The S&P 500 has been rising all year, and to date has posted gains of more than 16%. After a more volatile start to the year, with strong swings up and down from January to the end of May, during which investors pulled back from the tech giants, the NASDAQ has joined the upward trend. Its year-to-date gain now stands at 14%, and like the S&P, sits just under a record high level. But how much room is there for further growth across the board?
In an environment like this, investors need to take care. Goldman Sachs’ chief global equity strategist Peter Oppenheimer agrees, describing current conditions as ‘a stock picker’s market.’
Getting into details, Oppenheimer describes the initial phase of a market recovery as the ‘hope phase,’ and going on gives his take on where we are now: “[As] you go into the next phase, the growth phase, where the actual growth comes through, you tend to get lower returns in general and a much more mixed return across sectors and factors…. And that would be really our call, that we’re going into a period now where there’s less feature opportunities, less steep rises in equities. More broadly, less clear distinction between factors and sectors, but a much better opportunity set for alpha and stock picking.”
Oppenheimer’s colleagues among the Goldman Sachs stock analysts have been making it easy for investors to engage in that stock picking, pointing out the ones that are likely to jump – perhaps by 60% or more. We’ve pulled up the details on three such Strong Buy stocks, using the TipRanks platform; here they are, along with excerpted commentary from the Goldman analysts.
We’ll start with a biopharma company, Centessa. This small-cap biotech company uses an asset-centric approach to R&D, and divides the research pipeline among a network of subsidiary companies. In other words, while the administrative and infrastructure support is centralized in the holding company, the development programs are decentralized, allowing more individualized approaches to the research programs.
That pipeline contains 16 drug candidates, in various stages of development from pre-clinical testing to Phase 3 clinical studies. The leading candidate, lixivaptan, is undergoing a Phase 3 trial as a treatment for autosomal dominant polycystic kidney disease. Two other drug candidates are in late stages of development: SerpinPC is a specific inhibitor of activated protein C, to be used in the treatment of hemophilia and shows potential as a one-size-fits-all treatment, while imgatuzumab, a next-gen EGFT targeting antibody, is under development for multiple oncological applications. These latter two drug candidates are at the Phase 2 clinical stage.
Centessa is a new company, that launched in February of this year. The company launch was a merger of 10 smaller biotechs – now the subsidiaries in Centessa’s network – and included a $250 million capital raise in Series A venture funding.
Biotech researchers have famously high overheads and are always in need of additional capital, however. To secure that, Centessa held its IPO in May and June of this year. The offering was priced on May 27, at $20 per per ADS (American Depositary Share) for 16.5 million shares. At the closing of the offering, on June 4, the company had exceeded expectations, raising $379.5 million in new capital before deducting expenses. This beat the initial estimates by over $40 million. Today, Centessa boasts a market cap of $2 billion.
Goldman Sachs analyst Salveen Richter initiated her coverage of this stock in the wake of the IPO, setting a Buy rating and a $42 price target that implies an impressive 89% one-year upside potential.
Backing her stance, Richter notes the potential of the company’s model, writing, “CNTA is creating a new biopharmaceutical company model, aimed at capitalizing on the primary strengths of an asset-centric approach (e.g. single asset companies focused on a particular asset or pathway) while maintaining the diversification and scale traditionally associated with large pharma companies. Through a curated portfolio of asset-centric companies (“Centessa subsidiaries”) under a central management team, CNTA is able to capitalize on a diversified pipeline of high conviction programs…” (To watch Richter’s track record, click here.)
This new stock has attracted 3 positive analyst reviews so far, making for a unanimous Strong Buy consensus rating. The shares are trading for $21.93, with an average target of $38 suggesting a 71% upside for the next 12 months. (See Centessa’s stock analysis at TipRanks.)
Next up, Beauty Health, is the parent company of the HydraFacial brand of skin care products. These products are billed as a bridge between medical and consumer retail, aiming to promote beautiful and healthy skin. HydraFacial is available in 87 countries, and purchases can be personalized for a variety of skin types. In addition to HydraFacial, Beauty Health markets another 9 brands of skin care products.
Beauty Health entered the public markets on May 6, at the completion of a SPAC merger with Vesper Healthcare Acquisition Corporation. The merger created a $1.1 billion company, with $100 million in cash on hand and no debt.
Since completing the SPAC, SKIN has been making news. On May 13, the company reported 1Q21 results, showing $47.5 million in top line revenue, up 46% from 1Q20. Gross margins increased from 58% to 66%, and operating income rose from a $7.3 million loss in the year-ago quarter to a $2.4 million profit. The company did run a net loss, but that loss moderated from $9.1 million in 1Q20 to $3.3 million in 1Q21.
In other news, Beauty Health in June of this year acquired four third-party distribution companies, in a transaction worth a combined total of $35 million. That was paid out with $28 million in cash and $7 million worth of Class A common stock. Finally, on June 28, Beauty Health entered the Russell 3000 and Russell 2000 indexes, giving the stock additional exposure on Wall Street.
In another initiation of coverage report, Goldman analyst Amit Hazan sees Beauty Health holding a strong position in its industry, in terms of both current business and expansion potential. Hazan writes, “[We] see the lead product HydraFacial having numerous first mover advantages driving a growing moat for its newly created skin health category. This fast-growing market segment should translate into an over 34,000 unit installed base and nearly 10M annual treatments by 2024, representing a +22% 5-year sales CAGR versus pre-pandemic numbers (~30% growth from ’22-’25). Still yet, we see the setup as skewed favorably toward the upside versus both our and management expectations through 2024, and we anticipate that valuation will increasingly reflect this upside potential.”
In line with these upbeat comments, Hazan rates the stock a Buy, and sets a $31 price target that indicates room for 63% share appreciation in the year ahead. (To watch Hazan’s track record, click here.)
Once again, we are looking at a stock with a unanimous analyst consensus rating; 4 positive reviews back the Strong Buy on SKIN. The shares are priced at $19.05 and have an average target of $23.38; this gives a one-year upside of 23%. (See Beauty Health’s stock analysis at TipRanks.)
We’ll wrap up this list with another clinical stage biotech firm. TCR2 works on T-cell receptor technology, a therapeutic channel offering potential to treat patients with a variety of solid tumor and hematological cancers. TCR2 has developed T-cell receptor (TCR) fusion construct t-cells (TRuC-T cells), which recognize and kill cancer specifically, by harnessing the signaling complex of the entire T-cell receptor system. TRuC-T cells have demonstrated anti-tumor efficacy in preclinical models, and the company has developed an active pipeline expanding on that potential.
The two leading candidates in the company’s pipeline are T-210 and T-110, which target solid tumors and blood cancers, respectively. T-210 is designed to target mesothelin-positive solid tumors, and is currently in a Phase 1/2 clinical trial examining efficacy against four cancer diagnoses: non-small cell lung cancer (NSCLC), ovarian cancer, malignant pleural/peritoneal mesothelioma (MPM) and cholangiocarcinoma. Together, these cancers have a potential patient base of 80,000 just in the US.
T-110, targeting hematological malignancies, goes after CD19-postive B-cell cancers. CD19, a transmembrane protein, is expressed on normal B cells, and is maintained in most B cell malignancies, with the exception of multiple myeloma. The Phase 1/2 clinical trial for T-110 focuses on three diseases: adult acute lymphoblastic leukemia (ALL), aggressive non-Hodgkin’s lymphoma (NHL), and indolent NHL. While CAR-T cells have been approved for use in these indications, they have so far proven too toxic for use – making an opening for a biotech firm with a different approach.
We’ll check in again with Goldman’s Salveen Richter, who notes the opening provided by the toxicity of existing T-cell therapies. Richter writes, “TCRR is a clinical-stage immunotherapy company developing next-generation cell therapies, T cell receptor (TCR) Fusion Construct T cells (TRuC-T cells), which are designed to overcome the limitations of chimeric antigen receptors (CAR) Ts by utilizing each subunit of the TCR and engineered TCR Ts by functioning in an HLA-independent manner, thus maximizing the number of addressable patients.”
Richter clearly believes this company is at the early stage of a potentially viable program. She rates the stock a Buy, and her $30 price target implies a robust upside of 110% for the coming year.
Wall Street’s collective wisdom is in line with Richter’s, as shown by the 5 positive reviews that underlie this stock’s Strong Buy consensus rating. The average price target, of $43.20, is even more bullish than the Goldman view, and suggests a one-year growth potential of a huge 203%. (See TCR2’s stock analysis at TipRanks.)
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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.
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