Penny stocks offer a conundrum for the investor; The low valuation scares the cautiously inclined away due to the cheap nature of the stock. On the other hand, they represent incredible opportunity for the risk tolerant amongst us. Invariably, this almost "catch 22" like situation begs the question: why are these companies priced so low? Is it due to bad fundamentals, indicating stocks that aren’t worth pursuing? Or is it that the market is missing something and there is opportunity to pick up a winner at a ridiculously low price?
A bit of both, possibly. There is no doubt, though, that while a penny stock might represent the road to majestic returns, it is also inherently riskier, increasing the possibility of losing your hard-earned cash.
So, how to find which are the penny stocks to invest in, then? TipRanks’ Stock Screener comes in handy here. The tool identified for us three micro-cap stocks that have taken a beating in the past year, but which the people in the know think are ready for some upside action in 2020. Additionally, all three currently have a Strong Buy consensus rating. Let’s check them out.
KushCo Holdings (KSHB)
KushCo sells ancillary goods & services to the global cannabis industry, mostly vaping related products. The cannabis industry as a whole has had a torrid 2019; The industry has struggled on various fronts, including supply problems and regulatory issues.
The company, in this instance, is even further exposed, as vaping related “mystery lung” illnesses and even deaths have surfaced this year, raising the alarm bells on the safety of vaping products. Since then, the reason for the illnesses has been identified as vitamin E acetate found in less rigorously tested vaping products which are sold on the black market.
While the industry is not completely out of the woods just yet, eventually, in a market still finding its feet, the companies with strong fundamentals are likely to kick off the dust and rise again. Jefferies’ Owen Bennett believes KSHB is one such company. The analyst said, “Despite an attractive sales profile vs NA cannabis peers, operating in a federally legal way in the US (can be national/list on a major exchange), and with strong barriers to entry, it's valuation is one of the cheapest. With current multiple headwinds set to unwind (particularly on vapour), and additional positive catalysts likely, we see significant re-rating potential the next 12-24 months.”
To this end, Bennett rates KushCo shares a Buy along with a $3 price target, which represents over 130% upside potential. (To watch Bennett’s track record, click here)
Does the Street reckon the cannabis product manufacturer will blow the smoke away to rise again? Yes, it does. A Strong Buy analyst consensus rating breaks down into 4 Buy ratings with no Holds or Sells. The average price target of $4.33, even outstrips Bennet’s bullish thesis, and indicates high upside potential of 203%. (See KushCo price targets and analyst ratings on TipRanks)
Sesen Bio (SESN)
Sesen Bio shareholders have had a rough 2019, as Mr. Market chopped off nearly 30% of the company’s stock price. However, 5-star Canaccord analyst John Newman thinks this new, lower stock price could offer new investors an opportunity to get into SESN on the cheap. The analyst reiterated a Buy rating on Sesen, alongside a price target of $5, implying potential upside of a blockbusting 405%. (To watch Newman’s track record, click here)
Sesen’s modus operandi is the fight against cancer with the development of fusion protein medicines. The biotech’s lead candidate is Vicinium, a treatment for bladder cancer. The drug is currently in a Phase 3 trial, and Sesen recently initiated its Biologics License Application (BLA) for Vicinium with the FDA. Once the company receives acknowledgement of the BLA, it will begin planning ahead for its ODAC (Oncology Drugs Advisory Committee), currently expected to take place in 2020.
With the confirmatory study for Vicinium in its sight, Newman believes there is “opportunity for label expansion.” The top analyst said, “We believe Sesen's confirmatory trial could show superiority vs control in NMIBC (non-muscle invasive bladder cancer), boosting usage among urologists and strengthening reimbursement from insurers. In addition, expanding to inadequate BCG dosed patients should broaden the market opportunity from BCG-intolerant patients, a potential positive… We continue to expect the ODAC for Vicinium to be positive, especially in light of a continued BCG (Bacilus Calmette Guérin) shortage, and believe the panel will vote in favor of Vicinium's favorable benefit/risk profile.”
Two other analysts have chipped in with a view on the biotech’s prospects over the last 3 months. All are vocal in their support and rate the stock a Buy. Therefore, Sesen has a Strong Buy consensus rating. The average price target is $3.42 and indicates possible huge gains of 227% in the coming year. (See Sesen stock-price forecast on TipRanks)
Tyme Technologies (TYME)
Time hasn’t been kind to biotech Tyme Technologies; 2019 has continued a multi-year trend and has been a bit of a letdown, to say the least. Since the turn of the year this beaten down stock has shed more than 70% of its value. That, according to some optimistic analysts, could be about to change.
Tyme is a fellow company focused on cancer cures. Its lead candidate is SM-88, currently in Phase 2 development for pancreatic and prostate cancer. Earlier this year, Tyme presented encouraging data from the trial at ESMO (european society for medical oncology) and Evercore’s Joshua Schimmer has been assessing the results.
The 5-star analyst believes that “significant unmet need remains in pancreatic cancer.” He said, “Aggregate 5-year survival rate for metastatic pancreatic cancer is only 9%, and recent oncology advancements have failed to be effective in this tumor. We estimated a market size for 3L alone of >$500M, and penetration into earlier lines of therapy would broaden peak sales… While obviously not without risk, especially in pancreatic cancer, SM-88 has shown broad anti-tumor activity in early clinical studies, physician feedback has been strong, and upside should the product succeed is substantial.”
Accordingly, Schimmer reiterated an Outperform rating on Tyme, alongside a price target of $7. Should the target be met, investors could be lining pockets with an incredible 566% gain over the next 12 months. (To watch Schimmer’s track record, click here)
The Street is rather quiet right now, in regard to Tyme’s prospects. Only two other analysts have recently thrown the hat in with a view on the biotech, both giving it the thumbs up. Tyme’s Strong Buy consensus rating comes with an average price target of $8.50. which implies incredible upside of 721%. (See Tyme price targets and analyst ratings on TipRanks)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.