Investors know that profit is the most important result – and that means they are willing to take risk. Risk is relative, of course, and tends to go hand in hand with potential return. Find a stock with huge return potential, and you may have one with a higher risk profile.
The highest yields tend to coincide with the lowest share prices. After all, when a stock is priced at pennies, even a small gain in share price can mean a huge return. Which means that penny stocks—these days, typically seen as those ordinary shares priced at less than $5—combine a perfect storm of market attractions: low share price, high return potential, and higher risk. than usual.
Due to the nature of these investments, Wall Street analysts recommend doing some due diligence before pulling the trigger, noting that not all penny stocks are bound to be great.
With this in mind, we set out our own search for strong, booming investments. Using the TipRanks database, we pulled two penny stocks that have gathered enough analyst support to achieve a “Strong Buy” consensus rating. Adding to the good news, each pick has over 200% upside potential.
Lineage Cell Therapies (LCTX)
First up is Lineage Cell Therapeutics, a clinical-stage biotechnology firm working on new cell therapies to treat serious medical conditions with high unmet needs. Specifically, the company uses a proprietary platform to develop ‘specialized terminally differentiated human cells’ from a range of progenitors; the latter cells can be used to treat disease conditions by replacing or supporting affected cells and tissues. The company aims to treat, or even reverse, degenerative diseases or traumatic injuries.
Lineage has based its program on an infinitely reproducible cell line, and works to develop cell therapies for retinal and photoreceptor conditions, spinal cord damage, auditory neurons, and immune conditions. The company has 5 research programs, two at preclinical stages and three in human clinical trials. The leading candidates are OpRegen, which is being developed in partnership with Roche affiliate Genentech, and the spinal injury treatment OPC1.
OpRegen is currently in Phase 2 trials, and 24 patients have been treated. The drug candidate is designed for administration as a single dose, for the treatment of eye disorders, including dry age-related progressive macular degeneration (dry AMD) with geographic atrophy (GA). These are both serious conditions, with large markets to contend with. Lineage received an upfront payment of $50 million from Genentech earlier this year, and will receive up to $670 million in royalties through the partnership.
The second lead candidate, which was used to treat 30 patients, is OPC1, a potential new treatment for spinal cord injuries. OPC1 is designed to treat the loss of function associated with spinal cord injury, and is currently undergoing a Phase 1/2a multicenter clinical trial.
Covering Lineage for Baird, analyst Jack Allen sees a lot of profit potential here for investors. As he explains, “With an estimated ~2.5M GA patients in developed markets and no approved treatment for this disease we believe Roche’s annual sales of this asset could easily exceed $4B. This could be over $500M in annual royalties for Lineage, a dynamic that should be well behind the current ~$250M market capitalization in the long term.”
The analyst added, “We are very encouraged by the initial data from the OpRegen program and note that the functional benefit observed with this treatment is a key differentiator…We are encouraged by Lineage’s potential for fully differentiated allogeneic cell therapies to create. and note that current programs may only represent the tip of the iceberg of what these types of regenerative medicine are capable of.”
Based on OpRegen’s potential, and Lineage’s $1.30 share price, Allen thinks now is the time to get in on the action. The analyst rates the stock as Outperform (ie Buy), and his price target, set at $5, suggests the stock will gain an impressive 281% over the next 12 months. (To view Allen’s track record, Click here)
Some stocks just manage to push all the buttons with the analysts, and Lineage has managed to do just that – picking up 5 positive reviews from the stock pros. These represent a consensus rating of Strong Buy, and the average price of $5.40 implies a 312% upside over the one-year timeframe. (See LCTX stock forecast on TipRanks)
Graphite Bio (GRPH)
The second penny stock we’ll look at is Graphite Bio, a clinical-stage biotechnology company focused on next-generation gene editing technology for use in the development of curative therapies for a wide range of serious and/or life-threatening diseases, particularly genetic. The company uses its UltraDRTM gene editing platform to design precise corrections for any genetic mutation, which can be inserted precisely into the disease-causing gene, replacing the faulty genes with functional copies.
Graphite Bio’s pipeline includes four tracks, two of which are still in discovery stages. The third, GPH102, is a potential treatment for the blood condition beta-thalassemia, and is at the IND enabling stage. The real interest in this stock comes from a fourth drug candidate, Nulabeglogene autogedtemcel, or nula-cel, which is undergoing human clinical trials as a treatment for the genetic sickle-cell blood disorder.
Sickle cell disease, or SCD, is the most prevalent monogenic disease in the world, affecting over 100,000 people in the US alone. Nula-cel aims to correct the underlying mutation that causes the disease, by directly disrupting functional genes and restoring the expression of healthy hemoglobin proteins. Nula-cel is currently in a Phase 1/2 clinical trial, CEDAR, an open-label trial designed to evaluate safety, gene correction, and hemoglobin expression, prior to larger trials. Proof-of-concept details are expected to be released in the middle of next year.
Cantor analyst Olivia Brayer is bullish on the small-cap company’s future prospects, noting: “The team has made continued progress with its ongoing phase 1 clinical program for its lead clinical asset nula-cel. We’re still another 6+ months away from looking under the hood, with the first phase 1 details still on track for mid-2023, but this is a name we’d like to look at as an investor center for 2023 into. which could be a great preliminary step into reading out.”
“The main focus will be on safety, but we think Graphite may show some early signs of directly eliminating sickle globin, which may show some early clinical differentials and will be a major inflection point for the stock’s valuation next year,” the analyst said. .
Quantifying her bullish stance, Brayer rates GRPH shares Overweight (ie Buy), and her price target of $12 indicates confidence in a strong 12-month gain of 242%. (To view Brayer’s track record, Click here)
Overall, out of the 6 analysts who have recently filed reviews on this stock, 5 come down as Buys and 1 as a Hold (ie Neutral) – for a consensus rating of Strong Buy. The shares have a current trading price of $3.50 and their average target price of $13.20 represents a jump of 277% going out in one year. (See GRPH stock forecast on TipRanks)
For great ideas on trading penny stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unifies all of TipRanks’ equity insights.
Denial: The views expressed in this article are solely those of the analysts in question. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.