Everyone is in the investing game to see strong returns – the bigger, the better. However, the prospect of pocketing huge gains usually comes with a caveat; the potential for higher returns is accompanied by added risk, that is just the natural order of things.
For those wishing to venture onto risker paths, penny stocks are one route to go down. These are usually considered equities selling for less than $5, and as such, any small share gains can result in outsized returns.
That said, there is a reason why some of these names are so cheap. This could be down to the lack of good fundamentals or due to being faced with unsurmountable headwinds. On the other hand, some might be flying under the radar and might be severely undervalued or victims of bearish market conditions.
So, how should investors approach a potential penny stock investment? By taking a cue from the analyst community. These experts bring in-depth knowledge of the industries they cover and substantial experience to the table.
Bearing this in mind, we used TipRanks’ database to find two compelling penny stocks, according to Wall Street analysts. Both tickers boast a Strong Buy consensus rating and plenty of upside potential. We’re talking about over 100% here.
Lucid Diagnostics (LUCD)
The first penny stock we’ll look at is Lucid Diagnostics, a medical company focused on bringing to market a device and associated test for esophageal conditions that can result in cancer. The company offers two lead products – EsoGuard, a laboratory developed esophageal DNA test and EsoCheck, a device intended for esophageal cell collection. These are also the first and sole commercial instruments for extensive early diagnosis of esophageal precancer and cancer. It’s still early days for this company with the commercializing efforts still ramping up.
In March, Lucid announced the completion of the phase 1 roll-out of Lucid Test Centers, which are now present in seven metropolitan areas in the Southwest and Pacific Northwest. These provide the company with a way to drive adoption for its products at a lower cost.
Furthermore, in a promising sign for the product, in the first awards event by major independent market intelligence firm BioTech Breakthrough, EsoGuard received the “Diagnostics Innovation of the Year” award.
Lucid is also new to the public markets, having held its IPO last October. The company offered 5,000,000 shares of common stock priced at $14 per share and raised $70 million prior to the deduction of underwriting discounts and commissions and estimated offering expenses. The shares, though, have since suffered at the hands of the market’s downturn, shaving off 83% of their value.
Nevertheless, at $2.33, Wall Street pros believe LUCD’s share price could reflect the ideal entry point given everything the company has going for it.
Noting that there are ~13 million gastroesophageal reflux disease (GERD) patients over 50 years old in the U.S. with at least one risk factor for BE (Barrett’s esophagus) who could make use of EsoGuard/EsoCheck, Cantor analyst Ross Osborn lays out the bullish case for Lucid.
His investment thesis is based on the following assumptions: “(1) We view the company’s EsoGuard/EsoCheck (Eso) offerings favorably in light of its potential to become the new first-line screen for Barrett’s esophagus-esophageal adenocarcinoma (BE-EAC) in the conservatively estimated $25 billion U.S. market; (2) based upon the related CMS reimbursement rate, we think LUCD should have high profit margins over time; (3) we view the company as being materially undervalued; and (4) LUCD has a strong balance sheet post-IPO that we think should be sufficient to support commercialization efforts, at least in the near-term.”
“Accordingly,” The analyst summed up, “we encourage investors to acquire shares of LUCD as we see meaningful upside to current share price levels.”
To this end, Osborn rates LUCD an Outperform (i.e. Buy) along with a $12 price target. Should his thesis play out, a potential twelve-month gain of 416% could be in the cards. (To watch Osborn’s track record, click here)
Other analysts don’t beg to differ. With 4 Buy ratings and no Holds or Sells, the word on the Street is that LUCD is a Strong Buy. Evidently, the Cantor analyst’s bullish take is no anomaly; going by the $9.25 average target, shares could climb ~298% higher in the coming months. (See LUCD stock forecast on TipRanks)
Science 37 (SNCE)
Next up is Science 37, a pioneer in the field of DCTs – decentralized clinical trials. That is, via its clinical trial operating system, the company facilitates universal access to clinical research.
The idea behind the concept is to make the clinical trial industry more efficient and productive. By removing the requirement to find locations, undertake site feasibility, contracting, and training, as well as tapping into a wider patient pool that isn’t limited to the standard site’s proximity, the patient pool can be expanded. Science 37 can shorten clinical trial durations, widen patient diversity, and lessen participation burden by accelerating recruitment activities. Although the industry has been slow to adopt new technology in the past, COVID gave it the push it needed.
So far, the company has conducted more than 100 ACTs (agile clinical trials) in over 21 countries, enrolling patients at a much faster rate than other sites in the same study whilst holding on to patients 28% longer than normally seen in the industry.
While Covid has accelerated DCT adoption, the cancellation of two Covid studies in 1Q22 led to a weaker-than-expected 2022 revenue outlook. The company also missed on the bottom-line in the Q4 report, as EPS of -$0.60 fell short of the $-0.35 estimate. However, there was a strong beat on the top-line as revenue increased by 82.5% year-over-year to reach $20.37 million – $5.59 million above the Street’s forecast.
Assessing its prospects, Baird analyst Eric Coldwell thinks the company is uniquely placed to benefit from a DCT industry which is “here to stay.”
“Science 37 is a pure play in one of the fastest growing areas of pharma tech and services – decentralized clinical trials (DCT),” the 5-star analyst writes. “The serviceable addressable market opportunity is large, sized at ~$60B. While growing rapidly, DCT touches a sliver of the opportunity today and SNCE, a leader in the space, may only have cracked 0.1% by end of 2021 and just 0.5% by 2025. Management projections include 52% net bookings CAGR from 2020 to 2025 and 70%+ revenue CAGR from 2020 to 2025. The growth forecast is supported by a rapidly growing qualified sales pipeline.”
Accordingly, Coldwell rates SNCE an Outperform (i.e. Buy) while his $12 price target implies 12-month share appreciation of 188%. (To watch Coldwell’s track record, click here)
2 other analysts have recently thrown the hat in with SNCE reviews, and they too are positive, providing the stock with a Strong Buy consensus rating. Moreover, the average price target clocks in at $11.33, suggesting one-year share appreciation of ~163% from the current share price of $4.30. (See SNCE stock forecast on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
