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When looking for risk/reward games, look no further than penny stocks. These names that trade for less than $5 a share are considered some of the most controversial on the street, dividing market watchers into two factions: critics and fans.
The first brings a valid argument to the table. Stocks don’t just trade at such low levels; usually there is a very real reason for their bargain price tags. These can be weak fundamentals or headwinds that are too strong to overcome.
As for the latter, the potential for an investment worth only loose change to appreciate even a seemingly insignificant amount, resulting in huge percentage gains, is too tempting to ignore. Not to mention the low share price, which means you can get a bigger stake for less money up front.
The implication for investors? Due diligence is essential as some penny stocks may not have what it takes to climb back up.
Taking all this into consideration, we used the TipRanks database to pinpoint two penny stocks that have garnered enough analyst support to earn a “Strong Buy” consensus rating. Besides the good news, each pick offers more than 300% upside potential.
Codexis, Inc. (CDXS)
We start with Codexis, a biotech company and leader in enzyme technology. Enzymes are proteins that enable chemical and biological reactions in living cells, allowing these reactions to take place in the confined spaces within cells. They are essential for metabolic functioning, aiding in the synthesis of necessary substances and the breakdown of others. In short, enzymes play a vital role in life processes, making them a natural focus for biotherapeutic and pharmaceutical companies.
Codexis has its own platform called CodeEvolver, which is used to discover, develop and improve new enzymes to address the challenges associated with the biopharmaceutical industry. Small molecule pharmaceutical production, nucleic acid synthesis and gene sequencing all offer potential therapeutic applications that could benefit from enzymatic actions. Codexis is focused on creating enzymes that improve therapeutic manufacturing yields, reduce energy consumption and waste in manufacturing processes, and improve the sensitivity and effectiveness of end-result therapeutics.
The company is currently pursuing two major research paths. The first of these, the build-out of the RNAi synthesis platform, has great potential to increase efficiency and reduce costs for pharmaceutical companies. There are more than 300 RNAi therapies under development in the biotech ecosystem, making this a rich field for Codexis to enter.
The second major research track was the clinical trial program for CDX-7108. This is a potential treatment for exocrine pancreatic insufficiency, under development in collaboration with Nestle Health Sciences. The company has already released positive interim results from the phase 1 trial and is currently preparing a phase 2 trial, which is scheduled for the first half of next year.
With major catalysts on the horizon, Piper Sandler analyst Allison Bratzel believes that at $2.60 each, now is the time to pull the trigger on CDXS.
“We see the opportunities in the company’s RNAi synthesis capabilities and biotherapeutic efforts, rather than its legacy business, as key drivers of value and reasons to own CDXS… More specifically, we think of the November update, where management expects gram-scale synthesis capabilities, and/or a possible R&D day ~YE23/early ’24 will provide a more comprehensive picture of the market opportunity/strategy for the [RNAi synthesis] platform. In biotherapeutics, the IND filing for CDX-7108 is on track for YE23, enabling the initiation of the P2 trial 1H24. We see the presentation/publication of full clinical data from the P1 proof-of-concept study in 2H23, as well as the completion of the Nestlé commercialization agreement as key catalysts for the expected P2 readout in ~2025,” noted Bratzel.
“We continue to think the stock can work as these key drivers become more visible in the coming quarters. Stay buyers,” the analyst summarized.
Bratzel backs up her bullish stance with an Overweight (ie Buy) rating for the stock, while her $14 price target suggests robust 438% one-year upside potential. (Click here to view Bratzel’s track record)
Likewise, other analysts are in the corner of CDXS. 4 Buys and 1 Hold allocated in the last three months add up to a ‘Strong Buy’ consensus rating. With an average price target of $14.67, the upside potential is 464%. (To see CDXS stock forecast)
CorMedix (CRM)
The second penny we’ll look at is CorMedix, another biopharmaceutical company. CorMedix is working on new treatments for infectious and/or inflammatory diseases, with a particular focus on preventing, reducing and treating infection from intravenous catheterization. IV catheters are used in a number of medical procedures and carry a significant risk of infection at the needle site. CorMedix’ lead product, DefenCath, is a proprietary combination of two drugs, taurolidine and heparin, intended for use as a catheter-lock solution for the prevention of catheter-related bloodstream infections (CRBSIs).
CorMedix is studying DefenCath for use in patients undergoing hemodialysis using central venous catheters. This is a life-saving procedure for patients with renal failure, but the central venous catheter (CVC) carries a serious risk of systemic infection.
DefenCath utilizes broad antimicrobial activity to prevent catheter infection and has been proven effective in clinical trials. However, CorMedix submitted several NDA submissions to the FDA and received two Complete Response Letters (CRLs) due to “deficiencies” at a contracted manufacturing facility for the necessary heparin. The last rejection was in August 2022 and CorMedix has been working to address the issues mentioned. In May of this year, the company filed its third NDA — and in late June, the FDA received acceptance of the NDA, with a PDUFA target date for next November 15.
The ubiquity of IV catheters in the medical field presents a rich opportunity for DefenCath, and the recent FDA acceptance of the NDA is a major step forward. This is Jason Butler’s statement, in his note to JMP.
“We are encouraged by the continued progress towards approval by DefenCath and are confident that all outstanding points of the CRL have been fully resolved… Management noted that it continues to ramp up preparations for launch , and we believe the company’s compelling clinical results and market readiness business has already progressed, especially patient reimbursement and health care economic data, which position the launch well for success,” Butler opined.
Looking ahead, Butler gives CorMedix an Outpe
rform (ie Buy) rating, and sets a price target of $19 to indicate potential for ~393% upside over the next 12 months. (Click here to view Butler’s track record)
Butler isn’t the only analyst to see a solid upside here; all three of the stock’s recent ratings are positive, for a Strong Buy consensus score. The shares are priced at $3.90 and the $16.67 average target suggests an upside of ~327% from that level. (To see CRMD inventory forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
