Risk and reward often go hand in hand, making the stock market both lucrative and dangerous. Among the best examples of this axiom are penny stocks, those stocks whose price is $5 or less. With this low price comes the potential for extreme gains, as even a small price increase will result in a large percentage gain.
However, before jumping straight into investing in a penny stock, Wall Street pros advise looking at the big picture and considering other factors beyond price. For some names that fall into this category, you really get what you pay for, offering little prospect for long-term growth thanks to weak fundamentals, recent headwinds, or even a large number of shares outstanding.
Since the nature of these investments makes it difficult to assess the strength of their long-term growth prospects, an effective stock-picking strategy is to follow the advice of analysts.
Using the TipRanks database, we’ve locked down two penny stocks that garnered rave reviews from the streets, enough to earn a consensus ‘Strong Buy’ rating. Not to mention that each offers huge upside potential. Let’s take a closer look.
Dare Bioscience, Inc. (TO DARE)
We’ll start with Daré Biosciences, a clinical-stage biopharmaceutical company focused solely on women’s reproductive health issues. The Company’s research program includes a portfolio of programs dedicated to improving contraception, fertility, vaginal health and sexual function. In addition to this pipeline, the company has an approved drug, Xaciato, a clindamycin phosphate vaginal gel for the treatment of bacterial vaginosis.
Xaciato brought Daré its first revenue, with a $10 million cash payment from Organon in 3Q22, in accordance with the two companies’ license agreement. The two companies are working to coordinate the launch of Xaciato this year.
On the pipeline side, Daré has seen several recent positive developments. In November last year, the company announced positive top results from the DARE-VVA1 Phase 1/2 clinical study of tamoxifen, a proprietary drug formulation designed for vaginal application to treat vulvar atrophy and vagina in patients with ER/PR+ breast cancer. The company plans to publish the results in a peer-reviewed publication.
In a second Phase 1/2 study, DARE-HRT1, the company announced positive pharmacokinetic results earlier this month. This study focuses on a monthly intravaginal ring to deliver estrogen and progestin hormones for the treatment of vasomotor symptoms due to menopause. Based on this successful trial, the company plans to move to a Phase 3 efficacy trial.
In the area of contraception, Daré received FDA approval for an IDE application for a pivotal study of Ovaprene, a hormone-free monthly intravaginal contraceptive device. This approval paves the way for a phase 3 clinical trial, which is expected to start in the middle of this year. Daré is working on Ovaprene in association with Bayer, and the drug candidate has the potential to become the first monthly-dose intravaginal contraceptive on the market.
Based on potentially large catalysts as well as its price action of $1.15, several on the street believe now is the right time to pull the trigger.
Among the DARE bulls is Jones Trading analyst Catherine Novack, who writes, “We see Daré as an undervalued player in women’s health, and we’re bullish on the name because: 1) Contraception is a successful indication, and Daré’s Ovaprene will potentially be the only non-hormonal monthly option on the market; 2) Daré’s portfolio assets are 505(b)(2) approvable, reducing regulatory approval risks; 3) Business partnerships with major players in women’s health (Organon and Bayer) eliminate the need for a sales team and provide non-dilutive sources of funding; and 4) an attractive risk/benefit profile of pipeline products for sexual dysfunction, vulvovaginal atrophy and pregnancy maintenance.
Novack confirms its bullish stance with a Buy rating on the stock, while its $6 price target suggests a whopping 422% upside potential. (To see Novack’s track record, click here)
The Street is clearly bullish on this penny stock, as all 5 recent analyst reviews are positive – for a unanimous Strong Buy consensus rating. With an average price target of $5, the upside potential is around 335%. (See DARE stock forecast on TipRanks)
Xilio Therapeutics, Inc. (XLO)
Next up is Xilio, a biotech company working on next-generation advanced immunotherapies for cancer treatment. Specifically, the company is developing drug candidates that may improve patient outcomes by focusing immune system activity directly and selectively at the tumor site. Xilio has a proprietary development platform and develops new tumor-activated molecules for optimal effect in the tumor microenvironment. The company’s three active clinical trial programs are all in their early stages but have shown promising results.
The first trial, an ongoing Phase 1 study of XTX202, tests tumor activation against interleukin-2, or IL-2, as a treatment for advanced solid tumors. The study successfully reached the target dose range and showed preliminary evidence of an increase in CD8+ effector T cells and NK cells. Xilio expects to begin enrollment in a Phase 2 monotherapy study in 1H23 and report preliminary safety and antitumor activity data from the Phase 1/2 trial in 3Q23.
In the second trial, of XTX301, a tumor-activated IL-12 drug candidate, the company received FDA clearance of the IND application to conduct an active clinical study. Xilio expects to initiate the patient assay in a Phase 1 clinical trial this quarter and expects to release preliminary data from the Phase 1 trial in 4Q23.
The final clinical study involves XTX101, a tumor-activated anti-CTLA-4. This drug candidate is part of the company’s cytokines program. Xilio has this drug candidate in a phase 1 trial against advanced solid tumors and is currently seeking a partner to conduct further testing.
In a review of Xilio for Chardan, analyst Matthew Barcus writes, “We see strong potential with the company’s two leading cytokine programs XTX202 and XTX301…We are currently modeling XLO assets achieving $320 million in adjusted sales expected in 2030. We believe XLO is well positioned to become a leader in the field of immuno-oncology and we look forward to several key enablers in 2023 from the company’s programs.
Looking ahead, Barcus is pricing XLO shares long, and its price target of $7 implies the stock has a 12-month upside potential of 143%. (To see Barcus’ record, click here)
It’s a bullish take – but the street is even more bullish. XLO has a strong buy consensus based on 4 unanimously positive analyst reviews, and the mid-price target of $12.25 suggests a one-year gain of around 326% from the current stock price of $2.88. (See XLO stock forecast on TipRanks)
To find great ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.