The S&P 500 is up 14% year-to-date, but it hasn't gone unnoticed that the robust performance has been driven by strong performances by tech mega-caps.
According to Goldman Sachs strategist Lily Calcagnini, there are better investment opportunities further down the food chain right now.
“Small stocks are trading at a valuation discount relative to large stocks, suggesting that now is an attractive entry point for investors with a multi-year investment horizon,” explained Calcagnini. “Even in the large-cap universe, smaller companies look cheap relative to larger ones in both the past 10 and 35 year context.”
While Calcagnini expects the S&P 500 to gain another 9% over the next year and hit the 4,700 mark, she expects the small-cap-focused Russell 2000 index to rise 14%, an outperformance of 5 percentage points compared to the index corresponds to . the outlook for the S&P 500.
Meanwhile, analysts at Goldman Sachs have been delving into the details, looking for small-cap stocks with solid upside potential. We ran through some of their picks in the TipRanks database to also determine the overall mood on the road. Turns out, Goldman experts aren't the only ones interested in these names included in Russell 2000. Both are rated “strong buys” by analyst consensus. Let's find out what makes them attractive investment options right now.
Springworks Therapeutics (SWTX)
First on our small-cap list, let's take a look at Springworks Therapeutics, a clinical-stage biopharmaceutical company with a market cap of $1.57 billion. Springworks uses a precision medicine strategy to acquire, develop and bring to market transformative medicines with the goal of improving the lives of people suffering from debilitating cancers.
Biotech companies are all about the pipeline, and Springworks currently has two drugs in clinical trials in different programs.
The most advanced of these is the oral, small molecule, selective gamma-secretase inhibitor nirogacestat, which is being investigated for the treatment of various types of cancer. Based on positive data from the Phase 3 DeFi study, the FDA has accepted Springworks' NDA (New Drug Application) for nirogacestat in desmoid tumors and set a PDUFA date for November 27 (extended from the previous date of August 27). ).
There is another catalyst in the pipeline with the anticipated release of topline data from the Phase 2b ReNeu study of the MEK1/2 allosteric inhibitor mirdametinib in NF-1-associated plexiform neurofibroma. This should take place in the second half of the year. NF1 is a genetic disorder associated with increased susceptibility to tumors, making it one of the most common syndromes of its kind. About 100,000 people in the US are currently affected.
Corinne Jenkins, Analyst at Goldman Sachs, assesses the pipeline and upcoming catalysts and highlights the potential of these two drugs: “Based on the available clinical data, we believe that the likelihood of Niro being approved by DT is high… Beyond that Given the high launch rate, we expect strong launch.” Level of physician awareness and support for Niro in the DT as observed through our channel checks and SWTX market research. Beyond Niro, we see the upcoming data from the Ph2b-ReNeu study of mirdametinib in children and adults with NF-1-associated plexiform neurofibroma in 2H23 as driving the next leg of the story.”
These comments support Jenkins' “buy” rating on SWTX, while her price target of $43 implies a ~71% one-year stock appreciation. (To see Jenkins' track record, Click here)
Other analysts are even more optimistic. Of the four investment banks that have rated SWTX over the past three months, all four agree the stock is a “buy” — and on average they believe it's worth $67.67 a share — roughly 169% above the current price. (See SWTX Stock Forecast)
Arvinas, Inc. (ARVN)
For the next Goldman-backed small-cap, we stay in biotech. With a market capitalization of $1.44 billion, Arvinas is a company focused on developing innovative protein degradation therapies to treat a broad spectrum of diseases. The company uses its proprietary PROTAC (PROteolysis TARgeting Chimera) platform, which utilizes the body's natural protein disposal system to selectively eliminate disease-causing proteins. By targeting specific proteins, Arvinas aims to offer more effective and durable treatments compared to traditional small molecule inhibitors or antibodies.
The majority of Arvinas' pipeline is still in the pre-clinical phase, but several drugs are in various stages of clinical testing. The most recent update concerned the progress of ARV-766, an orally bioavailable PROTAC protein degradant being studied in men with metastatic castration-resistant prostate cancer (mCRPC). Data from the Phase 1/2 dose escalation and extension study showed that ARV-766 was well tolerated and showed promising activity in a heavily pretreated post-NHA (new hormonal agent) patient population.
Arvinas is also making progress in the development of bavdegalutamide (ARV-110), another oral PROTAC protein digester. This potential treatment offers a glimmer of hope for men battling metastatic castration-resistant prostate cancer (mCRPC) who have failed to respond to previously approved systemic therapies. The Company is expected to initiate a Phase 3 study in the second half of 2023 and intends to report radiographic progression-free survival data from the Phase 1/2 study during the same period.
Despite its rich pipeline of therapeutic candidates, Arvinas' shares are down 21% this year. This presents an opportunity for the stock to see significant growth, according to Goldman Sachs analyst Madhu Kumar.
“Given the early signal, ARVN will make ARV-766 available in combination with abiraterone to patients on prenatal hormone therapy (NHA) in the second half of 2023. In addition to ARV-766, updated data from the Phase 1/2 AR PROTAC bavdegalutamide (BAV) trial, including radiographic progression-free survival (rPFS), will be presented at a medical congress in 2H23. Given the year-to-date weakness in ARVN shares, we believe even modest positive signals could generate upside potential for the AR PROTAC franchise,” noted Kumar.
How does all of this translate to investors? Kumar rates ARVN as a Buy along with a price target of $91. Should that number be reached, investors could see returns of an impressive 237% in one year. (To see Kumar's track record, Click here)
The view from the rest of the street is hardly less optimistic. While two analysts prefer to leave this out, all twelve other recent analyst ratings are positive, giving the stock a consensus rating of ‘Buy Strong'. The average target currently stands at $71.85, which suggests the stock will see 72% growth in the coming months. (See ARVN Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.