On Wall Street, it’s out with tech and mega-caps and in with small-caps, cyclicals and value. Investors have been rotating away from the big names that powered the market’s record-breaking charge forward since its March low on encouraging COVID-19 vaccine news. At the same time, there has been a weaker U.S. dollar, steeper yield curve and a commodity price run-up.
What does all of this mean? According to Raymond James strategist Tavis McCourt, it is “indicative of investor belief in strong economic growth in 2021, driven by economic re-opening and a ‘wall of cash’ sitting in bank accounts that will be deployed into the real economy in 2021.” The strategist adds that investor focus has landed squarely on a new stimulus package, which “only increases the chances for robust growth in 2021 as economies fully re-open.”
“This outweighed significant evidence of slowing economic trends (jobs growth, Visa credit/debit card spending, Bloomberg high frequency data), which the market broadly is viewing as a short-term phenomenon until vaccines are deployed, as PMs continue to reposition portfolios in preparation for economic re-openings,” McCourt explained.
Taking McCourt’s outlook into consideration, we wanted to take a closer look at two penny stocks scoring rave reviews from Raymond James. These tickers trading for less than $5 per share could gain over 200% in the next year, so say the firm’s analysts. Using TipRanks’ database, we found out what exactly makes both so compelling even with the risk involved with these plays.
ADMA Biologics (ADMA)
Operating as an end-to-end commercial biopharmaceutical company, ADMA Biologics develops specialty plasma-derived products for the prevention and treatment of infectious diseases in the immune compromised and other patients at risk of infection. Currently going for $1.94 apiece, Raymond James thinks that now is the time to pull the trigger.
Representing the firm, analyst Elliot Wilbur points out that post-commercialization, the company’s key products, Asceniv and Bivigam, continue to generate solid revenue. Both products were designed as treatments for primary humoral immunodeficiency (PI).
“Recent numbers have benefited from what we believe is inventory accumulation derived from the increasingly positive positioning of plasma therapies around potential use in COVID-19, with year-to-date year-over-year September growth being 2.0% for the IG space and (2.9%) for the IVIG subsector,” Wilbur explained.
Highlighting the approval of Gilead’s remdesivir as a COVID-19 treatment, Wilbur points out that it is “only a treatment and cannot be taken preemptively, keeping the door wide open for plasma therapies focusing on vaccine development.”
Expounding on this, the analyst stated, “On the forefront of the vaccine race remains the CoVig-19 plasma alliance, a coalition of leading plasma players work with the National Institute of Allergy and Infectious Diseases (NIAID) to test hyperimmune therapies against COVID-19. The alliance, which consists of major players such as CSLBehring, ADMA, Octapharma, and Takeda, looks to accelerate the development of plasma therapies for COVID-19, aiding in potential regulatory clearance for associated therapies going forward… Ahead of results from the 500-patient trial, the alliance began manufacturing the plasma treatment viewing the likelihood of positive results and eventual approval as being ‘very high’.”
Adding to the good news, ADMA is set to achieve its target of 5-10 plasma collection centers by 2025, with the company filing the Biologics License Application (BLA) for its third collection center on December 1. This center will go through an estimated 12-month approval process that involves both a review of the BLA as well as a site inspection. Approval could come in Q4 2021, according to Wilbur.
In line with his optimistic approach, Wilbur rates ADMA an Outperform (i.e. Buy) along with a $7 price target. Should his thesis play out, a potential gain of 260% could be in the cards.
Are other analysts in agreement? They are. Only Buy ratings, 5, in fact, have been issued in the last three months, so the consensus rating is a Strong Buy. Given the $6.65 average price target, shares could skyrocket 242% in the next year. (See ADMA stock analysis on TipRanks)
InflaRx NV (IFRX)
Making breakthrough discoveries in the area of anti-C5a antibody generation, InflaRx develops highly specific monoclonal antibodies targeting activation products of the complement system. Based on data from its peer, Raymond James believes that at $4, its share price presents an attractive entry point.
ChemoCentryx recently reported the results from the Phase 2 AURORA study of C5aR inhibitor avacopan in hidradenitis suppurativa (HS), with the therapy missing its primary endpoint in all patients but working in a pre-specified ITT analysis of Hurley Stage III patients at the only active dose tested. Raymond James analyst Steven Seedhouse sees a positive readthrough for InflaRx.
“A home run outcome for CCXI would have been negative for IFRX. Reason is, while it would have established proof of mechanism in HS (which is lacking), it would have encumbered IFX-1 competitively in HS but also indicate avacopan is just a better molecule in general (if it would’ve cleanly worked in an indication where IFX-1 Phase 2 data were ambiguous),” Seedhouse explained.
This is not to say that a failure for ChemoCentryx would have been a win for InflaRx. According to Seedhouse, it would have “totally squashed the mechanism in HS since we know avacopan works elsewhere (ANCA vasculitis).”
On top of this, InflaRx initiated the Phase 3 part of the Phase 2/3 PANAMO study in patients with severe COVID-induced pneumonia. With Alexion noting that their Phase 3 study in hospitalized COVID-19 patients with severe pneumonia or ARDS is already 30% enrolled and is expected to report initial data from a planned interim analysis in 1H21, Seedhouse argues a positive result would “likely have positive readthrough for IFRX, given validation of the complement mechanism in COVID-19.”
Based on all of the above, Seedhouse rates IFRX an Outperform (i.e. Buy) along with a $15 price target. This target puts the upside potential at 273%. (To watch Seedhouse’s track record, click here)
Turning to the rest of the Street, 3 Buys and 1 Hold have been assigned in the last three months. Therefore, IFRX has a Strong Buy analyst consensus. With an average price target of $10.50, shares could soar 161% in the year ahead. (See IFRX 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.