In this article, we will look at the 8 Penny Stocks with Biggest Upside Potential According to Analysts. Let’s look at where Ironwood Pharmaceuticals, Inc. (IRWD) 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
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)
Share Price: $4.33
Upside Potential: 183.69%
Number of Hedge Fund Holders: 27
Ironwood Pharmaceuticals (NASDAQ:IRWD) is a gastrointestinal (GI) healthcare company that works to advance the treatment of GI diseases and redefine the standard of care administered to such patients. It develops LINZESS (linaclotide) for adults with irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC). It is also an approved treatment for functional constipation in pediatric patients ages 6-17 years old.
The company is advancing apraglutide, a long-acting synthetic glucagon-like peptide-2 (GLP-2) analog for rare gastrointestinal diseases, including short bowel syndrome with intestinal failure (SBS-IF), and several other earlier-stage assets. It is also advancing the potential treatment of visceral pain conditions, such as interstitial cystitis/bladder pain syndrome (IC/BPS) and endometriosis, through IW-3300, a GC-C agonist. Another of the company’s treatments is CNP-104, which treats PBC, a rare autoimmune disease targeting the liver.
Ironwood Pharmaceuticals (NASDAQ:IRWD) is making continuous progress across its strategic priorities. Prescription demand for its products is high, including an 11% increase in LINZESS in Q2. New-to-brand prescriptions are also seeing continued strength, growing 15% compared to last year. These trends make Q2 the sixth consecutive quarter of double-digit new-to-brand volume growth, highlighting the growing demand for LINZESS among healthcare providers and patients.
Apraglutide boasts a strong clinical profile, including the convenience of once weekly dosing, demonstrated high compliance rates as seen in the STARS Phase 3 study, and low incidence of both GI tolerability issues and injection site reactions. Such capabilities position it for success in the domain.
The company is also developing a solid patient service program to help boost adherence to therapy. It is advancing its launch planning, and is planning to commercialize apraglutide, once approved, through an established sales force with considerable repute among GI specialists across the US.
Overall, IRWD ranks SIXTH among the 8 penny stocks with the biggest upside potential according to analysts. While we acknowledge the potential of IRWD 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 IRWD 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.
