Out on Wall Street, one group of stocks divides investors into either fans or critics. Penny stocks, or tickers that trade for less than $5 per share, are known for stirring up mixed reactions among market watchers, as these names are unrivaled in terms of both their risk and reward potential.
Some argue the bargain prices are just too good to be true, noting that there could be a very legitimate reason they are trading at such low levels. Problems like weak fundamentals or overwhelming headwinds come to mind here.
However, the more risk-tolerant see the possibility of colossal returns as too enticing to ignore. With these stocks, you get more bang for your buck. Additionally, given the lower price tags, even minor share price appreciation can translate to massive percentage gains.
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 $10, or even more.
MEI Pharma (MEIP)
We’ll start with MEI Pharma, a biopharmaceutical research company with a patient-centric focus on oncology treatments. The company has no fewer than 11 concurrent clinical trials going on, ranging from Phase 1 to Phase 3, on four separate drug candidates. This gives MEI a multitude of ‘shots on goal,’ a distinct advantage in the high-risk biopharma business. MEI’s drug candidates are targeting a variety of cancers, including lymphomas, B-cell malignancies, solid tumors, and myelodysplastic syndrome bone cancers.
MEI’s leading drug candidate, with most ongoing clinical trials at the most advanced stages, is zandelisib, an Oral PI3K delta inhibitor for the treatment of various B-cell malignancies. The drug candidate is also undergoing trials in the treatment of follicular lymphoma and marginal zone lymphoma. Looking forward, the next catalyst coming up for zandelisib is the top line data from the TIDAL study, a Phase 2 trial in the treatment of follicular lymphoma. The data release is expected during the fourth quarter of this year.
Another upcoming catalyst expected this year is the clinical update for vorociclib, an oral CDK9 inhibitor under investigation in a Phase 1 trial as a treatment for patients with acute myeloid leukemia and B-cell malignancies. And finally, ME-344, a mitochondrial inhibitor and possible treatment of solid tumors, showed positive results in Phase 1 testing and the company is now planning to initiate a Phase 2 study in the middle of next year.
Thanks to its promising pipeline and $2.63 share price, H.C. Wainwright analyst Andrew Fein believes investors should get in on the action.
“We continue to believe the upcoming top-line data from Phase 2 TIDAL in follicular lymphoma (FL) may become a positive inflection point for the stock… Although early, the data for zandelisib remains highly encouraging, especially in the r/r FL patient population. We expect that if zandelisib could hold [positive] outcomes or similar in the pivotal Phase 2 TIDAL with a higher number of patients, approval may be highly likely… Overall, we believe that zandelisib remains highly underappreciated by the street, which may turn around as responses are broadened and deepened over time," Fein opined.
Looking at vorociclib, the 5-star analyst added, “…we continue to believe the growing body of evidence toward the potential synergy between vorociclib [sic] and a KRAS inhibitor remains overlooked… We believe vorociclib [sic] has found momentum by achieving monotherapy responses at low single-digit micromolar concentrations and whose preclinical safety profile may translate well to clinical studies.”
To this end, Fein rates MEIP a Buy along with a $10 price target. Should the target be met, a twelve-month gain in the shape of a whopping 282% could be in store. (To watch Fein’s track record, click here)
Turning now to the rest of the Street, 6 Buys and no Holds or Sells have been published in the last three months. Therefore, MEIP has a Strong Buy consensus rating. At $11, the average price target is even higher than Fein's and implies ~318% upside potential. (See MEIP stock analysis on TipRanks)
CymaBay Therapeutics (CBAY)
The second stock we’re looking at is CymaBay, another clinical stage biopharma company. CymaBay’s focus is on liver disorders and chronic diseases, and the company has three drug candidates in five separate development tracks. Two of these candidates are in human clinical trials, and the lead candidate, seladelpar, is under investigation in the treatment of several major liver diseases, including primary biliary cholangitis (PBC), non-alcoholic steatohepatitis, and primary sclerosing cholangitis.
Seladelpar is an orally dosed, selective PPARdelta agonist, a first-in-class medication that has shown efficacy in regulating ‘metabolic and liver disease pathways with high unmet medical need.’ Seladelpar was granted Breakthrough Therapy Designation by the FDA and PRIME status by the EMEA. In both the US and Europe, the candidate has Orphan Drug Designation for the treatment of primary biliary cholangitis.
Primary biliary cholangitis is a chronic, progressive disease of the liver, leading eventually to severe cirrhosis. CymaBay is enrolling patients in the RESPONSE study, a Phase 3, 52-week trial of seladelpar in the treatment of this disease. CymaBay entered into a development agreement with Abingworth, a London-based VC firm, to secure long-term funding for the RESPONSE study. The agreement is worth $100 million, with CymaBay receiving $75 million in three tranches over the first 6 months. The remainder is on option, after completion of the study’s enrollment.
Leerink analyst Thomas Smith bases his bullish view on CymaBay mainly on this leading study of seladelpar, writing: “…enrollment continues for the ongoing Phase 3 RESPONSE study, evaluating lead asset seladelpar in primary biliary cholangitis (PBC). While CBAY hopes to make significant progress on enrollment by YE21, management cited enrollment headwinds related to COVID and competition, leaving open the possibility of concluding enrollment in 1H22. This could still enable a top-line readout in early 2023, roughly in line with our previous data timing expectations.”
The analyst summed up, “With cash runway into 2023 following the latest non-dilutive risk-sharing financing agreement with Abingworth, we continue to see seladelpar’s differentiated profile on both efficacy and safety providing a clear advantage in second-line PBC that we believe will translate to a meaningful revenue opportunity for CBAY.”
It should come as no surprise, then, that Smith sides with the bulls. Along with an Outperform (i.e. Buy) rating, he puts a $10 price target on the stock, indicating 167% upside potential from the current $3.74 trading price. (To watch Smith’s track record, click here)
Other analysts echo Smith's sentiment. 6 Buys and no Holds or Sells add up to a Strong Buy consensus rating. With an average price target of $10.2, the upside potential comes in at ~173%. (See CBAY 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.