Every investor is in the stock market to find a solid return. That’s the bottom line, and while it sounds simple, the trick is finding stocks that are primed for gains and will make the inherent risk worthwhile. Risk can’t be avoided in the markets, and it usually increases in a direct relationship to a stock’s return potential. And there are few stock segments that offer a higher return potential for the risk involved than the penny stocks, those equities priced at $5 or less.
When we say high return potential, we aren’t exaggerating. The bargain price points allow investors to snap up more shares than possible when investing in other more well-known names. What’s more, even what feels like trivial share price appreciation can translate to massive percentage gains.
That said, there’s a legitimate reason some investors are wary when it comes to penny stocks. The risk involved with these plays scares off the faint hearted as very real problems like weak fundamentals or overwhelming headwinds could be masked by the low share prices.
So, how should investors approach a potential penny stock investment? By taking a cue from the analyst community. These experts bring in-depth knowledge of the industries they cover and substantial experience to the table.
Taking this into account, we used TipRanks’ database to identify two penny stocks that have earned a “Strong Buy” consensus rating from the analyst community. Not to mention each offers up massive upside potential and could climb to $11, or even more.
Autolus Therapeutics (AUTL)
We’ll start with Autolus Therapeutics, a clinical-stage biopharmaceutical firm focusing on the development of new therapeutic agents for cancer treatment. The company’s development process makes use of extensive programming capabilities in the creation of advanced autologous T cells, with potential for life-changing benefits against cancers that have proved resistant to previous treatments. The technology is based on chimeric antigen receptors, designed to rejuvenate the patient’s own T cells for improved anti-tumor activity.
The company’s leading drug candidate, Obe-cel, is an autologous CAR T cell therapy with a novel fast off rate to drive T cell activity against tumors while reducing immunotoxicity. The drug candidate is using a unique CD19 CAR, and early trials have demonstrated that this configuration has resulted in increased T cell persistence, lower T cell exhaustion, and more durable remissions. Obe-cel is featured in 3 of Autolus’ 8 active pipeline programs, and makes up most of the ongoing clinical trials.
Obe-cel’s leading clinical trial is the Phase 2 FELIX study, which the company recently announced has met the primary interim endpoint. This included a 70% overall remission rate (ORR) in 50 patients with relapsed/refractory adult acute lymphoblastic leukemia. The announcement of the trial’s interim success triggered a set of milestone payments form Blackstone Life Sciences, with which Autolus is working in partnership on obe-cel. The payments, one for development and one for manufacturing, totaled $70 million.
Autolus has deep pockets, with plenty of cash reserves available to fund its clinical programs. Mizuho analyst Mara Goldstein notes this, as well as the strong position of the obe-cel program.
“We view AUTL as largely overlooked, as cell therapy has broadly struggled given risk profile and capital requirements. The company is poised for a BLA filing in 2023 based on the success of the FELIX study testing obe-cel, a CD19 CAR-T with competitive efficacy and an improved safety profile in adult ALL (aALL). AUTL’s CAR-T’s employs ‘fast off’ kinetics that enhance the safety profile… Pivotal FELIX trial readouts at ASCO [June 2-6] and ASH [December 9-12] represent the most significant near-term catalysts… AUTL had ~$380+ mln (unaudited) at the end of 4Q22, providing estimated cash runway into 2025, and removing runway as an overhang,” Goldstein opined.
All of that was enough for Goldstein to make AUTL one of her Top Picks in the biotech sector. The analyst rates the stock a Buy along with an $18 price target, which implies an enormous one-year upside potential of ~787%. (To watch Goldstein’s track record, clickhere)
Belanger is not the only analyst to see a solid upside here; all four of this stock’s recent reviews are positive, for a Strong Buy consensus rating. The shares are priced at $2.03 and the $11.25 average price target suggests an upside of ~454% from that level. (See AUTL stock forecast on TipRanks)
Decibel Therapeutics (DBTX)
The next penny stock we’re looking at is Decibel Therapeutics, a clinical stage biotech company developing new treatments for inner-ear conditions that cause hearing and/or balance losses. The company is working on the gene therapy path, aiming to create drug candidates that will correct inner ear problems at the underlying genetic level. Decibel’s pipeline boasts 7 research tracks, most at the pre-clinical stages but two in human clinical trials.
The leading candidate is DB-OTO, a gene therapy candidate designed to treat mutations of the OTOF gene, which can cause profound, congenital, hearing loss. The gene expresses a protein, called OTOF, that connects the cochlear hairs with the auditory nerve; without it, patients cannot hear even though their ears have the necessary structures for detecting sound. Decibel’s drug candidate aims to replace the defective gene in targeted cells, allowing expression of the protein – making the connection between the patient’s ear and the nervous system.
Decibel is currently ramping up for a Phase 1/2 clinical trial of DB-OTO, and late last month announced a step toward expanding its planned trial. The study, which is on track to start in the US during 1H23, now been approved for a clinical trial by the UK Medicines and Healthcare Products Regulatory Agency.
Also on the clinical track is DB-020, a drug candidate under study to combat hearing loss induced by the common chemotherapy drug cisplatin. Cisplatin has a well-known negative impact on hearing, and is used despite that due to its anti-cancer effectiveness. DB-020, a new formulation of sodium thiosulfate, can prevent the hearing loss without decreasing the effectiveness of cisplatin – a win for patients. Decibel is currently conducting a Phase 1b trial of DB-020 and expects to release results during the first half of this year.
This stock has caught the attention of Baird analyst Jack Allen, who is impressed by the scope and potential of the upcoming DB-OTO clinical study program.
“We remain very enthusiastic about the potential for DB-OTO, and expect that shares of Decibel could grind higher in the coming quarters as DB-OTO enters the clinic and investor interest in this program grows ahead of crucial proof-of-concept data, which are expected by 1Q24…. We anticipate this potential proof-of-concept data will have crucial readthroughs to the company’s aspirations in otology gene therapy, and hence we expect this readout will mark a key catalyst for the company. Further, given the current valuation, we believe that shares could run-up significantly ahead of this dataset as investor interest in this program grows in the coming quarters/months,” Allen opined.
In Allen’s view, Decibel is worth an Outperform (i.e. Buy) rating, and he gives the stock a price target of $21, indicating his confidence in a one-year upside of ~471%. (To watch Allen’s track record, clickhere)
Overall, all 5 of the recent analyst reviews of this stock came in positive, underlining Wall Street’s upbeat outlook and a unanimous Strong Buy consensus rating. Decibel shares have an average price target of $15.40 and a current selling price of $3.67, together implying a 319% upside on the one-year time frame. (See DBX stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.
