Let’s talk a bit about return potential, and small-cap stocks. The two attributes are related, and frequently offer investors a fine combination of risk-reward ratio to emphasize the former. It’s the basic arithmetic behind finding a solid return potential. A small cap stock, one with a market value lower than $2 billion, will usually feature a relatively low share price – and when share price is low, even a small gain in absolute terms will quickly translate into a high-percentage return.

Some of today’s tech giants are prime examples of the phenomenon. Apple, with a current market cap well north of $2 trillion, was a plucky little small-cap with a share price of $1.10 back in the late 1980s, and Amazon, with its famously high 4-digit share price, sold for less than $10 per share 20 years ago. Long-term appreciation has worked its magic.

Not every stock is going to turn into the next tech giant, of course. But high returns are out there, and the biggest ‘trick’ for an investor to learn is where to find that high potential. We’ve take a first step, using the TipRanks platform to look up a pair of small-cap stocks with low share price and a high upside – in fact, according to Raymond James analyst Dane Leone both of them are likely to double or better in the coming year. Let's take a closer look.

Curis (CRIS)

We’ll start with Curis, a small-cap biotech with both an approved drug on the market and an active development pipeline. Curis is focused on anti-cancer research, aiming to create innovative, first-in-class therapeutic agents for the treatment of various cancers. The company’s approved drug, Erivedge, is approved for use in patients with basal cell carcinoma, a common skin cancer, in the US and the EU. The drug is undergoing commercialization by Roche and Genentech, and Curis receives royalty income under the license agreements.

Turning to the pipeline, the company’s main drug candidate is CA-4948, an IRAK4 inhibitor and a potential treatment for hematologic malignancies. The drug candidate is undergoing multiple Phase 1 clinical trials, and has demonstrated efficacy, defined as anti-tumor activity, in non-Hodgkin's lymphoma, acute myeloid leukemia and myelodysplastic syndromes. Earlier this month, the company released additional pre-clinical data showing that CA-4948 is able to cross the blood-brain barrier, which supports a push to study the drug in patients with primary central nervous system lymphoma.

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Covering this stock for Raymond James, analyst Dane Leone lays out the upbeat prospects for the company.

“Our investment thesis is predicated on three key points: 1) we believe that there is a significant market opportunity in late line AML/MDS for patients harboring U2AF1 and SF3B1 mutations which CA-4948 is positioned to address; 2) we are optimistic about anecdotal Phase 1 clinical activity of CA-4948 in FLT3 mutant AML/MDS, a well-established druggable target; and 3) the safety profile of CA-4948 monotherapy supports combination potential with current standard of care for AML/MDS,” Leone noted.

Leone adds, in regard to the market opportunity, “We currently forecast $370M sales of CA-4948 within AML during 2034, based upon what we consider to be a lower bound of potential drug utilization, which we think is appropriate given the encouraging but largely anecdotal clinical data generated thus far.”

In line with these comments, the analyst gives CRIS an Outperform (i.e. Buy) rating and a $15 price target. Investors could be sitting on gains of ~107%, should Leone’s forecast play out over the coming months. (To watch Leone’s track record, click here)

Overall, the stock has a Strong Buy rating from the analyst consensus, and it is unanimous, based on 3 recent positive reviews. The shares are priced at $7.25 and the $19 average price target is even more bullish than the Raymond James view, implying a robust upside of 162% for the next 12 months. (See Curis stock forecast on TipRanks)

Ocular Therapeutix (OCUL)

The second small-cap stock we’ll look at is Ocular Therapeutix. As its name suggests, Ocular is a biopharma research firm working on new treatments for eye conditions. The company’s development focus is based on a proprietary technology, a bioresorbable hydrogel-based formulation. This gel is designed to deliver therapeutic agents directly to the eye without drops or injections.

Ocular has two approved drugs on the market, Dextenza and ReSure. The first is indicated for post-surgical pain and inflammation of the eyes, and the second is an incision sealant to follow cataract surgery. Earlier this month, Ocular announced that Dextenza had received FDA approval of a Supplemental New Drug Application, for use treating itching symptomatic of allergic conjunctivitis.

The company reported $11.1 million in sales of Dextenza for 2Q21, or 94% of the total $11.7 million in revenue. The remaining $600K in revenue was attributed to sales of ReSure. Sales of both drugs were up significantly from the year-ago quarter; Dextenza sales grew 692% year-over-year, while ReSure sales tripled.

Ocular also maintains an active development pipeline, with its leading candidate, OTX-CSI, undergoing a Phase 2 clinical trial in the treatment of dry eye disease. The Phase 2 study has completed enrollment and top line data is expected during this fourth quarter period of 2021.

Ahead of the upcoming top-line results from OTX-CSI, Raymond James' Dane Leone reiterated his Strong Buy rating on OCUL along with a $29 price target. Should his thesis play out, a potential upside of 159% could be in the cards.

"The Phase 2 is expected to clarify the path forward towards registrational studies in dry eye. Based upon the potential dual mechanism of action (punctal plug pluscyclosporin), clinical differentiation will likely be based upon two primary factors 1) increase in tear production using the Schirmer score, and 2) tolerability versus drop formulation of cyclosporin (Restasis). We do not currently include OTX-CSI within our financial forecasts for OCUL, but given the fairly clear clinical hurdles required to run a successful dry eye disease drug development program, we think that the Phase 2 results for OTX-CSI could be an important value creating event for the pipeline," Leone opined.

Overall, this stock also gets a Strong Buy rating from the analyst consensus, and like Curis above, it is unanimous – in this case, based on 4 positive analyst reviews. The stock is selling for $11.19 and has an average price target of $27, suggesting ~141% upside potential from that level. (See OCUL stock forecast on TipRanks)

To find good ideas for small-cap 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 analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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