New indicators of a cooling economy eased concerns about inflation, sending the S&P 500 soaring to record highs last week. The index, which fell about 4% in April, is now up 11% this year.
Will this momentum continue? Savita Subramanian, head of US Equity and Quantitative Strategy at Bank of America, thinks so. She takes an optimistic stance on the current market outlook and supports this with a look at the long-term results of the past 300-plus quarters. “Twenty were recessive, thirteen were stagnant and in 90% of cases everything was fine,” Subramanian noted.
In practice, Subramanian’s views lead her to beat the drum for long-term ownership and advise investors to eschew market timing. In her words: “’Market time beats market timing’ is an old but prescient adage. The risk of losing money in stocks decreases as the time horizon lengthens, a phenomenon unique to stocks versus other asset classes. The best days usually follow the worst days, and missing those best days is costly: since the 1930s, missing the ten best S&P 500 days per decade would have yielded a paltry 66% vs. ~23,000% gain if there had still been invested.”
Subramanian’s colleagues among the stock analysts at Bank of America take this positive outlook and advise investors to buy two stocks in particular. Both have solid upside potential – in one case even 200%. According to TipRanks databases, both stocks also receive a ‘Strong Buy’ rating from the broader analyst consensus; let’s take a closer look and find out why they’re poised for a win.
Sutro Biopharma (STRAW)
The first Bank of America pick we’ll look at, Sutro Biopharma, is a clinical-stage medical research company with a strong oncology focus. The company is committed to developing new medications to treat the unmet needs common in many cancers; Sutro pursues this goal by developing a research pipeline consisting of drug candidates with improved therapeutic profiles.
To achieve this goal, Sutro first developed its own technology platform, called XpressCF. The company has recognized an inherent limitation in making most drug candidates: that the compounds, especially the proteins, are made using existing lines of living cells. Because these cells must be intact and functioning, there are some molecules they cannot produce, and the production methods can be cumbersome.
Sutro’s XpressCF platform uses cell-free technology, using an extract of the cellular components that produced proteins. This new platform technology enables Sutro to produce ‘single proteins in yields of g/l in 8-10 hours at any scale’ and transform them into new drug candidates. Using its platform, Sutro can develop compounds as varied as small peptides and monoclonal antibodies.
The lead drug candidate in Sutro’s pipeline is STRO-002, also called luveltamab tazevibulin, or luvelta for short. This new therapeutic agent has shown promise in early testing against ovarian cancer and is currently undergoing a Phase 2/3 trial, called REFRαME-O1, in the treatment of platinum-resistant ovarian cancer (PROC). The study consists of two parts: a dose optimization part in which 50 patients are fully enrolled, and a randomized, registration-oriented study, part 2, which opened for enrollment in April. Part 2 of this study, the phase 3 part, is expected to involve up to 500 patients.
For Bank of America analyst Tazeen Ahmad, this company’s powerful combination of a high-potential drug candidate and a development platform with equal potential is too attractive for investors to pass up. She writes about the drug candidate: “We believe luvelta has the potential to treat up to 80% of PROC patients, a significant improvement over the ~30% eligible for AbbVie’s Elahere (approved FolRα ADC) . While we do not model all eligible patients receiving the drug, we believe luvelta represents an attractive commercial opportunity in PROC, with potential to expand into other oncology indications with high unmet needs… We are currently modeling risk-adjusted peak sales for luvelta in PROC of $597 million.”
Ahmad then explains how Sutra’s development platform is another solid asset: “To date, STRO’s differentiated approach has delivered strategic partnerships with prominent names such as Astellas, Merck, Ipsen and Bristol Myers Squibb. We note that these partnerships will be integral as the company continues to maximize the reach of its XpressCF platform and innovative product candidates in areas of high unmet need.”
Together, these assets support Ahmad’s Buy rating on STRO, and her $12 price target points to robust one-year upside potential of ~199%. (To view Ahmad’s track record, click here)
Overall, the Strong Buy consensus rating for STRO is based on 10 recent analyst ratings, including 9 Buys and 1 Hold. The shares are selling for $4.01 and their average price target of $11.44 suggests the stock will see a gain of 185% over the next twelve months. (To see STRO stock forecast)
Avidity Biosciences (RNA)
The second stock on today’s list is another biotech company, Avidity Biosciences. This company focuses on the development of targeted RNA therapeutics and has established its own development platform to achieve this. The platform, called Antibody Oligonucleotide Conjugates or AOC, is described as having “broad and disruptive potential, and the company already has a portfolio of muscle disease programs in its research pipeline.
Genetic diseases are extremely difficult to treat and at the same time have a major impact on patients’ lives, making the development of new therapies urgently needed. Avidity’s AOC platform will enable the company to design and develop drug candidates that deliver both the tissue selectivity of monoclonal antibody treatments and the precision of oligonucleotide-based therapeutics, in a move that promises to redefine RNA therapies. The resulting drug candidates have the potential to more effectively address the underlying genetic causes of many diseases.
To date, Avidity has used its platform to advance three RNA therapies into the clinical trial pipeline. These candidates are intended to address the specific genetic cause of three rare muscle diseases, each of which has proven untreatable with previously available RNA therapies. The company has already achieved some success with its research program and has achieved the first ever successful targeted delivery of RNA into muscle tissue. This early success underpins the three clinical programs for myotonic dystrophy type 1 (DM1), Duchenne muscular dystrophy (DMD) and facioscapulohumeral muscular dystrophy (FSHD).
The DM1 track, with candidate drug AOC-1001, is the most advanced. The drug, called delpacibart etedesiran and abbreviated as del-desiran, showed reversal of disease progression in multiple functional measures in early testing – a significant achievement for a drug that targets an often fatal neuromuscular disease for which there is currently no approved treatment. Avidity will initiate a global Phase 3 trial of AOC-1001, HARBOR, during the current quarter.
A second drug candidate, AOC-1044, received Rare Pediatric Disease designation from the FDA in February for the treatment of DMD44. The company will release 5 mg/kg cohort data from the Phase 1/2 EXPLORE 44 trial of AOC-1044 in humans with DMD44 in the second half of 2024.
The company’s third clinical-stage drug candidate, AOC-1020, is a treatment for FSHD. Avidity is on track to present preliminary data from approximately half of the patients enrolled in the FORTITUDE Phase 1/2 clinical trial of the drug candidate. This data release is expected during this quarter.
These are some key shots on target that have caught the attention of analyst Geoff Meacham. In his coverage of this company for Bank of America, Meacham lays out an optimistic view: “We believe RNA will benefit from robust demand for its innovative AOC therapies and estimate that adjusted peak sales in 2033 from the rare muscle disorders portfolio of the company will reach $2.3 billion. (AOC 1001 in DM1, AOC 1044 in DMD susceptible to exon 44 skipping, and AOC 1020 in FSHD). With an innovative platform and a path to commercialization as early as 2026, we view RNA as an attractive risk-reward opportunity.”
Looking ahead, the analyst rates RNA stock a Buy, and his $40 price target indicates room for 35.5% upside potential over one year. (To view Meacham’s track record, click here)
A bullish approach is not an outlier here; RNA stock has seven unanimously positive analyst reviews behind the Strong Buy consensus rating. The stock is currently trading at $29.50 and has an average price target of $42.67, implying 45% upside potential this coming year. (To see RNA Stock Prediction)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
