In this time of pandemic, stock markets have mostly been – rising. Yes, we had a crash in February/March, part of that initial ‘panic mode’ when Federal, state, and local governments shut down economic activity and ordered social lockdown policies, but that turned around at the end of March. We’ve had a bullish rally since then. The S&P 500 stands just above 3,200, only 4.5% below its all-time peak.
With this in mind, Canaccord's Chief US Strategist Tony Dwyer looked at some historical data, and found that when over 90% of the S&P 500 components trade above their 50-day moving averages for at least ten straight days, the market usually moves sideways for multiple weeks, with the trend sometimes persisting for up to three months.
“Ultimately, such consolidation periods following these breadth-thrust ramps studied take place early in a new bull market and are resolved to the upside. Our tactical game plan since June 5 has been to add risk when the market moves back down to SPX 3000, and we have used the two opportunities to do just that,” Dwyer noted.
Using Dwyer’s strategy to provide concrete recommendations, Canaccord’s top analysts have honed in on two small-caps, stocks with market caps of less than $400 million, poised to post big gains in the coming months. After running the tickers through TipRanks’ database, it’s clear the names are also getting support from the rest of the Street.
CRH Medical Corporation (CRHM)
Serving the Gastroenterology (GI) community, CRH Medical provides physicians with a wide range of products designed to improve the procedural experience. The company, which sports a market cap of only $166 million and $2.30 share price, has earned Canaccord’s praise thanks to its impressive pipeline and strong M&A strategy.
Representing the firm, 5-star analyst Richard Close points out that company has been making headway on the acquisition front. Throughout the pandemic, management has been continuing discussions with M&A targets.
“The pipeline has actually grown during this time given that more GI's had free time due to reduced volume and were available to discuss M&A opportunities. We believe this could bode well for an acceleration of deals in 2021,” Close noted.
Speaking to these efforts, three purchases were made by the company during COVID. Along with the acquisition of a 75% stake in Lake Lanier Anesthesia Associates, which could see annualized revenue of $2.7 million, and its start-up joint venture with a 51% ownership in Oconee River Anesthesia Associates, CRHM revealed it had snapped up a 75% stake in Metro Orlando Anesthesia Associates, a company that provides services to one ASC in Orlando. Metro Orlando Anesthesia is set to generate $1.9 million in annualized revenue.
Weighing in on these buys, Close commented, “We did not expect the company to resume acquisitions so quickly, having already completed three transactions in June. We are encouraged by the company's quick rebound and now have a positive outlook for our 2020E forecasts considering we had no acquisitions forecasted in our model for the rest of 2020.”
Reflecting another positive, the company is pursuing contracted status for those payer relationships that are currently non-contracted, and even though the crisis delayed these discussions, CRHM remains committed to pushing for on-contract rates. “Getting through this process will remove an overhang on the stock that has created variability in results over the last several years,” Close stated.
In line with his optimistic take, Close rates CRHM a Buy along with a $3.50 price target. A twelve-month gain of 52% could be in store, should the analyst’s thesis play out in the year ahead. (To watch Close’s track record, click here)
Similarly, the rest of the Street is getting onboard. 4 Buy ratings and 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. In addition, the $3.37 average price target puts the potential gain at 46%. (See CRHM stock analysis on TipRanks)
Amryt Pharma (AMYT)
Boasting a market cap of $364.9 million, Amryt Pharma develops therapies that could potentially improve the lives of patients with rare, debilitating conditions. With operational tailwinds set to propel it forward, it’s no wonder Canaccord gave it a thumbs up.
5-star analyst Michelle Gilson points to AMYT’s expanding base business as being a key component of her bullish thesis. She highlights that lomitapide, which is approved in the U.S. and EU for homozygous familial hypercholesterolemia (HoFH), drove revenues of $45 million in Q1 2020 and metreleptinm, its asset for generalized lipodystrophy (GL) and partial lipodystrophy (PL), generated $157 million in 2019. It should also be noted that AMYT achieved adjusted EBITDA profitability and cash flow positivity in Q1, demonstrating the build-out of a more efficient infrastructure following the acquisition of Aegerion has been effective, in the analyst’s opinion.
“With a strengthened B/S to support the new business model (reduced debt burden, increased cash with equity raise), the Amryt team has been able to focus on and invest in the EU launch of metreleptin and re-establishment of medical affairs to reduce unnecessary discontinuations, which should support continued organic growth,” Gilson explained.
In addition, the company has placed a significant focus on expanding the labels for these two drugs. Gilson told clients, “Studies are underway/planned for metreleptin in PL (U.S.), lomitapide in familial chylomicronemia syndrome (FCS), and lomitapide in pediatric HoFH... If successful, these indications could double the market opportunity in the US for metreleptin and WW for lomitapide.”
When it comes to Filsuvez (AP101), its topical therapeutic designed for use in epidermolysis bullosa (EB), Gilson also sees a major opportunity. Filsuvez has already shown that it can speed up healing times in partial thickness wounds, so the analyst has high hopes ahead of the Phase 3 data readout, which is slated for late Q3 or early Q4. As such, this event could be an important near-term catalyst. If that wasn’t enough, the company’s pipeline includes a polymer-based, topical gene therapy platform, with the lead candidate, AP103, for dystrophic EB expected to enter clinical development in 2H21.
Based on all of the above, Gilson rates AMYT a Buy rating, along with a $40 price target. This figure implies shares could soar 269% in the next year. (To watch Gilson’s track record, click here)
AMYT has stayed relatively under-the-radar, with its Moderate Buy consensus rating breaking down into 2 Buys and no Holds or Sells. At $42.50, the average price target indicates upside potential in the shape of a whopping 287%. (See AMYT stock analysis on TipRanks)
To find good ideas for small-cap stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.