A common misconception among new investors is that getting started in the stock market requires a lot of money. However, investing in quality stocks that are undervalued and overlooked, and holding them for the long term, can result in compounded earnings.
Here, penny stocks enter the picture. These stocks typically trade at extremely low prices, allowing investors to purchase an ample amount of shares for a relatively small investment. If the company grows or receives positive news, the stock price can rise quickly, providing significant returns on investment.
Many penny stocks are not widely followed by analysts, providing opportunities for investors to identify undervalued quality stocks and buy them at the right time. Here, we have one such stock where you can spend less and potentially earn more.
Atara Biotherapeutics
Atara Biotherapeutics (ATRA) is a clinical-stage biopharmaceutical company that works on creating treatments for rare and severe diseases. The company is using its novel allogeneic Epstein-Barr virus (EBV) T-cell platform to develop therapies for difficult-to-treat cancers and autoimmune conditions.
Currently trading under $1, ATRA stock has climbed 14.3% year-to-date, outpacing the S&P 500 Index’s ($SPX) gain of 10.4%.
Atara's pipeline includes several promising candidates that, if and when approved, could help the company generate revenue and profits. The company discussed the status of its pipeline progress in its first-quarter results. Atara intends to initiate a Phase 1 study of ATA3219 for lupus nephritis (a disorder when the body's immune system attacks the kidneys) in Q4 2024, as well as expand the Phase 1 LN study of ATA3219 for severe systemic lupus erythematosus (an inflammatory autoimmune disease in which the body incorrectly attacks healthy tissues).
Recently, the company submitted a Biologics License Application (BLA) with the Food and Drug Administration (FDA) for the use of tab-cel to treat Epstein-Barr virus-positive post-transplant lymphoproliferative disease.
After receiving FDA approval, Atara already has a strategic partnership with Pierre Fabre Laboratories, which it expanded during the first quarter. The expanded deal includes $27 million in upfront cash, as well as $640 million in additional payments and royalties when the transaction is completed. Furthermore, following BLA approval, the company could receive an additional $100 million in regulatory milestones.
As of March 31, the company had cash, cash equivalents, short-term investments, and accounts receivable totaling $82.1 million. The company has not generated any revenue or profits yet. The net loss for the quarter totaled $31.7 million. Losses are common for a clinical-stage biotech company before its products are successful on the market.
Nonetheless, Wall Street seems optimistic that Atara's candidates could be successful when approved, owing to the focus and increasing demand for effective cancer, autoimmune, and infectious disease treatments.
Furthermore, biotech companies that treat life-threatening diseases will benefit more in the long run. Regardless of the state of the economy, demand for these types of drugs will never decline, resulting in consistent revenue and earnings growth once a company has a few successful drugs on the market.
Overall, Wall Street rates ATRA stock as a "hold.” Of the eight analysts covering ATRA stock, two rate it a "strong buy," four rate it a "hold," and two recommend a "strong sell."
The mean price target for ATRA is $3.42, implying a whopping 477.4% upside potential over the next 12 months. The stock has a high target price of $13.
The Key Takeaway
While select penny stocks could potentially deliver outsized growth, it's important to remember that they are also risky. Penny stocks have low liquidity, which can result in losses. As a result, investing in penny stocks can be advantageous for investors with the stomach to bear the high risk and a lot of patience to potentially benefit from the high rewards.
That said, biotech stocks can also be volatile due to failure or delay in regulatory approvals, increased competition, and market sentiment, among other factors. A balanced approach that includes a mix of stable, well-established companies and penny stocks could be a smart way to start.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
