If there’s one way to describe the markets of recent times, it’s top heavy. The mega-caps, the largest US companies, have outperformed the broader indices, and their size pulls the rest of the markets along with them. To give an idea of size, the top three S&P-listed companies are Apple, Microsoft, and Alphabet; together they have a combined market capitalization of more than $6.9 trillion and make up a large portion of the total value of the S&P 500. That $6.9 trillion is a higher market capitalization than any national stock market in the world outside the US.
This kind of scale makes the market giants hard to ignore. But that doesn’t mean investors should be stuck with the few dominant megacap stocks. As BMO’s chief investment strategist Brian Belski points out, there are other games in town: “There’s no denying that mega-caps will outperform sharply in 2023, with the top five stocks by market capitalization eclipsing the S&P 500 by 30 percentage points YTD and beyond. outperforming for a fifth straight month. However, that said, our work shows that once the relative performance of these megacaps has declined or winning streaks have ended, the broader market has historically held up just fine, with gains occurring more often than to lose.”
We can put Belski’s point into practice and start tracking some of the smaller stocks with high upside potential. Using the TipRanks platform, we’ve identified two stocks in the small-cap category, both with a “Strong Buy” rating and both with more than 100% upside potential, according to analyst forecasts.
Pliant Therapeutics (PLRX)
We start with Pliant Therapeutics, a clinical-stage biopharmaceutical company focused on the discovery and development of novel treatments for fibrotic diseases. Fibrotic diseases belong to a class in which abnormal deposition of connective tissue, typically occurring during wound healing and scarring, interferes with and inhibits normal organ function. These diseases can affect various organ systems in the body, including the lungs and liver.
Pliant’s research pipeline currently focuses on diseases of these two organs, including idiopathic pulmonary fibrosis (IPF), primary sclerosing cholangitis (PSC), and NASH-associated liver fibrosis. These programs are currently in the clinical trial phase; the company has two additional research tracks, focusing on solid tumors and various muscular dystrophies, that are undergoing preclinical studies.
The company’s ongoing clinical trials include two leading candidates: PLN-74809, also known as bexotegrast, and PLN-1474. Last month, Pliant released data from its phase 2a INTEGRIS-IPF trial showing that bexotegrast showed a ‘favorable’ profile in terms of safety and tolerability, as well as positive indications of antifibrotic activity in the treatment of IPF (idiopathic pulmonary fibrosis). Data from the INTEGRIS-PSC trial, another phase 2a trial of bexotegrast, is expected during 3Q23. Pliant’s third clinical stage is for PLN-1474, a potential treatment for NASH-associated liver fibrosis. A phase 1 study on this track has been completed and has yielded positive results.
The pipeline here, particularly the IPF trail, has caught the attention of Canaccord analyst Edward Nash, who writes, “There is a significant market opportunity in IPF with global sales for both Esbriet and Ofev reaching >$3.7 billion by 2021. to generate. bexotegrast’s potentially superior efficacy, high selectivity and minimal side effect profile when combined with an oral administration has the potential to gain significant market share, as well as the potential to be prescribed as an adjunct therapy to the current standard of care. We believe bexotegrast conservatively could be a $1.7 billion drug in IPF in the year of our projections, 2037.”
To quantify its stance, Nash gives Pliant stock a buy rating with a $48 price target, suggesting ~109% upside over the next 12 months. (Click here to view Nash’s track record)
In general, this stock has the full support of the street. Based on 13 positive analyst reviews, PLRX receives a Strong Buy consensus rating. The $23 trading price and $48.62 average price target imply 111% upside potential over a year. (To see PLRX stock forecast)
Kura Oncology (KURA)
Let’s stick with the clinical stage biopharma and now look at Kura Oncology. This company focuses on new precision medicines in the field of cancer treatment and is developing new small molecule drugs that target cancer signaling pathways. Kura takes the extra step of linking its drug candidates with molecular and/or cellular diagnostics to develop a more precisely targeted medication by tailoring it directly to the patient – Kura’s treatments are targeted at the patients who most likely to show a positive response to the drug candidate.
Most of Kura’s pipeline is in the preclinical stage, with several drug candidates being investigated on multiple tracks. Leading the way, ziftomenib has multiple ongoing lines of research. The most advanced pipeline is the KOMET-001 clinical trial, which evaluates the drug as an oral inhibitor of menin-KMT2A (MLL) for the treatment of acute myeloid leukemia (AML). Evolving data from the Phase 1 KOMET-001 is expected on June 11 at the 2023 European Hematology Association (EHA) Congress in Frankfurt, Germany.
Kura has two more clinical trials starting. The KURRENT-HN trial is a combination study looking at the drug candidate tipifarnib together with alpelisib in the treatment of certain squamous cell carcinomas of the head and neck. Enrollment here is ongoing, with determination of the biologically active dose expected in the middle of this year.
In addition, the FIT-001 trial will be a dose-escalation study of drug candidate KO-2806, an FTI inhibitor and potential treatment for several cancers, including clear cell renal cell carcinoma. Patient dosing in FIT-001 is expected in 2H23.
All this gives Kura plenty of ‘shots on target’, which BTIG analyst Justin Zelin sees as a net positive for the company.
“Ziftomenib has shown promising phase 1 data with clear evidence of clinical activity, differentiated pharmacological properties of revumenib and efficacy exceeding regulatory standards for approval. Kura is slated to hit the market second, ~1 year behind in development, and we expect the important men’s class to be large enough to support multiple players with blockbuster potential for both Syndax and Kura,” noted Zelin.
“While investor focus has been on Ziftomenib, we expect that Kura’s undervalued Farnesyltransferase Inhibitor (FTI) program will demonstrate combined proof-of-concept (POC) data in solid tumors, unlocking a high opportunity for solid tumors without competition in the class,” Zelin added.
Looking ahead, Zelin gives KURA stock a buy rating, and his $31 price target indicates he’s confident of a 137% upside to the one-year timeframe. (Click here to view Zelin’s track record)
And what about the rest of the street? Everyone is on board. The stock has a Strong Buy consensus rating, based on a unanimous 8 Buys. The forecast calls for 12-month gains of 135% as the average price target is $30.71. (To see KURA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.