at a record pace, the stock market isn’t just trudging along, it’s charging forward. Given this clear disconnect, finding compelling plays can feel like guesswork. The adrenalin junkies among the Wall Street observers, however, are turning to small-caps.
Out on the Street, these names with market capitalizations landing below $2 billion are known for their volatility as they are prone to very extreme movements. That being said, small-cap stocks boast huge growth prospects that their larger counterparts simply don’t offer. Additionally, these often younger companies tend to fly under-the-radar, meaning that the potential value might not be fully built into the share price.
Due to the risk involved, we looked to investment firm BTIG for some inspiration.
"Many of our covered companies are small and mid-cap industry disruptors that often build momentum and become prominent brands in their respective marketplaces," the firm says.
Locking in on three small-caps in particular from BTIG's Top Picks for 2H20 list, the firm’s analysts see over 70% upside potential for each. After running the tickers, which are priced at under $6 per share, through TipRanks’ database, we found out that all three have received support from other analysts as well.
Axcella Health Inc. (AXLA)
Through its unique approach to treating complex diseases that uses Endogenous Metabolic Modulators (EMMs), Axcella Health wants to improve the lives of patients. At $5.15, its share price presents investors with a buying opportunity, according to BTIG.
This healthcare name, which has a market cap of $184.6 million, has impressed with its recent performance. BTIG's Julian Harrison noted, “On the heels of positive data in NAFLD patients this past quarter, a healthy amount of de-risking from patient-derived biomarkers and safety data leaves AXLA well-positioned for its next wave of catalysts later this year including a Phase 2a readout in 3Q20 that could support the initiation of a potentially registrational Phase 2/3 study in overt hepatic encephalopathy (OHE) before YE20 along with data on AXA4010 slated for 4Q20 that will serve as our first glimpse of this EMM’s activity in patients with sickle cell disease (SCD).”
It should also be noted that AXLA was given a composition of matter patent for its AXA1665 candidate. As other amino acid formulations have similar components, IP posed a cause for concern, in Harrison’s opinion. This development, however, prompted the analyst to increase the probability of success for AXA1665 in recurrent OHE prophylaxis.
Looking more closely at the therapy, AXA1665 represents the first therapeutic approach focused on correcting muscle metabolism of toxic ammonia as a disease-modifying therapy for HE and potentially even for sarcopenia secondary to liver cirrhosis. “AXA1665 is designed to boost proteogenesis, reduce aromatic amino acids in the systemic circulation, stimulate the urea cycle along with intestinal/renal nitrogen metabolism, and increase muscle protein synthesis by stimulatingmTORC1 with the intention of supporting intramuscular ammonia detoxification,” Harrison explained.
The analyst added, “AXA1665 is the first therapy to show meaningful improvements on the LFI (a widely used prognostic indicator), which is relevant to cirrhosis management both within and beyond the context of HE. AXA1665-002 completed enrollment in February 2020 and the 3Q20 readout is expected to include ~60 patients with Child A/B cirrhosis.”
In addition, Harrison points out that there are differences from the previous Phase 2 two-way crossover study including longer treatment duration, a higher dose level and the introduction of cognitive instruments (Stroop test, Psychometric Hepatic Encephalopathy Score, Critical Flicker Frequency).
“We would view consistency from the prior -001 study on blood ammonia, Fischer’s ratio (BCAA/AAA), valine/phenylalanine ratio, and Liver Frailty Index along with directionally positive changes in cognitive endpoints as a firm basis to progress AXA1665 into a potentially registrational Phase 2/3 trial for OHE prophylaxis – management is guiding initiation in 4Q20,” Harrison stated.
Based on all of the above, Harrison rates AXLA a Buy along with a $16 price target, which implies over 200% upside from current levels.
Overall, it has been relatively quiet when it comes to other analyst activity. In the last three months, only 2 analysts have issued ratings. However, as they were both Buys, the word on the Street is that AXLA is a Buy. Based on the $22 average price target, shares could climb 327% higher in the next twelve months. (See AXLA stock analysis on TipRanks)
Fluidigm Corporation (FLDM)
With a market cap of $401.6 million, Fluidigm provides multi-omic solutions developed using its patented CyTOF and microfluidics technologies to study cancer, inflammatory diseases and immunotherapies. Currently going for $5.68 apiece, BTIG believes the stock is cheap relative to its potential value.
Representing the firm, 5-star analyst Sung Ji Nam breaks down FLDM’s offerings into two distinct categories. These include “the legacy microfluidics business (~40% of revenue) that has been shrinking over the last several years and the mass cytometry business (~60% of revenue) which is differentially positioned in one of the fastest growing areas within life sciences research.”
Nam added, “We continue to view FLDM's mass cytometry business as highly differentiated and with strong LT growth potential beyond the COVID pandemic, and are also encouraged by the recent InstruNor acquisition and TIS launch, which should strengthen the technology adoption longer-term.”
That being said, the analyst cites the former as being a key component of his bullish thesis. “Looking ahead, we are more optimistic about FLDM's microfluidics business, given the recent progress with finding broader and durable applications for the technology platform including the potential significant opportunities in COVID-19 diagnostics and other infectious disease applications in the future,” he explained.
Speaking to its efforts to combat COVID-19, FLDM is working to launch two highly differentiated approaches for COVID-19 diagnostics, in addition to its immune system profiling/monitoring capabilities that enable vaccine and therapeutic developments. It boasts a viral nucleic acid testing capability “that could process 6,000 tests per day (2mm a year) using one Biomark/ June combination using 1,000x less reagents vs. RT-PCR platforms currently being used for COVID testing.” The other is an epigenetic test using FLDM's microfluidics platform that’s being developed as part of a collaboration with Mount Sinai and the DoD, with it potentially able to detect a COVID infection earlier than conventional PCR platforms.
Everything that the company has going for it keeps Nam on the bulls’ side. To this end, the analyst rates FLDM a Buy alongside a $12 price target. This figure suggests shares could climb 111% higher in the next year. (To watch Nam’s track record, click here)
FLDM has kept a relatively low profile so far, with its Moderate Buy consensus rating breaking down into 2 Buys and no Holds or Sells. At $10.50, the average price target indicates 85% upside potential. (See Fluidigm stock analysis on TipRanks)
Cars.com, Inc. (CARS)
Designed to connect car shoppers with sellers, the small-cap (its market value lands at $379.4 million) is one of the top digital marketplaces and solutions providers for the automotive industry. Given its positioning within the industry and $5.65 share price, it makes sense why BTIG is on board.
Covering the stock for the firm, analyst Marvin Fong doesn’t dispute the fact that COVID-19 has taken a toll, but argues it was “unreasonable” to think its Q1 growth would match pre-COVID rates. That being said, he points out that its first quarter performance was better-than-expected.
Speaking to its Q1 results, paying dealer count increased to 18,938, slightly beating Fong’s 18,914 estimate, but the Cars.com business lost dealers as outbound sales activity was halted in the last two weeks of March. However, Fong believes Cars.com was tracking to positive dealer adds in Q1 before the pandemic’s onset. Additionally, site traffic grew by 11% year-over-year and the decline in national advertising wasn’t as steep as expected.
Fong added, “The company has 85-90% used car exposure and used car sales have almost fully recovered, yet shares are still down over 40% vs. pre-COVID levels. As with other e-commerce verticals, consumers have increased their activity through online platforms such as Cars.com, resulting in a greater share of leads coming to dealers through the Internet. In other words, online has become an even more indispensable customer acquisition channel for dealers and we believe most dealers who cancelled or paused their marketplace subscriptions will return.” As a result, he sees CARS as having “one of the more compelling risk-reward profiles” in his coverage universe.
It should be noted that leverage has been a concern for investors. However, Fong thinks these concerns have been blown way out of proportion, and that they have “unfairly” impacted the share price. Addressing this issue, though, the company recently amended its credit facility.
In line with his optimistic take, Fong left his bullish call unchanged. Additionally, the price target remains at $10. Should the target be met, a twelve-month gain of 77% could be in store. (To watch Fong’s track record, click here)
Looking at the consensus breakdown, 2 Buys and 4 Holds have been assigned in the last three months. Meanwhile, the $9.25 average price target brings the upside potential to 64%. (See Cars.com price targets and analyst ratings on TipRanks)
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