In this article, we will look at the 8 Penny Stocks with Biggest Upside Potential According to Analysts. Let’s look at where AbCellera Biologics Inc. (ABCL) stands against other penny stocks with the biggest upside potential.
Why Are Rate Cuts Good for Small Caps?
The Federal Reserve slashed interest rates by a half point in September, kickstarting its first easing campaign in four years. It was the first interest rate cut since the early days of the Covid-19 pandemic. Rate cuts are considered broadly supportive of stocks, provided the economy is not in recession. Since the risk of recession in the US economy has been overruled, small-cap stocks are likely to benefit more from the rate cuts than their large-cap peers due to easing monetary policy. This is primarily because they are thought to be more likely to hold floating-rate debt.
However, Oxford Economics analysts noted that small-cap stocks’ performance has given mixed signals since the previous interest rate cuts. At best, rate cuts have helped moderate small caps’ underperformance compared to large caps in the late tightening cycle stages.
But this time can be different. Analysts at Oxford expect small caps to be “outsized beneficiaries of the upcoming rate cuts…due to their relatively weak balance sheets.” Several factors are likely to alleviate the small caps’ balance sheet pressure, including easier economic conditions, resilient business and consumer spending, and reduced borrowing costs.
Generational Opportunity for Small to Mid-Cap Stocks
On October 4, Eduardo Lecubarri, managing director and global head of small and mid-cap equity strategy at J.P. Morgan, talked about the potential of investing in small to mid-cap stocks in an interview on CNBC. He breaks down the opportunities in the space, while shedding light on how to pick the right stocks in what he calls a “generational opportunity.” He says that we are living in a tricky world where the opportunity to invest lies in realizing the hidden value in the small and mid-cap sector and picking the right stocks instead of investing broadly.
He claims that times have changed, with small and mid-caps stocks going from being not the most suitable investment in previous years to paving the way for the biggest opportunity in the sector in the past 2-3 decades. He further elaborated and said that the opportunity of picking a small to mid-cap versus large-cap stock is bigger now than he has ever seen in the past 30 years. This generational opportunity, however, is not without its pitfalls for those who fail to make the right picks.
Pricing power and high-margin businesses can be suitable indicators of the right small to mid-cap stocks to invest in, according to Lecubarri. The need to find value and invest in stocks with achievable earnings growth expectations also holds pivotal value in making the right choices. While 2022 to 2023 was the time to stay away from small to mid-cap stocks, Eduardo Lecubarri says that times have changed with the stabilizing economy.
Our Methodology
For this article, we used stock screeners to identify around 30 penny stocks under $5 with a market cap over $500 million and with high analyst upside potential, as of 6 October, 2024. We also considered the number of hedge fund holders as of Q2 2024. The stocks are listed in ascending order of their upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Penny Stocks with Biggest Upside Potential According to Analysts
AbCellera Biologics Inc. (NASDAQ:ABCL)
Share Price: $2.53
Upside Potential: 383.87%
Number of Hedge Fund Holders: 16
AbCellera Biologics (NASDAQ:ABCL) solves antibody discovery problems by integrating data science, technology, infrastructure, and interdisciplinary teams. It develops and discovers antibody medicines for indications across therapeutic areas, including metabolic and endocrine conditions, cancer, and autoimmune disorders. It boasts technology platforms that unlock drug classes, modalities, and targets, including T-cell engagers, peptide-MHCs, and transmembrane proteins.
The company is focusing attention on advancing its internal program pipeline and collaborating with partners on drug development programs. Programs ABCL635 and ABCL575 are the first two preclinical programs in its internal pipeline. ABCL635, an antibody-drug candidate, is used against an undisclosed target with an indication in endocrine and metabolic conditions. ABCL575 is being developed as a therapy to treat atopic dermatitis and other indications of inflammation and autoimmunity. It targets the OX40 ligand. Since both ABCL575 and ABCL635 are progressing well, the company expects to submit Clinical Trial Applications in Q2 of 2025.
AbCellera Biologics (NASDAQ:ABCL) continued to focus its capital allocation in Q2 2024, primarily in three domains. These include building and advancing its internal pipeline, executing specific strategic partnerships, and completing investments in its facilities and platforms.
The company is in a strong liquidity position. It has around $220 million in available government funding and $700 million in cash to continue executing its strategy. It continued to implement its plans to complete its GMP and CMC investments in Q2 2024. It also started to work on three partner-initiated programs in its key business metrics. This initiative takes its programs to a cumulative total of 93 programs with downstream participation.
AbCellera Biologics (NASDAQ:ABCL) has received commitments for funding the advancement of its internal pipeline and improving its GMP facility from the Government of British Columbia and the Strategic Innovation Fund from the Government of Canada. This capital does not show up on the company’s balance sheet. With nearly $700 million in cash and the unused portion of this secured government funding, the company has more than $900 million in total available liquidity to execute its strategies. Its capital needs are thus very manageable with respect to its overall operating expenditure, with sufficient liquidity to fund more than the next three years of its pipeline and platform investment.
Overall, ABCL ranks SECOND among the 8 penny stocks with the biggest upside potential according to analysts. While we acknowledge the potential of ABCL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ABCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.