Every investor is in the stock market to find a solid return. That’s the bottom line, and while it sounds simple, the trick is to find stocks that are primed for gains and will make the inherent risk worthwhile. Risk cannot be avoided in the markets, and it generally increases in direct relation to a stock’s potential return. And there are few equity segments that offer the potential for greater return for the risk taken than penny stocks, those stocks priced at $5 or less.
When we talk about high return potential, we’re not exaggerating. The advantageous prices allow investors to acquire more shares than possible when investing in other better known names. Moreover, even what looks like an insignificant appreciation in the stock price can result in massive percentage gains.
That said, there is a legitimate reason why some investors are wary of penny stocks. The risk in these plays scares the faint hearted because very real issues like weak fundamentals or crushing headwinds could be masked by low stock prices.
So how should investors approach a potential penny stock investment? Drawing inspiration from the analyst community. These experts bring deep knowledge of the industries they cover and substantial experience to the table.
With this in mind, we used the TipRanks database to identify two penny stocks that have earned a “Strong Buy” consensus rating from the analyst community. Not to mention that each offers huge upside potential and could climb to $11 or more.
Autolus Therapeutics (AUTL)
We will start with Autolus Therapeutics, a clinical-stage biopharmaceutical company focused on the development of novel therapeutic agents for the treatment of cancer. The company’s development process uses extensive programming capabilities in the creation of advanced autologous T cells, with the potential for life-changing benefits against cancers that have proven resistant to previous treatments. The technology is based on chimeric antigen receptors, designed to rejuvenate the patient’s T cells to enhance anti-tumor activity.
The company’s lead drug candidate, Obe-cel, is an autologous CAR T cell therapy with a novel rapid-fire rate to stimulate T cell activity against tumors while reducing immunotoxicity. The drug candidate uses a unique CD19 CAR, and early trials demonstrated that this configuration resulted in increased T-cell persistence, lower T-cell exhaustion, and longer-lasting remissions. Obe-cel is featured in 3 of Autolus’ 8 active pipeline programs and constitutes the majority of ongoing clinical trials.
Obe-cel’s lead clinical trial is the Phase 2 FELIX study, which the company recently announced has met the primary interim endpoint. This included an overall remission rate (ORR) of 70% in 50 patients with relapsed or refractory adult acute lymphoblastic leukemia. News of the trial’s interim success triggered a series of milestone payments from Blackstone Life Sciences, with whom Autolus is partnering on obe-cel. The payments, one for development and one for manufacturing, totaled $70 million.
Autolus has deep pockets, with plenty of cash reserves available to fund its clinical programs. Mizuho analyst Mara Goldstein notes this, along with the obe-cel program’s strong position.
“We view AUTL as largely overlooked as cell therapy has largely struggled given the risk profile and capital requirements. The company is poised to file a BLA in 2023 based on the success of the FELIX study testing obe-cel, a CD19 CAR-T with competitive efficacy and improved safety profile in adult ALL (aALL) . AUTL’s CAR-Ts utilize “quick stop” kinetics that improve the safety profile… Readings from the pivotal FELIX trial at ASCO [June 2-6] and ASHES [December 9-12] represent the largest near-term catalysts…AUTL had approximately $380m+ (unaudited) at the end of 4Q22, providing an estimated cash trail through 2025 and removing the overhanging trail” , Goldstein said.
All of this was enough for Goldstein to make AUTL one of his top choices in the biotech industry. The analyst rates the stock long with a price target of $18, implying huge one-year upside potential of around 787%. (To see Goldstein’s track record, click here)
Belanger is not the only analyst to see a solid upside; all four recent reviews of this title are positive, for a strong buy consensus rating. The shares are priced at $2.03 and the average price target of $11.25 suggests an upside of around 454% from this level. (See AUTL stock forecast on TipRanks)
Therapeutic Decibel (DBTX)
The next penny stock we’re looking at is Decibel Therapeutics, a clinical-stage biotech company developing new treatments for inner ear conditions that cause hearing and/or balance loss. The company is working on the gene therapy pathway, aiming to create drug candidates that will correct inner ear problems at the underlying genetic level. Decibel’s pipeline has 7 research leads, most of them in the preclinical phase but two in human clinical trials.
The lead candidate is DB-OTO, a gene therapy candidate designed to treat mutations in the OTOF gene, which can lead to profound, congenital hearing loss. The gene expresses a protein, called OTOF, which connects the cochlear hairs to the auditory nerve; without it, patients cannot hear even though their ears have the structures to detect sound. Decibel’s drug candidate aims to replace the defective gene in the targeted cells, allowing expression of the protein – making the link between the patient’s ear and the nervous system.
Decibel is currently preparing for a Phase 1/2 clinical trial of DB-OTO, and late last month announced a step toward expanding its planned trial. The study, which is set to start in the US in 1H23, has now been approved for clinical trial by the UK Medicines and Healthcare Products Regulatory Agency.
DB-020, an investigational drug candidate to combat hearing loss induced by cisplatin, a common chemotherapy drug, is also on the clinical track. Cisplatin has a well-known negative impact on hearing, and is still used because of its anti-cancer efficacy. DB-020, a new formulation of sodium thiosulfate, can prevent hearing loss without diminishing the effectiveness of cisplatin – a win for patients. Decibel is currently conducting a phase 1b trial of DB-020 and expects to publish results in the first half of this year.
This stock caught the eye of Baird analyst Jack Allen, who is impressed with the scope and potential of the upcoming DB-OTO clinical study program.
“We remain very excited about the potential of DB-OTO and expect Decibel shares to rise over the coming quarters as DB-OTO enters the clinic and investor interest in the program grows before crucial proof-of-concept data, which are expected by 1Q24….We anticipate that these potential proof-of-concept data will have crucial implications for society’s aspirations for otology gene therapy, and we therefore anticipate that this reading will mark a key catalyst for the company.Additionally, given the current valuation, we believe that the shares could rise significantly ahead of this data set, as investor interest in this program increases in the quarters/months to come,” Allen said.
In Allen’s view, Decibel is worth an outperform (i.e., buy) rating, and he gives the stock a price target of $21, indicating confidence in a rise. approximately 471% over one year. (To see Allen’s track record, click here)
Overall, all 5 recent analyst reviews of the stock have been positive, underscoring Wall Street’s bullish outlook and a unanimous Strong Buy consensus rating. Decibel shares have an average price target of $15.40 and a current sale price of $3.67, which together imply a 319% upside over the one-year period. (See DBX stock forecast on TipRanks)
To find great stock ideas trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.