Risk and reward are the yin and yang of stock trading, the two opposite but necessary ingredients to any success in the market. And there are no stocks that better incorporate both sides – the risk factors and the reward potential – than penny stocks.
These stocks, priced below $5 per share, typically offer high upside potential. Even a small gain in the share price – just a few cents – quickly translates into a high yield return. Of course, the risk is also real. not every penny stock is going to show this kind of earnings, some of them are cheap for a reason and not every reason is good.
So how are investors supposed to lock in exciting plays? That’s why Wall Street professionals are here.
Using TipRanks’ database, we’ve pulled penny stocks that have garnered enough analyst support to earn a consensus “Strong Buy” rating. If that wasn’t enough, there’s plenty of upside here. Let’s take a closer look.
CymaBay Therapeutics (CBAY)
We’ll start by looking at CymaBay Therapeutics, a biopharmaceutical company focused on clinical-stage research for the treatment of chronic liver disease. The company has a lead drug candidate, seladelpar, which is in three separate clinical trials as a treatment for three different liver diseases. The drug candidate, a PPARdelta agonist, is being tested against primary biliary cholangitis (PBC), non-alcoholic steatohepatitis and primary sclerosing cholangitis. Of these, the PBC track is the most advanced.
This clinical pathway has just completed enrolling patients for the Phase 3 RESPONSE study. This study will evaluate the safety and efficacy of seladelpar as a treatment for patients with PCB who have not responded to or tolerated current UDCA therapy. The study is involving 180 patients in more than 20 countries, and the results will be announced sometime next year.
In addition to the RESPONSE trial, seladelpar is also undergoing the ASSURE trial, an open-label, long-term study designed to gather additional long-term safety data for the drug. The ASSURE trial currently has approximately 140 patients enrolled.
Finally, CymaBay has a second drug candidate in the clinical stage, MBX-2892. This drug candidate is a GPR 119 agonist, designed to treat diabetic hypoglycemia. The study is a Phase 2a pharmacologic proof-of-concept trial evaluating the potential of MBX-2892 to prevent hypoglycemia in patients with Type 1 Diabetes.
Against this backdrop, Wall Street believes CBAY’s long-term growth narrative is strong and its $3.26 share price reflects an ideal entry point.
Covering the stock for Raymond James, analyst Steven Seedhouse sees the seladelpar trials as the key point for CymaBay going forward, believing the catalysts of upcoming data releases should reflect higher share prices.
“CymaBay has completed enrollment in the Phase 3 RESPONSE study evaluating seladelpar in primary biliary cholangitis (PBC), following guidance provided in its 1Q22 earnings call… The analysis of the available ENHANCE patient data set that collected through month 3 showed statistical improvement in the Primary composite endpoint and statistical normalization of ALP and ALT, in our view, dramatically reducing the risk of RESPONSE success. The only push in our CBAY pitch as Phase 3 enters was “too much time for catalyst”. Now with a flag in the ground (phase 3 data 2H23E), the ~12 month time horizon in a highly risk-free Phase 3 with a proven ultimate market should be generally attractive and we expect CBAY to fully appreciate in the next year or much earlier,” Seedhouse said.
Seedhouse translates its bullish view on CBAY’s future prospects into numbers with a $14 price target – implying a potential upside of 329%. It’s no surprise, then, why he rates the stock a Strong Buy. (To follow Seedhouse’s history, Click here)
Seedhouse is highly bullish, but not the most extreme on this stock. All 5 of the recent analyst reviews here are positive, for a unanimous consensus of Strong Buy, and the average price target of $9.80 gives CBAY shares a 199% upside potential for one year. (See CBAY stock forecast on TipRanks)
AbSci Corporation (ABSI)
For the second penny stock we’ll look at, we’ll stick to the medical technology sector – but look at a company with a different take on it. AbSci does not directly develop new drugs or therapeutic candidates. Instead, the company focuses on new drug development methods.
AbSci is working with artificial intelligence (AI), machine learning (ML) and cell line generation to create a new Integrated Drug Creation™ platform with the potential to transform the way drug candidates are researched and manufactured. AbSci’s platform can identify new drug targets, distinguish the best biological and therapeutic candidates for those targets, and generate the cell lines needed to produce the new drugs. Combining these processes into one, more efficient, process offers new pathways to the next generation of novel therapeutics, including protein-based drugs.
Earlier this year, AbSci began a partnership with Merck to produce Bionic Enzyme. The partnership could bring significant earnings to AbSci, including $610 million in upfront payments, milestone payments and future royalty payments. On another positive note, the company also announced two new machine learning breakthroughs in the first quarter of this year, which are expected to streamline drug discovery processes and mitigate risks in new drug development.
So far this year, AbSci has 8 new “Active Programs”, collectively representing a 60% year-over-year increase in the company’s research tracks.
Analyst Robyn Karnauskas, writing from Truist, believes that the marriage of proprietary AI/ML and biodevelopment platforms will create a winning combination in the field.
“ABSI’s platform is attractive to Biopharma partners interested in developing next-generation biologics that are unique, faster and cheaper. Using its in-house developed biology and technology platforms iteratively, the company can discover new biologics that are optimized to be better medicines — faster. And by using the bacteria they have grown inside, they can produce new proteins compared to traditional methods and make them faster, as well as cheaper. While it’s still early days, we believe the company’s platform has the potential to address several shortcomings of traditional biologics discovery. And given the growing demand for next-generation biologics, we see this as an attractive partner for Biopharma and an attractive play for both Biotech and tech investors,” Karnauskas wrote.
With that in mind, Karnauskas rates ABSI shares Buy along with an $8 price target that shows her confidence in the stock’s ~128% one-year appreciation. (To follow the history of Karnauskas, Click here)
Overall, Wall Street tends to agree with the bulls. The 4 recent analyst ratings include 3 Buys and 1 Hold, for a consensus rating of Strong Buy, and the average price target of $14 indicates a ~299% upside potential from the current share price of $3.51. (See ABSI stock forecast on TipRanks)
To find good ideas for trading penny stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.
Denial of responsibility: The views 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.