Risk and reward are the yin and yang of stock trading, the two opposite but essential ingredients in every market success. And there are no stocks that better embody both sides – the risk factors and the reward potentials – than penny stocks. These equities, priced below $5 per share, typically offer high upside potentials. Even a small gain in share price – just a few cents – quickly translates into a high yield return. Of course, the risk is real, too; not every penny stock is going to show these sort of gains, some of them are cheap for a reason, and not every reason is a good one. So, how are investors supposed to distinguish between the long-term winners and those set to come up short? Following the activity of the investing titans is one strategy. Hedge fund manager Ken Griffin, chief of the investment firm Citadel, is one of those titans, having turned his college trading – from a PC in his dorm room – into a multi-billion dollar market giant. A look at Griffin’s performance during the coronavirus crisis shows just how successful he can be. In March of last year, when corona knocked the bottom out of the markets, Griffin’s Citadel still brought in a net positive return of 1.7%. And for the year as a whole, Citadel’s revenues totaled $6.7 billion, almost double the previous high in 2018. Turning to Griffin for inspiration, we took a closer look at two penny stocks Griffin’s Citadel made moves on recently. Using TipRanks’ database to find out what the analyst community has to say, we learned that each ticker boasts Buy ratings and massive upside potential. Abeona Therapeutics (ABEO) We will start with Abeona Therapeutics, a clinical-stage biopharma company focused on gene and cell therapy. This is a cutting edge field, using the latest genome technology to treat genetic diseases by inserting corrected copies of the DNA directly into affected cells. Abeona has seven drug candidates in the pipeline, with EB-101 and ABO-102 being the furthest along, and of most interest to investors. EB-101 is set to begin a Phase III trial as a treatment for Recessive Dystrophic Epidermolysis Bullosa (RDEB). This is a disorder of the connective tissue, leaving sufferers prone to serious skin lesions and wounds. The cause is a genetic defect that leaves patients unable to produce the collagen needed to secure the skin layers. If approved, EB-101 would become the first – and only available – treatment for RDEB. Treatment involves using the drug to transplant the affected gene into the patient’s skin cells, which are then themselves transplanted into affected skin areas. In early phase trials, the drug was well tolerated by patients, who showed distinct improvement up to 2 years after treatment. The Phase III trial is now enrolling patients. ABO-102, the next farthest-along drug candidate, is in a Phase I/II study as a treatment for Sanfilippo Syndrome, a fatal disease of early childhood. The syndrome is currently untreatable, except by supportive care, and affected children typically survive to age 15. ABO-102 is a gene therapy drug given through a one-time IV infusion. It delivers working copies of the affected gene to the child’s central nervous system, allowing the body to naturally correct the enzyme deficiency behind the disease. Both of these drug candidates have received Orphan Drug Designation in the US and Europe, making governmental assistance available for their development. In addition, they have also received the FDA’s Rare Pediatric Disease Designation. Abeona’s drug pipeline and $2.22 share price have scored it substantial praise from the pros on Wall Street. This is the stance taken by Griffin. Increasing its stake in the company by a whopping 181%, Citadel snapped up 1.846 million shares in Q4, which are now worth $4.06 million. 5-star analyst Ram Selvaraju, of H.C. Wainwright, also counts himself as a fan. Selvaraju has recently published two notes on ABEO, focusing on the potential of both EB-101 and ABO-102. Regarding the first, the analyst notes that the “Following the successful completion of the FDA meeting, Abeona is continuing with all necessary steps to enroll the next patient in the VIITAL study and expects to complete enrollment in 2021… In our view, FDA meeting and resultant feedback bode well for Abeona, since the agency appears to be on board with the company's study design and statistical analysis plan for the VIITAL [Phase III] trial…” Turning to ABO-102, Selvaraju said, “In our view, this data is highly intriguing and bears watching to see if it can be confirmed in a larger patient cohort. From our vantage point, preservation of neurocognitive development in young children with MPS IIIA is likely to be the principal efficacy measure that resonates with regulators.” In line with his optimistic view, Selvaraju rates ABEO a Buy along with a $8 price target. Should his thesis play out, a potential twelve-month jump of ~264% could be in the cards. (To watch Selvaraju’s track record, click here) Overall, 2 Buys and no Holds or Sells have been assigned in the last three months. Therefore, the analyst consensus is a Moderate Buy. At $6.50, the average price target puts the upside potential at ~188%. (See ABEO stock analysis on TipRanks) Mereo Biopharma (MREO) The second stock we’re looking at, Mereo, is another biopharma company with a focus on rare diseases. Mereo has a large and diverse pipeline, with six drug candidates in various stages of development. The company’s research programs are looking at treatments for solid tumor cancers, ovarian cancer, and chronic obstructive pulmonary disease, among other severe conditions. Griffin is among those that have high hopes for this healthcare name. Griffin’s Citadel picked up 4.097 million shares in Q4, which are now worth $16.3 million. The biggest news for Mereo was the December 17 announcement of a collaboration and license agreement with the California company Ultragenyx for further development of Setrusumab, a candidate undergoing testing as a treatment for osteogenesis imperfecta, or brittle bone disease. This incurable condition is usually treated with lifestyle changes and exercise. Setrusumab, however, has shown in Phase 2b studies that it can cause dose-dependent increase in bone formation in affected adults. Leerink analyst Joseph Schwartz writes of the Mereo/Ultragenyx partnership: “Although the RARE/MREO deal was unexpected, we are not surprised by the news considering MREO has been looking for a partner and RARE has ample experience developing and launching successful bone agents… We view [the] announcement as a win-win for both RARE and MREO since the two could complement each other’s strengths to bring setrusumab to market.” In light of these comments, Schwartz rates MREO shares as a Buy, and his $8 price target suggests it has a one-year upside of 103%. (To watch Schwartz’s track record, click here) Some stocks fly under the radar, and MREO is one of those. MREO’s is the only recent analyst review of this company, and it is decidedly positive. (See MREO 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. 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.