Penny stocks are shares in small public companies with a low market capitalization and limited liquidity. This makes them more volatile than stocks from larger, more established companies. However, penny stocks often belong to evolving companies with high growth potential. If a penny stock company succeeds, the value of its shares can skyrocket, resulting in substantial returns for investors.
Furthermore, because of their low prices, investors with a high risk tolerance can acquire a large number of shares at a low cost. Here are two penny stocks that Wall Street believes are strong buys, with the potential to increase by more than 400% over the next 12 months.
#1. Acumen Pharmaceuticals
Acumen Pharmaceuticals (ABOS) caught Wall Street's attention due to its focus on developing treatments for neurodegenerative diseases, specifically Alzheimer's disease (AD). Alzheimer's disease is an extreme form of dementia that is on the rise around the world. According to the U.S. Centers for Disease Control and Prevention (CDC), it is expected to affect nearly 14 million people by 2060.
Acumen stock has fallen 24.2% year-to-date (YTD), compared to the S&P 500 Index’s ($SPX) gain of 16.1%.
Acumen is still in the clinical stage, but it has several candidates in the pipeline that are being tested to treat various stages of Alzheimer's disease progression. ACU193, the company's lead candidate, is a humanized monoclonal antibody that selectively targets toxic forms of amyloid-beta oligomers, which are thought to play an important role in Alzheimer's disease pathogenesis.
In May, the company launched the Phase 2 study, which will test the "clinical efficacy and safety of Sabirnetug for the treatment of early AD." Furthermore, the company intends to initiate a “Phase 1 study to support a subcutaneous dosing option” for the drug in the second half of 2024.
Acumen also has a collaboration agreement with Lonza to be its global partner in the manufacturing and commercialization of Sabirnetug, if approved.
As a clinical-stage company, the company currently has no revenue or profits. Acumen's success is primarily determined by the progression of ACU193 through clinical trials and, eventually, commercialization. The net loss for the first quarter stood at $14.9 million. At the end of the first quarter, it had $296.6 million in cash, cash equivalents, and marketable securities.
Acumen has a significant market opportunity as the rate of development of Alzheimer's disease rises and the urgent need for effective treatments grows. The stock's performance is closely related to clinical trial results, regulatory progress, and market dynamics.
Overall, Acumen stock is rated a “strong buy” on Wall Street. Of the five analysts that cover ABOS, all of them rate it a “strong buy.” The average target price of $15.25 implies an upside potential of 415% over the next 12 months. The Street-high estimate for Acumen is $22.
#2. Eledon Pharmaceuticals
Eledon Pharmaceuticals (ELDN) has piqued analysts' interest with its creative approaches to developing therapies for organ and cellular transplantation, autoimmune diseases, and neurodegenerative disorders. Eledon's candidates, at various stages of development, are focused on immunology and developing therapies to modulate the immune response.
Eledon stock has gained 45.8% YTD, outpacing the broader market's gain.
The company's lead product candidate is Tegoprubart, an anti-CD40L antibody that prevents the immune system from attacking transplanted organs and cells, increasing transplant success rates and reducing the need for long-term immunosuppression.
Eledon, like Acumen, is in the clinical stage, and losses are not unusual. The net loss for the first quarter totaled $10.3 million. The company is investing heavily in research and development (R&D) to expand its pipeline, which totaled $7.4 million in the quarter. It finished the quarter with $42.9 million in cash, cash equivalents, and short-term investments.
In the first quarter, the company announced the enrollment of the 12th participant in the ongoing Phase 2 BESTOW trial of tegoprubart for the prevention of kidney transplant rejection.
Aside from the liver and heart, the kidney is the most transplanted organ worldwide. According to the NIH, rejection rates among transplant candidates range from 33% to 69%. As a result, Eledon's flagship product, if and when approved, will be extremely beneficial. Furthermore, Eledon's ability to expand its pipeline with new candidates targeting a variety of immune-related conditions will be critical to its long-term success and diversification.
Wall Street analysts are bullish about Eledon stock, rating it a “strong buy.” Of the six analysts that cover the stock, all of them rate it a “strong buy.” The mean target price of $14 implies an upside potential of 436% over the next 12 months. The Street-high estimate for Eledon stock is $28.
The Bottom Line on Biotech Penny Stocks
The biotechnology industry is rapidly expanding thanks to artificial intelligence (AI), which is facilitating more research collaborations and strategic partnerships.
Nonetheless, biotech stocks are subject to risks such as regulatory trial failure, drug commercialization delays, and other factors. It could be years before Eledon and Acumen have successful products on the market that generate consistent profits. Therefore, patience is essential with these two outstanding stocks.
For those with a higher risk tolerance, these penny biotech stocks may present speculative opportunities. Investors willing to conduct extensive research and take calculated risks may find profitable opportunities in these two stocks.
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.
