Penny stocks are a study in contrasts. They are stocks whose share price is below $5, and that low price opens up a wide range of possibilities. Chief among these is its ultra-low entry cost, combined with three-digit upside potential. These are stocks that can really skyrocket when conditions are right.
But penny investors had better be risk tolerant, as these stocks also offer a range of potential downsides. First, there’s those ultra-low entry fees; it begs the question, why is the stock priced so low? Usually that is a sign of fundamental weakness. There are also the simple rules of mathematics. Penny stocks can provide huge returns because at their low initial price, even a small gain in absolute terms can turn into a high percentage of the total investment. But the reverse can also happen – so investors should research their penny stock carefully before jumping in.
Fortunately, Wall Street analysts got a head start on that research. They regularly search the markets for stocks showing signs of rising, and many of those stocks fall into the cheap penny category.
Using The TipRanks database, we stuck to two that garnered rave reviews from the street, enough to earn a “Strong Buy” consensus rating. Not to mention that each offers huge upside potential.
Allena Pharmaceuticals (ALNA)
We start with Allena Pharmaceuticals, a clinical-stage biopharmaceutical company engaged in the discovery and development of novel drugs for rare metabolic disorders. The company’s work focuses on hyperoxaluria, a condition in which oxalate levels in the urine are significantly elevated, either due to a genetic defect or hyperabsorption of oxalate. The condition can cause progressive kidney problems, from stones to organ damage to end-stage kidney failure.
Allena has developed reloxaliase, a premier oral enzyme therapeutic for the treatment of hyperoxaluria. The drug candidate has demonstrated efficacy in lowering oxalate levels in three Phase 2 clinical trials and progressed to the URIROX-2 Phase 3 pivotal trial. This study will enroll 200 patients worldwide, and interim data is for 1Q22.
In addition to reloxaliase, Allena is developing ALLN-346, a new compound under investigation as a treatment for hyperuricemia — high levels of uric acid, the complications of which, such as hyperoxaluria above, include kidney stones and long-term kidney damage — and gout. ALLN-346 recently completed an 18-patient Phase 1b study of safety and tolerability. The drug candidate is on track for two separate Phase 2a trials this year, with first data expected in 4Q21.
Currently going for $0.75 each and several members of the Street believe Allena’s stock price is an attractive entry point.
Among the bulls is Wedbush analyst Liana Moussatos who sees the upcoming phase 3 trial of reloxaliase as a potential catalyst to drive the stock up.
“URIROX-2 is currently considered by the company to be overpowered in 200 patients to demonstrate…significant reductions. Therefore, we consider management’s decision to provide an interim look sooner rather than later as smart as it could create a value-driven catalyst for ALNA stocks in 6-8 months. Positive results are likely to spark partners’ interest in a commercially ready asset and shed more light on the value of the enzyme-based platform,” Moussatos said.
Looking at the ALLN-346 Phase 1b results, Moussatos noted, “ALLN-346 was shown to be well tolerated with no evidence of serious side effects or systemic absorption confirmed by an enzyme-linked immunosorbent assay (ELISA).”
The analyst summed up: “We view ALNA as an attractive investment for 2021 with a likely benefit from the ALLN-346 PoC reading in Q4:21, greater confidence in the URIROX-2 clinical timeline and lack of near-term funding. .. We estimate net sales of ~$605 million for the company in 2027 after a US launch of reloxaliase/EH in 2023 (~$507MM) and ALLN-346/Gout with CKD (~$98MM) in 2025. “
In line with its bullish stance, Moussatos rates ALNA as a buy, and its $5 price target implies an astonishing upside potential of ~564% over the next 12 months. (To view Moussatos’ track record, click here)
Turning to the rest of the street, other analysts are echoing Moussatos’ sentiment. Since only buy recommendations have been published in the past three months, ALNA earns strong analyst buy consensus. With an average price target of $6.67, stocks could rise ~786% from current levels. (View ALNA Stock Analysis on TipRanks)
Select Life Sciences (SELB)
Biologics are a potent class of drugs that have been shown to be effective in treating metabolic and autoimmune diseases. Selecta Biosciences, a clinical-stage biotechnology research company, is working on biologics as a class, using its immune tolerance platform, ImmTOR, to overcome immunogenicity, a justified immune response elicited in normally tissues. Immunogenicity is often an aggravating factor in metabolic and autoimmune diseases.
Selecta is using its ImmTOR platform to develop a more effective biologic drug treatment. The company’s lead candidate is SEL-212, a treatment for chronic refractory gout. SEL-212 shows potential to treat the underlying disease and to manage symptoms such as flare-ups and gouty arthritis. This drug candidate is the flagship of the ImmTOR platform – the first compound developed on it and the most advanced in the clinical research pipeline. SEL-212 has shown positive results in safety and tolerability studies and is currently enrolling patients in the Phase 3 DISSOLVE trial. Topline data from that trial is expected in 2H22.
Now that SEL-212 shows that the proprietary ImmTOR platform can work, Selecta is expanding its research program. The company has 7 more drug candidates in the pipeline, all in preclinical stages, and no fewer than four investigational new drug applications are in preparation for submission to the FDA by the end of this year and the first half of next year. .
analyst Yun Zhong, from BTIG, describes Selecta’s platform as undervalued, writing, “We see significant potential in Selecta’s ImmTOR technology platform beyond the chronic refractory gout program (SEL-212). We believe the clinical data of SEL-212 to date is a have demonstrated strong efficacy and safety in support of FDA approval.Our surveyed physicians have a positive view of SEL-212, which we believe bodes well for market entry at commercial launch.With the strong proof-of-concept for the induction of antigen-specific immune tolerance, we believe the real value for Selecta is the application of ImmTOR in additional indications and treatment modalities, including gene therapy and autoimmune diseases.”
To that end, Zhong rates SELB a Buy along with a $10 price target. If this target is met in the coming year, investors could make a gain of ~202%. (To view Zhong’s track record, click here)
What is the rest of the street saying? 6 Buys and 1 Hold together make up a Strong Buy consensus rating. Given the average price target of $7.67, stocks could rise ~132% over the next year. (See SELB stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.