In a recent review of the market’s current conditions, JPMorgan strategist Eduardo Lecubarri recaps his view that 2021 will see modest gains across stocks generally – but outperformance among the small/mid-cap sector. Lecubarri believes that investors can find opportunities for big upside among stocks in that class.
Driving the general stocks gains, Lecubarri points to recent manufacturing PMI prints, which are at 15-year high levels, and the falling unemployment numbers – both data points indicate a firm foundation for economic recovery. With consumer confidence also rising, and relatively high savings, he sees a tailwind for the small/mid-cap as the year unfolds.
A general trend of rising small-cap stocks should naturally impel analysts and investors to look at the ‘pennies,’ stocks that are priced below $5 per share. While not a sure indicator, low share price usually goes along with low market cap – but it also comes with the solid upside potential that Lecubarri mentions.
However, before jumping right into an investment in a penny stock, Wall Street pros advise looking at the bigger picture and considering other factors beyond just the price tag. For some names that fall into this category, you really do get what you pay for, offering little in the way of long-term growth prospects thanks to weak fundamentals, recent headwinds or even large outstanding share counts.
Taking the risk into consideration, we used TipRanks’ database to find two compelling penny stocks, as determined by Wall Street pros. Each has earned a “Strong Buy” consensus rating from the analyst community and brings massive growth prospects to the table. We’re talking about over 100% upside potential here.
Biolase Technology (BIOL)
We will start with Biolase Technology, a leader designer, producer, and innovator in dental laser technology. Lasers bring a host of benefits to dentists and their patients, including fewer aerosols and a gentler touch during procedures, and more comfortable healing afterwards. Biolase products are used in periodontal, endodontic, hygienic, and implant procedures; the company markets online directly to dental practices.
Biolase put a positive spin on its recent 4Q20 earnings report. Even though the top line revenues of $8.52 million were down 16% year-over-year, the sequential quarterly gain was impressive, at 31%. The company benefited as dental clinics got back to work in the economic recovery of 2H20. Biolase reported two positive trends in sales in Q4, with 78% of sales coming from new customers and 40% going to dental specialists. Even better, the company provided Q1 revenue guidance for $7.5 – 8.0 million, up 60–70% yoy, and above consensus of $7.0 million.
Currently going for $0.76 apiece, Biolase shares could see major gains, according to some analysts.
Among the bulls is Maxim analyst Anthony Vendetti who noted that the company’s positives in Q4 are not just spin.
“While the international market continues to lag the US in COVID recovery, BIOL delivered its second consecutive quarter of significant sequential revenue growth, driven by US sales to new customers, dental specialists, and Dental Service Organizations (DSOs). We are encouraged that dental specialists comprised 40% of the company’s US laser sales in 4Q20, and expect the company’s recent launch of both the Endo and Perio Academies to contribute to increased adoption by the ~5K endodontists and ~5K periodontists in the US. Moreover, BIOL has placed an increased emphasis on converting small DSOs (that can adopt BIOL’s technology more quickly), which we expect to bolster short-term revenue as the company makes progress converting larger DSOs, such as Heartland Dental (private),” the 5-star analyst opined.
Vendetti summed up, “Based on the unique value proposition of BIOL’s products, its continued progress in penetrating DSOs, and its increasing traction with dental specialists, we reiterate our Buy rating.”
Along with that Buy rating, the analyst sets a $2 price target that indicates 165% share growth ahead in 2021. (To watch Vendetti’s track record, click here)
It appears the rest of the Street sees plenty of upside, too. Based on Buys only – 4, in fact – the analyst community rates BIOL a Strong Buy. The average price target hits $1.94, and implies potential upside of ~157% over the coming months. (See BIOL stock analysis on TipRanks)
Fortress Biotech (FBIO)
Fortress Bio is a pharmacological research firm with a wide-ranging pipeline of 28 drug candidates, in varying stages of development from preclinical to Phase 3 trials. In addition to the pipeline, Fortress has six approved drugs on the market for a variety of dermatological conditions including acne, skin fungal infections, and burns and other surface wounds.
These medications are marketing by Journey Medical, Fortress’s partner company, and in 2020 netted revenues of $44.5 million. This compared well – up 28% – to the $34.9 million netted in 2019. Fortress ended 2020 with a sound cash position, holding $235 million cash and cash equivalents. This was up $15 million from Q3, and up 53% year-over-year.
The company noted that these positive results came even as the COVID pandemic impacted both supply and sales. Looking ahead, Fortress expects to add two new approved prescription products to its lineup in 2021.
In another program update, Fortress is partnering with Cyprium Therapeutics and Sentynl Therapeutics on CUTX-101. Both companies have signed onto a Development and Asset Purchase agreement for the drug candidate, a treatment for Menkes disease currently in Phase 3 clinical trials. The company reported positive clinical efficacy results last August, including medial survival in the early treatment cohort of 14.8 years, compared to 1.3 years for the untreated historical control cohort. In 2H21, Fortress will begin rolling submission of the NDA for CUTX-101.
Covering this stock for B. Riley, 5-star analyst Mayank Mamtani notes the company’s fundamental soundness.
“FBIO’s differentiated business model, constituting of a diversified portfolio of marketed products and clinical-stage candidates, remains resilient amid challenges posed by C-19 pandemic, thereby setting up favorably in advance of numerous regulatory, clinical data and balance sheet inflection points anticipated over the next few quarters serving as opportunities to re-rate the stock,” Mamtani wrote.
To this end, Mamtani rates FBIO a Buy, and his $10 price target suggests it has room for ~100% upside in the next 12 months. (To watch Mamtani’s track record, click here)
Overall, Fortress Bio has 4 reviews on record, and all are to Buy, giving the stock a Strong Buy consensus rating. FBIO shares are priced at $4.48, and their $13 average price target implies a one-year upside of 190%. (See FBIO stock analysis on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.