Are markets headed for new record highs? That may seem counter-intuitive, but according to J.P. Morgan’s head of US market intelligence, Andrew Tyler, the tea leaves are indicating just such new heights for the S&P 500.
Tyler notes that, even in today’s uncertain conditions, the S&P index is within 5% of its all-time high – and with inflation slowing down, the Fed is likely to pare back on further rate hikes, a move that will support growth and a shift toward stocks. Recent earnings reports are already beating expectations, which creates an argument for growth and a significant surge in the stock market.
Tyler also points out that August and September are, historically, downtime for equities – but he sees any late-summer pullback as a buying opportunity, creating a dynamic that should support gains come autumn.
“It does appear that there is money on the sidelines waiting for an opportunity to come into US stocks… [The S&P] touching 5k should not be a surprise, especially if this is a reacceleration higher of the macro data/econ cycle rather than just a reboot that shows choppy data trending lower,” Tyler opined.
The stock analysts from J.P. Morgan are running with this thesis – and picking out low-cost stocks that are too cheap to ignore right now but have the potential for strong gains going forward. These are stocks priced under $10 per share, but with potential upsides in triple digits, they might also double your money in the year ahead.
In fact, it’s not only J.P. Morgan analysts who favor these names. Using the TipRanks database, we found that both are also rated as ‘Strong Buys’ by the analyst consensus. Let’s take a closer look.
Scholar Rock Holdings (SRRK)
We’ll start with Scholar Rock, a clinical stage biopharmaceutical company developing new medicines for the treatment of neuromuscular diseases, cancer, fibrosis, and anemia. These are serious conditions, all with life-altering impacts on patients – and some with high unmet medical needs or few available treatment options. The common link that makes Scholar Rock’s pipeline program a unified whole is the role played by protein growth signaling factors in the targeted diseases.
The company’s leading candidate is apitegromab, a selective anti-latent myostatin under investigation in two late-stage clinical trials for the treatment of spinal muscular atrophy. Also in the clinic, at an earlier stage, is the drug candidate SRK-181, a selective context-independent anti-latent TGFβ-1, which is being developed in the immune-oncology program. The company’s earlier stage pipeline programs, at the discovery/pre-clinical phases, target new treatments for fibrosis and anemia.
The company’s recent announcements highlight significant advancements in the apitegromab program. In late June, the company released the Phase 2 TOPAZ trial results, showcasing the drug’s efficacy in treating nonambulatory spinal muscular atrophy patients. The results showed ‘substantial and sustained’ improvement in patients’ motor function, as well as an acceptable drug safety profile after 36 months. Currently, 90 patients remain in the TOPAZ trial.
The Phase 2 study will be followed up by a registration Phase 3 study, SAPPHIRE, which is currently enrolling patients. Enrollment is expected to be complete during 3Q23, with 156 patients ages 2 to 12 years.
Scholar Rock is also making progress with the Phase 1 DRAGON trial, which focuses on SRK-181 and its potential to address resistance to checkpoint therapy in patients with advanced cancer. The trial is advancing, and Scholar Rock expects to release biomarker and clinical updates during 2H23.
In her coverage of the stock for JPMorgan, analyst Tessa Romero sees apitegromab as the key point, a drug candidate with a high potential to return its investment.
“We see Scholar Rock’s lead candidate, apitegromab, as a high-quality asset in the later stages of development for the treatment of the neuromuscular disorder Spinal Muscular Atrophy. As a novel muscle-directed approach to help improve motor function and potentially complement commercial SMN upregulators, we believe apitegromab offers an attractive market opportunity with >$1B commercial potential,” Romero opined.
“Overall,” the analyst summed up “we see SRRK as an interesting name for those looking to invest in the potential of a later-stage asset with a potentially transformational catalyst with pivotal data next year… We like the stock at current levels for the potential for significant upside to valuation…”
Quantifying her stance, Romero gives SRRK an Overweight (i.e. Buy) rating, with a $20 price target that points toward a robust 205% upside potential for the coming year. (To watch Romero’s track record, click here)
Overall, there are 4 recent analyst reviews of this stock, and they break down 3 to 1 in favor of Buys over Holds – for a Strong Buy consensus rating. The stock’s current trading price is $6.54, and the $19.50 average price target implies a gain of 198% on the 12-month horizon. (See SRRK stock forecast)
Allogene Therapeutics (ALLO)
Next up is Allogene, another clinical stage biopharma company – but with a bit of a twist. Allogene is focused on the development of allogeneic chimeric antigen receptor T cell (AlloCAR T™) products as new treatments for cancer. This is a known class of drugs, capable of targeting specific cancers; Allogene’s twist is to create a line of AlloCAR T products that can be picked up ‘off the shelf,’ allowing doctors to quickly set up precision-designed medication treatments for their patients.
The goal here is to increase the speed and availability of advanced anti-cancer drugs, so that these precision drugs can be delivered more reliably, on demand, and at large scale to larger numbers of patients.
On the clinical side, the most recent news here concerns Allogene’s leading candidate, ALLO-501/501A. This is an anti-CD19 Allo-CAR T ‘investigational product,’ currently undergoing Phase 2 clinical trials in the treatment of large B cell lymphoma. 501A has received Regenerative Medicine Advanced Therapy (RMAT) designation from the FDA for this indication. Allogene released several sets of positive clinical data in June, showing significant benefits and a tolerable safety profile for all 33 patients treated in the earlier ALPHA/ALPHA2 Phase 1 clinical studies. Enrollment in the Phase 2 study is expected to be completed in 1H24, and the company plans to open trial sites in Canada, Europe, and Australia before the end of this year.
Also advancing the clinical study program is ALLO-316, under investigation as the company’s first AlloCAR T drug candidate for the treatment of solid tumors. The dose escalation study is ongoing, and ‘emerging data’ has shown that the drug candidate has potential in the treatment of CD70 expressing renal cell carcinoma. The company expects to complete the Phase 1 TRAVERSE trial by the end of this year.
Allogene’s strong pipeline caught the attention of JPM’s Brian Cheng, who is particularly impressed by the 501/501A program. Cheng says of Allogene, “We believe the current valuation offers a meaningful upside based on the three lead allogeneic assets targeting LBCL, MM and solid tumors. While allogeneic cell-based approach appears to fall out of favor for some investors, we believe its 501A program is a commercially viable product with a competitive efficacy/ safety profile. We also believe that its allogeneic offering in BCMA could garner a small niche market opportunity, as we await a potential strategic shift in development. The early work in CD70 in solid tumors, in our view, is encouraging so far and may provide upside potential as the program advances.”
Looking ahead, Cheng sees reason for an Overweight (i.e. Buy) rating on ALLO, and his $11 price target suggests that the stock will gain 137% in the next 12 months. (To watch Cheng’s track record, click here)
Overall, the 8 recent analyst reviews of Allogene include 6 Buys and 2 Holds, for a Strong Buy consensus rating. The shares have an average price target of $13.28 and a current trading price of $4.67, implying a potential one-year upside of ~184%. (See ALLO stock forecast)
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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.