There are two sides to every coin. This is especially true for penny stocks, or tickers that trade for less than $5 per share. These stocks are among the most divisive names on Wall Street, either enticing investors with their high return potential or scaring them away. But why?
When we say that there is a high return potential, we are not exaggerating. The spot price allows investors to buy more shares than is possible when investing in other, more well-known names. Furthermore, even what feels like a trivial price increase can translate into huge percentage gains.
That said, there’s a legitimate reason why some investors are wary when it comes to penny stocks. The risk associated with these types of moves scares the faint of heart, as real problems such as weak fundamentals or overwhelming headwinds can be masked by low stock prices.
So how should investors determine which names have what it takes to make a comeback? Follow the pros.
Using the TipRanks database, we were able to identify two penny stocks that boast ‘Strong Buy’ consensus ratings from the analyst community. Not to mention the huge upside potential on the table. We are talking about a maximum of 750%.
Vigil Neuroscience (VIGL)
We’ll start with Vigil Neuroscience, a biotech company working to develop novel therapeutics for the treatment of neurodegenerative diseases. The company is taking a new approach that focuses on microglia, cells located in the central nervous system that play a role in the defense and repair of neurons. The company’s goal is to create a range of drug candidates that can target genetically defined subpopulations of patients, to demonstrate efficacy before expanding the patient base.
Vigil’s programs are currently designed to target TREM2 activation, via both large and small molecule compounds. The company’s lead drug candidate, iluzanebart (also known as VGL101), is currently undergoing a Phase 2 clinical trial for the treatment of ALSP, or adult-onset leukoencephalopathy involving axonal spheroids and pigmented glia. Iluzanebart is a fully human monoclonal antibody and TREM2 agonist.
ALSP, the initial disease target, is a severe, degenerative neurological disease with a high unmet medical need; Enrollment in the Phase 2 IGNITE trial of iluzanebart has completed and interim data released in April showed promise based on the first 6 patients after 6 months of treatment. The next data readout for IGNITE, currently scheduled for 3Q24, remains on schedule.
Complementing iluzanebart is Vigil’s second asset, VGL-3927, an oral small molecule TREM2 agonist undergoing a Phase 1 clinical trial for Alzheimer’s disease. Interim data from healthy volunteers from this study is expected to be reported in the coming weeks.
The high potential of iluzanebart has caught the attention of Wedbush analyst Laura Chico, who writes about this program: “IGNITE readout creates a critical catalyst for VIGL… We believe the previous interim IGNITE readout in six patients provides early signals of iluzanebart activity. A longer treatment duration (e.g., 12 months versus 6 months) could be useful to better unravel imaging and biomarker trends. Given the rapid progression typically observed in ALSP patients, demonstrating any sign of disease stabilization would be a success…”
Chico points to the stock’s earnings potential, stating: “We see attractive risk/reward heading into the IGNITE readout, while cash (~$2/share) provides some downside protection and positive data could help the stock moving up towards our target of $22.”
Chico’s $22 price target suggests a robust 752% upside over one year. With such potential, it’s no surprise that Chico rates VIGL stock as Outperform (i.e. Buy). (To view Chico’s track record, click here)
While very bullish, Wedbush’s view is hardly an outlier. VIGL stock has six unanimously positive ratings from analysts, for a Strong Buy consensus rating, and its average price target of $18.33 suggests a 630% one-year upside from the current share price of $2.51. (To see VIGL stock forecast)
sc Pharmaceutical Products (SCPH)
The second penny stock we’ll look at is SCPharmaceuticals, a biopharmaceutical company that has achieved the end goal of any research-oriented company: getting an approved product to market. SCPharmaceuticals focuses on treatments for heart failure, the chronic inability of the heart to pump blood effectively. This condition leads to a cascade of other systemic disturbances throughout the body, including congestion or the buildup of fluids. It is a potentially lucrative field for biotechnology, as heart failure affects more than 6.5 million adults in the US and is responsible for more than 85,000 deaths annually.
At the core of SCPharmaceuticals’ portfolio is Furoscix, a subcutaneous drug that was approved by the FDA in October 2022 and introduced to the market in early 2023. Furoscix, a proprietary formulation of furosemide, specifically targets congestion due to fluid retention associated with Class II and Class III chronic heart failure. It offers the convenience of outpatient treatment.
The company’s efforts to commercialize Furoscix have been successful, with revenues rising sharply since the first quarter of 2023. SCPharmaceuticals will expand the label for Furoscix and has enrolled patients in a pharmacokinetic (PK) study supporting a higher dose injector. The PK study is intended to support a supplemental NDA (sNDA) by the end of this year. The company already has an sNDA under FDA review, with a PDUFA date next August, to expand the use of Furoscix to patients with class IV chronic heart failure.
Earlier this year, the healthcare industry faced disruption due to the Change Healthcare cyberattack, which had ripple effects across several major health insurers, resulting in payment delays. SCPpharmaceuticals also felt the impact and experienced a 10% drop in sales. However, despite this setback, the company reported revenues of $6.1 million in 1Q24, an increase of 190% year over year.
These factors, and more, form the basis for a positive view on SCPH from Craig-Hallum analyst Chase Knickerbocker.
“We continue to believe that 2024 will be a very eventful and very positive year for SCPH. First, we expect to hear updates on progress from major Medicare payers, as mentioned. Secondly, there is the extension of the label to Class IV HF, for which the PDUFA date is set for August. Third, the initiation of the pivotal PK study for the autoinjector (extends exclusivity until 2039), which was recently announced, allowing the sNDA to be filed by the end of the year if the trial is successful. Fourth, the sNDA for CKD (expands TAM from $6 billion to $8 billion) filed in early May. With the Change Healthcare disruption resolved, we continue to see many ways for investors to win in SCPH stock, especially at current levels, and we think the company is positioned to exceed expectations throughout the year.” , Knickerbocker said.
Therefore, Knickerbocker rates SCPH stock a Buy, setting a $16 price target, implying a potential upside of ~398% in the year ahead. (To view Knickerbocker’s track record, click here)
The overall picture of SCPpharmaceuticals is even more optimistic than that. The stock’s Strong Buy consensus rating is unanimous, based on five positive analyst reviews, and the average price target of $21.25 suggests an upside of 428% from the current share price of $4.02. (To see SCPH stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity 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.
