The stock markets have started off 2022 with increased volatility, and that’s opened up opportunities for investors – especially for investors willing to shoulder some additional risk. The sharp decline in January lowered prices, while the rapid swings we’ve seen in recent trading sessions makes it possible to take advantage of the lowered entry point.
A market situation like this should naturally bring investors’ attention to the penny stocks. These low-cost equities, typically priced below $5 per share, are perfectly placed to bring the high-powered returns when markets move back to a bullish trend. The low price point makes the initial buy-in affordable, while also permitting sky-high upside potentials; these are stocks that could double, or triple, or more in the coming year.
However, given the nature of these investments, Wall Street analysts recommend doing some due diligence before pulling the trigger, noting that not all penny stocks are bound for greatness.
Taking this into account, we used TipRanks’ database to identify two penny stocks that have earned a “Strong Buy” consensus rating from the analyst community. Not to mention each offers up massive upside potential and could climb to $10, or even more.
Viracta Therapeutics (VIRX)
We’ll start with Viracta, a clinical-stage biopharmaceutical company working on new treatments for cancers related to Epstein-Barr virus (EBV) infections. The EBV is part of the herpes family, and it’s estimated that some 90% of the global population carries it. EBV is the cause of infectious mono, and is also linked to several cancers – nasopharyngeal and gastric malignancies, as well as some lymphomas. As many as a quarter-million cancer diagnoses annually are linked to EBV infection.
Looking at Viracta’s story, it’s important to note that the company has been public for just about one year. It’s current incarnation as a NASDAQ-listed firm was finalized in February of last year, when it merged with Sunesis Pharmaceuticals. The merger closed on February 24, and the combined company started out with $120 million cash – giving it a runway for operations into 2024.
Currently, the company’s leading drug candidate is nanatinostat, which is being evaluated in clinical trials as a combination therapy with valganciclovir. The combo, called nana-val, is currently under investigation in two research tracks, as a treatment for relapsed/refractory EBV+ lymphomas and solid tumors.
The lymphoma track is more advanced, at the late clinical stage. In December, the company released final data from a Phase 1b/2 clinical trial of nana-val for EBV+ lymphomas. The trial showed that nana-val was well tolerated across dosages and demonstrated promising therapeutic activity across lymphoma subtypes. Patients showed a 10.4 month median response duration.
This study was followed up in January with the first dosing of patients in a Phase 1b/2 trials of nana-val against EBV+ solid tumors, including recurrent or metastatic nasopharyngeal carcinoma. The trial will evaluate the safety and efficacy of nana-val alone and in combination with the PD-1 inhibitor pembrolizumab. The Phase 2 part of the study will enroll up to 60 patients. Preliminary data is expected in 2H22.
Trading for $2.36 per share, several members of the Street believe that Viracta’s price tag and pipeline make it a must-watch name.
In a review of Viracta for RBC, analyst Kennen MacKay writes: “VIRX is an overlooked oncology company that is trading near cash levels despite a lead asset entering a registrational clinical trial in EBV+ lymphomas (NAVAL-1) & impressive ph1/2 clinical data. VIRX’s nanatinostat & valganciclovir (Nana-val) drug combination is a first-of-its-kind approach to targeting EBV+ tumors which we see having the potential to transform the field of viral-oncology & care for patients with EBV+ tumors (~1% of all cancers)… We consider Nana-val an underappreciated asset with the potential to achieve blockbuster status in EBV+ malignancies (we model risk-unadjusted 2040 global sales of $1.26+Bn) and upside from expansion potential into other EBV+ and other latent virus-driven cancers as well as EBV-driven nonmalignant diseases.”
“We see high likelihood of strategic M&A interest if validation continues. We view VIRX’s biomarker-driven oral small molecule approach potentially disrupting in lymphoma being crowded by biologics as well as in solid tumors where Nana-val could solo or complement (solid tumor ph2 w/ Keytruda),” MacKay added.
All of the above makes it clear why MacKay is now standing with the bulls. The analyst rates VIRX an Outperform (i.e. Buy) while his $10 price target implies an upside of 312% for the year ahead. (To watch MacKay’s track record, click here)
There are only 3 recent reviews on record for Viracta’s shares – evidence that the stock is, as MacKay says, overlooked – but they are unanimously positive, giving the stock a Strong Buy consensus rating. In addition, the $21 average price target is more aggressive than MacKay’s and indicates upside potential of ~782%. (See VIRX stock analysis on TipRanks)
Pear Therapeutics (PEAR)
The next penny stock we’re looking at is an interesting one. Pear Therapeutics is a clinical- and commercial-stage company, working on the development, testing, and application of prescription digital therapeutic (PDT) systems. These are software systems designed to improve patient outcomes, and can be applied to a variety of disease conditions. Pear has three PDTs in commercial use, and another 14 in the development pipeline undergoing clinical trials at various stages. Pear’s PDTs have applications in a range of medical specialties, but especially in psychiatry and neurology.
The company’s three commercial products are reSET, reSET-O, and Somryst; they are used in the treatment of opioid abuse and chronic insomnia. The PDTs come with both patient- and clinician-facing applications, for use on mobile and desktop devices. The patient and clinician apps provide information for both based on patient reporting, clinician evaluations, and input test results.
reSET is a 90-day program using the PDT to provide and manage cognitive behavioral therapy for substance abuse disorder. reSET-O, an 84 day PDT, is designed to target opioid abuse particularly. Both programs allow patients and clinicians together to track medication use, compliance rewards, and drug-use testing results, to tailor treatment to the patient’s particular conditions and abilities.
Somryst is a PDT treatment for chronic insomnia, designed for use with adults ages 22 and up. The program uses neurobehavioral intervention, including sleep restriction and consolidation.
These programs form the background to Pear’s recent entry to the public markets. The company started trading on the NASDAQ on December 6, after completing a SPAC transaction with Thimble Point Acquisition Corporation. The business combination brought $175 million in new capital to Pear, for use in further development of PDT products. Since entering the public markets.
Pear is the first company in its particular bio-therapeutic space, and Credit Suisse analyst Judah Frommer sees that as a key point, writing: “We believe that Pear, as a category creator and market leader in digital therapeutics, has the opportunity to win in what could be a multi-billion dollar total addressable market in the U.S. alone with its three FDA-authorized PDT products and a broad pipeline of product candidates. Pear possesses horizontal scalable infrastructure and we believe could eventually serve as a natural consolidator in the space. We believe Pear is well positioned to accelerate its growth by increasing adoption and coverage rates for its already-approved products, and growing the space, in general.”
To this end, Frommer rates PEAR an Outperform (i.e. Buy), and gives the stock a bullish $11 price target, indicating confidence in a 152% one-year upside. (To watch Frommer’s track record, click here)
Overall, this penny stock has picked up 6 analyst reviews during its short time on the public market, and those break down 5 to 1 in favor of Buy over Hold, for a Strong Buy consensus rating. PEAR is selling for $4.35 and the analysts price targets average out to $11.40, for a 162% upside potential. (See PEAR stock analysis on TipRanks)
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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.