Risk and reward are the yin and yang of stock trading, the two opposite but essential ingredients in every market success. And there are no stocks that better embody both sides – the risk factors and the reward potentials – than penny stocks.
These equities, priced below $5 per share, typically offer high upside potentials. Even a small gain in share price – just a few cents – quickly translates into a high yield return. Of course, the risk is real, too; not every penny stock is going to show these sort of gains, some of them are cheap for a reason, and not every reason is a good one.
So, how are investors supposed to distinguish between the long-term winners and those set to come up short? Following the activity of the investing titans is one strategy.
Billionaire Israel “Izzy” Englander, chief of the hedge fund firm Millennium Management, is one of those titans. Speaking to his impressive track record, Englander took the $35 million the fund was started with and grew it into more than $50 billion in assets under management.
Turning to Englander for inspiration, we took a closer look at two penny stocks Englander's Millennium made moves on recently. Using TipRanks’ database to find out what the analyst community has to say, we learned that each ticker boasts a Strong Buy rating and at least 200% upside potential. Let's take a close look.
Assembly Biosciences (ASMB)
Infectious disease has definitely been on everyone’s radar for the past couple of years. And while corona made the headlines, it’s hardly the only serious pathogen out there. Hepatitis B virus (HBV) has long been known as a serious public health matter. The virus causes chronic, progressive, and severe liver disease, and while vaccines can prevent infection and transmission, there are few fully effective treatments available for patients suffering with the disease. Assembly Biosciences aims to change that situation.
The company has an active research pipeline, featuring no fewer than three core inhibitor drug candidates. This is a new class of drugs, designed to interfere with the virus life cycle by blocking the virus protein assembly and function at key points. Assembly’s leading drug candidate, vebicorvir, has proven itself in Phase 1 trials and is currently undergoing two Phase 2 triple combination trials. Interim data from these two trials is expected in the second half of the year.
That won’t be the only potential catalyst for ASMB in the near future. Two other core inhibitor drug candidates, ABI-H3733 and ABI-4334, are both at the Phase 1 clinical stage, with several data sets expected in the course of this year. In the order expected, these include clinical trial initiations, plus initial Phase 1b data for H3733 in the second half of the year and phase 1a data for 4334 by year’s end.
For Izzy Englander, the billionaire trader, this must add up to a risk worth taking, because he expanded his holding in ASMB by over 300%, picking up 1,031,087 in Q1. At current prices, this stake is worth $1.8 million.
Englander isn’t the only one bullish here. Baird analyst Brian Skorney gives ASMB an Outperform (i.e. Buy) rating, with a $15 price target that suggests a whopping 757% upside potential for the next 12 months. (To watch Skorney’s track record, click here)
The key factors for this company, in the view of Skorney, are the triple combo studies. Skorney writes, “Looking to 2H22, we believe on-treatment data from a pair of vebicorvir+nuc triple combination regimens will be important datasets, which could support optimism for curative potential... We do see upside potential beyond the current valuation should either dataset be suggestive of improved biomarker data, which could create hope for a functional cure upon cessation of therapy, down the road... All considered, while we view the current programs as high risk, we do anticipate the potential for a curative combination regimen could support improved optimism around the stock into the second half of the year."
What does the rest of the Street have to say? ASMB has picked up 4 reviews from Wall Street analysts, with a 3 to 1 breakdown of Buys over Holds for a Strong Buy consensus rating. It’s share price is $1.75 and the $11.13 average price target implies a 536% one-year upside. (See ASMB stock forecast on TipRanks)
Xeris Pharmaceuticals (XERS)
The next of Englander’s penny-picks is Xeris Pharma, a pharmaceutical company with a major advantage for investors to consider: in addition to an active research pipeline, the company has three new drugs at the commercialization stage, on the market. This gives the company a steady income stream, $22 million in the first quarter of this year, where most of its peers are still pre-revenue.
Xeris has another differentiating factor, as well. It’s main research focus has been on the development of self-administered, non-aqueous injectable formulations; that is, new drugs that are not water soluble, are shelf-stable, and are available in ‘pen’ type delivery systems, similar to the well-known epipen. It is a novel approach to medication dosage, and builds on patients’ desires to maintain independence.
Currently, the main drug in Xeris’ commercial operation is glucagon, a treatment for severe hypoglycemia due to diabetes. Xeris’ formulation, as a self-administered injection, was approved for the US market under the name Gvoke in 2019; a slightly modified formulation, branded as Oglou, is in use in Europe and was approved in the UK at the end of last year.
Keveyis, a treatment for primary hyperkalemic periodic paralysis, along with Recorlev, a treatment for Cushing’s syndrome, were both acquired during 4Q21 when Xeris completed its acquisition of Strongbridge. That merger cost Xeris $267 million – but it allows the merged entity to combine their marketable drug products into one lineup and save on commercialization costs.
Xeris saw a 172% increase in revenue for 1Q22, to $21.9 million, compared to just $8 million in the year-ago quarter. Gvoke made up the lion’s share of this revenue, while the other marketed products are at the beginning of their sales ramp-up. Xeris runs a net loss, like many cutting-edge med tech firms, and saw a negative EPS of 25 cents in the quarter.
It’s clear that Englander liked what he saw in Xeris – his fund bought 1,214,026 shares in the company in Q1. At the current valuation, this is worth $2.42 million.
In coverage for Craig-Hallum, analyst Robin Garner lays out the bullish case here, writing: “The merger between Xeris and Strongbridge created a combined company with multiple revenue generating products, each with unique market advantages and an experienced salesforce whose value is not fully recognized... After the biotech selloff in 2021 that included particular weakness in smid-caps, Xeris offers a flight to quality... The pro forma Company generated $80M in 2021 revenue in undertapped markets that still provide ample upside. Through 2032, we project revenue will grow to ~$490M."
In line with these comments, Garner gives Xeris a Buy rating with a $6.50 price target to suggest a 218% upside this year. (To watch Garner’s track record, click here)
The upside view is clearly in the ascendant here, as Wall Street’s analysts are unanimously positive on XERS shares – all four recent reviews are Buys, for that Strong Buy consensus view. The stock is selling for $2.04, with an average price target of $6.13 indicating potential for 200% gains in the coming year. (See XERS stock forecast on TipRanks)
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.
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