If there is one way to describe the markets of recent times, it would be top-heavy. The mega-caps, the largest US companies, are outperforming the broader indices and dragging the rest of the markets along because of their size. To give an idea of scale, the three largest companies listed on the S&P are Apple, Microsoft and Alphabet; Together, they have a combined market cap of over $6.9 trillion and make up a large portion of the S&P 500's total value. That $6.9 trillion is a larger market cap than any national stock market in the world outside of the United States.
This scale makes it difficult to ignore the market giants. That doesn't mean investors have to stick with the few dominant mega-cap stocks, however. Brian Belski, chief investment strategist at BMO, points out that there are other games too: “There's no denying the strong outperformance of mega-caps in 2023, with the top five stocks by market cap trailing the S&P 500 by 30% year-to-date Percentage points outperforming.” Pace to outperform for fifth straight month. However, our work shows that the broader market has historically held up well once the relative performance of these mega-caps has waned or the winning streaks have ended, with gains outnumbering losses.”
We can put Belski's point of view into action and start tracking some of the smaller stocks with strong upside potential. Using the TipRanks platform, we have identified two stocks in the small-cap category that analysts predict both have a strong buy rating and both have upside potential of more than 100%.
Pliant Therapeutics (PLRX)
We begin with Pliant Therapeutics, a clinical-stage biopharmaceutical company focused on discovering and developing novel treatments for fibrotic diseases. Fibrotic diseases belong to a class in which abnormal deposition of connective tissue, typically occurring during wound healing and scar formation, impedes and inhibits normal organ function. These diseases can affect different organ systems in the body, including the lungs and liver.
Pliant's research pipeline is currently focused on diseases of these two organs, including idiopathic pulmonary fibrosis (IPF), primary sclerosing cholangitis (PSC) and NASH-associated hepatic fibrosis. These programs are currently in the clinical testing stage; The company has two other research arms targeting solid tumors and various muscular dystrophies that are in preclinical studies.
The company's ongoing clinical trials include two lead candidates: PLN-74809, also known as bexotegrast, and PLN-1474. Last month, Pliant published data from the Phase 2a INTEGRIS-IPF study showing that bexotegrast has a “favorable” safety and tolerability profile and positive evidence of antifibrotic activity in the treatment of IPF (idiopathic pulmonary fibrosis). Data from the INTEGRIS-PSC study, also a phase 2a study of bexotegrast, are expected in Q3 2023. Pliant's third clinical program is PLN-1474, a potential treatment for NASH-associated liver fibrosis. A Phase 1 test on this track has been completed and has shown positive results.
The pipeline here, particularly the IPF track, has caught the attention of Canaccord analyst Edward Nash who writes: “There is a significant market opportunity in IPF as combined global sales of Esbriet and Ofev exceed 3% in 2021 $.7 billion generated. We believe so.” The potentially superior efficacy, high selectivity, and minimal side-effect profile of bexotegrast when combined with oral administration has the potential to gain significant market share and be prescribed as an add-on therapy to the current standard of care. Conservatively, we estimate that bexotegrast could be a $1.7 billion drug for IPF in 2037, the year of our projections.”
To quantify his stance, Nash has a Buy rating on Pliant's stock with a price target of $48, suggesting upside potential of ~109% over the next 12 months. (To view Nash's track record, click here)
Overall, this stock has the Street's full support. Based on 13 positive analyst reviews, PLRX receives a consensus rating of “Strong Buy”. The stock's trading price of $23 and average price target of $48.62 imply a 1-year upside potential of 111%. (See PLRX stock forecast)
Kura oncology (KURA)
Staying with clinical-stage biopharmaceuticals, let's now take a look at Kura Oncology. This company focuses on new precision drugs in the field of cancer treatment and works to develop new small molecule drugs that target cancer signaling pathways. Kura takes the additional step of combining its drug candidates with molecular and/or cellular diagnostics to develop a more targeted drug by tailoring it directly to the patient – Kura's treatments target those patients most likely to respond positively to the drug Candidate.
The majority of Kura's pipeline is in the pre-clinical stage, with multiple drug candidates being evaluated in multiple avenues. Ziftomenib in particular has several ongoing lines of research. The most advanced pipeline track is the KOMET-001 clinical trial, evaluating the drug as an oral inhibitor of menin-KMT2A (MLL) for the treatment of acute myeloid leukemia (AML). Additional data from phase 1 KOMET-001 is expected on June 11 at the European Hematology Association (EHA) 2023 Congress in Frankfurt.
Two more clinical trials are starting at Kura. The KURRENT-HN study is a combination study investigating the drug candidate tipifarnib together with alpelisib for the treatment of certain types of squamous cell carcinoma of the head and neck. Recruitment is still ongoing here, and the biologically active dose is expected to be determined in the middle of this year.
In addition, the FIT-001 study will be a dose-escalation study of drug candidate KO-2806, an FTI inhibitor and potential treatment for multiple cancers, including clear cell renal cell carcinoma. Patient dosing in FIT-001 is expected in the second half of 2023.
All of this earns Kura numerous “shots on goal,” and BTIG analyst Justin Zelin sees this as a net benefit for the company.
“Ziftomenib has presented encouraging phase 1 data with clear evidence of clinical activity, differentiated pharmacological properties to revumenib and efficacy exceeding regulatory limits for approval.” a year behind development, and we anticipate that the important Menin class will 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 anticipate that Kura's underappreciated farnesyltransferase inhibitor (FTI) program will have combined proof-of-concept (POC) data in solid tumors, and thus a strong opportunity for solid tumors without competition in this class,” Zelin added.
Looking ahead, Zelin has a Buy rating on KURA stock, and his price target of $31 shows that he is confident the company will have 137% upside potential through the one-year period. (To view Zelin's track record, click here)
And what about the rest of the street? Everyone is on board. The stock has a consensus rating of “Strong Buy” based on 8 unanimous buys. The forecast calls for a 12-month gain of 135% with an average price target of $30.71. (See KURA 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.