Buying low and selling high is old advice, but it has staying power because it works. It’s the common sense way to see gains in any commercial endeavor, and that includes stock investing. There is no ‘trick’ for market investors to find stocks that are priced low – other than making sure that they remain fundamentally sound. This requires some background investigation on each investment, but the rewards can be substantial.
One key caution for investors to remember – low stock prices can signal a clear failure on the part of the company. Low prices happen for a reason, and those reasons are not always neutral. Learning to recognize failing companies, to stay away, is a vital skill for anyone interested in investing in low-cost stocks.
Which brings us to the flip side – that many times, a stock can fall to low prices for reasons that don’t indicate trouble ahead. A general economic or market downturn will push share prices lower, when there’s a dearth of buyers. Or a release of new shares, to raise capital, can put downward pressure on prices through dilution. None of these factors are inherently negative for the company – but investors should be aware of what’s happening.
Keeping all of that in mind, we’ve opened up the TipRanks database to find two stocks that have seen recent share price declines – but that also present with a Strong Buy consensus rating from the analyst community, and triple-digit upside potential. Let’s take a closer look.
Phathom Pharmaceuticals (PHAT)
We’ll start with a biopharma company. Phathom is a clinical-stage researcher working on new treatments for acid-related gastrointestinal (GI) disorders. These diseases are painful and sometimes dangerous – and Phathom has developed a potassium competitive acid blocker (P-CAB), representing a new class of anti-secretory medications with GI applications. The company’s drug candidate, vonoprazan, has shown promise in several clinical trials.
Vonoprazan, is under development as a treatment for gastroesophageal reflux disease (GERD), a common GI condition that causes severe heartburn and can damage the stomach and esophagus. The GERD studies focused on two forms of the condition, erosive esophagitis (EE) and non-erosive esophagitis (NERD). In addition, the company tested vonoprazan as a treatment for the bacterial infection H. pylori, which is known to cause GI ulcers. The company’s studies have been evaluating vonoprazan as a monotherapy and in combination with other drugs, usually anti-biotics.
The company has submitted New Drug Applications (NDAs) for vonoprazan to the FDA on the H. pylori indication, following a successful Phase 3 clinical trial. That trial met all primary and secondary endpoints. The NDA submissions were made in September, with the first being a ‘triple therapy’ of vonoprazan in combination with amoxicillin and clarithromycin and the second being a ‘dual therapy’ of vonoprazan and amoxicillin only. The FDA has granted a six-month Priority Review on these NDAs, with a PDUFA date of May 3, 2022.
In regard to the GERD/erosive esophagitis (EE), vonoprazan has met its primary and secondary endpoints in a Phase 3 clinical trial. The drug was evaluated as a both a healing and maintenance therapy for GERD/EE. Phathom is planning a 1Q22 New Drug Application to the FDA for vonoprazan on this indication.
Finally, turning to GERD/NERD, the company has a Phase 2 clinical trial of vonoprazan underway, with enrollment ongoing. Topline results from this trial are expected in the first quarter of next year.
And yet, with approval applications rolling along and clinical trials proceeding, Phathom shares are down 34% year-to-date.
However, Needham analyst Joseph Stringer thinks the current low price is a chance for investors to get in.
“FDA has accepted vonoprazan NDA for H. pylori for Priority Review and set a PDUFA date of 5/3/22. We expect US approval by the PDUFA and launch in 1H22. We project relatively modest H. pylori peak sales, but launch is important to build momentum into the larger Erosive Esophagitis (EE) indication. Mgmt reiterated guidance for vonoprazan NDA submission in 1Q22 for EE. We anticipate US approval based on the strong and differentiating Ph3 results… We think PHAT is one of our most disconnected names, and believe current levels do not adequately reflect the blockbuster potential in EE,” Stringer explained.
In line with these comments, the analyst puts a Buy rating on the stock, and his $55 price target implies a one-year upside potential of ~152%. (To watch Stringer’s track record, click here)
Like Stringer, other analysts also take a bullish approach. PHAT’s Strong Buy consensus rating breaks down into 4 Buy ratings received in the last three months. The stock is selling for $21.83 and its $62.75 average price target is even more bullish than the Needham view, suggesting an upside of ~187% in the next 12 months. (See PHAT stock analysis on TipRanks)
Y-mAbs Therapeutics (YMAB)
Next up is another clinical-stage biopharmaceutical research company. Y-mAbs focuses on pediatric oncology, a field in which the company is working to develop and commercialize new antibody-based cancer drugs. This company has the advantage of an approved cancer drug on the market. Danyelza is a treatment for neuroblastomas in children over the age of 1, and has shown increasing commercial success since its approval last year.
Y-mAbs reported its 3Q21 financial results early this month, and showed $9 million in sales income related to danyelza. For the first three quarters, ending September 30, the company reported a total of $25.3 million, of which $23.3 million came from danyelza sales.
Since peaking in December of last year, YMAB shares have fallen 60%. The fall-off in share price parallels the drop in EPS. The company reported a 75-cent per share profit in Q1, which turned into EPS losses of 53 cents and 66 cents in Q2 and Q3.
After the third quarter ended, Y-mAbs had two important regulatory updates. On November 4, the company announced that it has requested a pre-BLA (biologics license application) for omburtamab, a new drug candidate for CNS/leptomeningeal metastasis from neuroblastoma in pediatric patients. The company expects to hold the meeting in January of next year.
Earlier, on October 7, the company announced that the FDA had granted Rare Pediatric Disease Designation to omburtamab as a treatment for medulloblastoma.
Even though the stock is down, Wedbush analyst David Nierengarten, rated 5-stars by TipRanks, sees it as a buying opportunity.
“While DANYELZA net sales were impacted by rebates due to a mix-shift to outpatient centers, vial demand grew 10% sequentially, with delivery to 24 sites nationwide, and were in line with our estimates ($9M, compared to $9.1M estimated)… We expect to see data from the ongoing studies for DANYELZA in 1L neuroblastoma maintenance treatment at the company’s R&D day in December, where we also expect to see osteosarcoma data. The company continues to develop its pipeline outside of DANYELZA, and we are encouraged by the progress seen thus far. We recommend buying YMAB shares ahead of upcoming catalysts across its broad program pipeline.”
Nierengarten follows these comments with an Outperform (i.e. Buy) rating on YMAB shares, and a $52 price target. This figure implies a one-year upside potential of 137%. (To watch Nierengarten’s track record, click here)
What does the rest of the Street think about YMAB’s long-term growth prospects? It turns out that other analysts agree with Nierengarten. The stock received 4 Buys in the last three months compared to no Holds or Sells, making the consensus rating a Strong Buy. The shares are trading for $21.92 and the bullish $59 average price target suggests they have 169% upside potential for the year ahead. (See YMAB stock analysis on TipRanks)
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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.
