Penny stocks, you either love them or you hate them. One of the obvious draws of these stocks trading for under $5 per share is the ability to get more bang for your buck. And should these bargain priced stocks see their share prices rise by only a small amount, the rewards can be staggering.
However, before jumping right into an investment in a penny stock, Wall Street pros advise looking at the bigger picture and considering other factors beyond just the price tag. For some names that fall into this category, you really do get what you pay for, offering little in the way of long-term growth prospects thanks to weak fundamentals, recent headwinds or even large outstanding share counts.
Taking the risk into consideration, we used TipRanks’ database to see if we could find compelling penny stocks with bargain price tags. The platform steered us towards three tickers sporting share prices under $5 and “Strong Buy” consensus ratings from the analyst community. Not to mention colossal upside potential is on the table. We’re talking about over 100% here.
Veru Inc. (VERU)
Operating as an oncology and urology company, Veru develops cutting-edge medicines for the prostate cancer continuum of care and urology specialty pharmaceuticals. At $3.20, several members of the Street believe that its share price presents investors with a unique buying opportunity.
Among Veru’s fans is Oppenheimer’s Leland Gershell. The 5-star analyst notes that its VERU-111 candidate is a major component of his bullish thesis, highlighting the fact that it has already demonstrated “compelling efficacy signal in advanced prostate cancer as well as reasonable safety.”
Expounding on this, Gershell stated, “As we highlighted last week, biomarker declines, tumor responses, interim durability of benefit, and manageable systemic toxicity seen in dose-escalating study in chemo-naïve metastatic castration-resistant prostate cancer (mCRPC) patients continue to pique our interest in this novel anti-tubulin with a urologist-friendly profile.” The enrollment for Phase 2 is up and running, and the company is planning a Phase 3 trial of the candidate in novel androgen blocker failures.
That being said, VERU-111's potential goes even further. Management announced that it would be kicking off a Phase 2 study of the therapy in COVID-19 patients with a high risk of ARDS. Citing the “precedent of anti-viral and anti-inflammatory activity seen with compounds that target the microtubule colchicine binding site”, Gershell is optimistic about VERU-111's use in this indication.
Adding to the good news, Gershell sees even more potential catalysts ahead. Veru is gearing up for the Phase 2 program evaluating differentiated GnRH antagonist, VERU-100, in hormone-sensitive prostate cancer next quarter, as well as zuclomiphene's Phase 3 trial for hot flashes in androgen deprivation therapy, which is set to begin late this year. The TADFIN NDA submission could also come at the end of 2020 or early 2021.
“With a ~$260 million enterprise value, an intriguing prostate cancer pipeline offering multiple shots on goal, and a growing commercial business supporting R&D, we view VERU as attractive," Gershell concluded.
As a result, Gershell rates VERU an Outperform (i.e. Buy) along with a $9 price target. This target conveys his confidence in Veru’s ability to soar 180% in the next year. (To watch Gershell’s track record, click here)
All in all, other analysts echo Gershell’s sentiment. 3 Buys and no Holds or Sells add up to a Strong Buy consensus rating. Given the $7 average price target, the upside potential comes in at 118%. (See Veru stock analysis on TipRanks)
Surface Oncology (SURF)
Up next, we have Surface Oncology, which is developing next generation immunotherapies that target the immune-suppressive tumor microenvironment to attack cancer. Combine a key collaboration, strong cash position and $3.88 share price, and you get the analyst community’s praise.
Standing squarely in the bull camp, JonesTrading's Soumit Roy cites several reasons to support his optimistic stance. The company broke the news of its collaboration with Merck on a combination study of Keytruda and SURF’s SRF617 (targeting CD39), with the initial focus being placed on gastric cancer and data set to come in 1H21.
“We believe a Merck collaboration positions Surface well as peer’s data start to come out using adenosine pathway inhibitor with IO combo in non-small-cell lung carcinoma (NSCLC),” the 5-star analyst explained. In addition, data looking at the therapy’s efficacy as a single agent and in combination with gemcitabine/Abraxane in pancreatic cancer is slated for release in YE20.
Some investors have expressed concern ahead of Arcus’ presentation of data for AB928 combined with carboplatin + pemetrexed + a PD-1 antibody in NSCLC at ASCO. However, Roy believes any positive data should be seen as a good thing for SURF. He added, “We expect early data from Tizona’s CD39i by YE20 and potentially meaningful data from partner Novartis in 3Q/4Q20 (ESMO or Triple meeting) with anti-CD73 antibody to likely to validate Surface’s technology platform – and could put Novartis ahead of AstraZeneca and BMS.”
It should be noted that Roy’s focus also remains on SURF’s wholly owned asset, SRF388 (targeting IL-27). Early data evaluating its use in liver and kidney cancer could come in YE20 and 1H21, respectively.
“We remain confident in Surface’s differentiated approach — targeting the first enzyme in the ATP/adenosine pathway, CD39, and a novel target, IL-27, to block overexpression of CD39 and T cell inhibiting receptors,” Roy commented.
Based on all of the above, it’s no wonder Roy reiterated his Buy recommendation. With a $12 price target, shares could climb 209% higher in the next twelve months. (To watch Roy’s track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. With only Buys assigned in the last three months, 3 to be exact, the word on the Street is that SURF is a Strong Buy. Additionally, the $10.50 average price target brings the upside potential to 170%. (See Surface Oncology stock analysis on TipRanks)
Anavex Life Sciences (AVXL)
Using precision genetic medicine, Anavex Life Sciences wants to develop treatments for severe and devastating neurological disorders. Currently going for $3.61 apiece, some analysts argue that shares appear undervalued.
At the beginning of May, the company announced that COVID-19 has had a relatively limited impact on its ongoing clinical trials, with all programs progressing right on track. Top-line data from the Phase 2 study in Parkinson's disease dementia (PDD) is set to be reported in mid-2020. In addition, patient enrollment in both Phase 2 studies in Rett syndrome has already surpassed the 50% mark.
Weighing in for Janney Montgomery, analyst Yun Zhong said, “Management plans to make an announcement once the studies complete patient enrollment, and based on our previous discussions with management, we believe the top-line from the Rett syndrome studies could be available in 2020, potentially around the PDD data readout.”
On top of this, the genome-wide search for biomarkers in the Phase 2a Alzheimer's disease (AD) study found promising candidates, with four biomarkers that potentially have a significant effect on clinical outcomes, as determined by two efficacy endpoints, MMSE and ADCS-ADL, being identified.
“The identification of genomic biomarkers in the Phase 2a study in Alzheimer's disease (AD) was recently published and we believe the biomarkers should benefit the evaluation of ANAVEX 2-73 and other Sigma-1 receptor agonists in many additional CNS indications... These biomarkers can be used to pre-specify patients that are most likely to respond to ANAVEX 2-73 treatment, thereby reducing heterogeneity in AD patients and increasing the probably of success of clinical studies,” Zhong commented.
“We remain optimistic that the upcoming clinical catalysts could have a positive impact on the stock and we continue to see strong potential in the company's pipeline,” Zhong concluded.
In line with his bullish take, Zhong rates AVXL a Buy along with a $10 price target. Should the target be met, a twelve-month gain of 177% could be in store. (To watch Zhong’s track record, click here)
What does the rest of the Street think about AVXL? It turns out that other analysts also have high hopes. 4 Buys and no Holds or Sells have been received in the last three months, so the consensus rating is a Strong Buy. The $11.50 average price target suggests 184% upside potential. (See AVXL stock-price forecast on TipRanks)
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