Investing in penny stocks has always been a tricky business. Primarily associated with opaque corporate governance practices, lack of liquidity, and dodgy financials, researching penny stocks can be akin to cracking a black box - too little information for too much uncertainty.
However, picking multi-baggers from high-potential group is also possible, with the right amount of caution and some top-notch due diligence. Great companies like Amazon (AMZN), Apple (AAPL) and recent artificial intelligence (AI) leader Nvidia (NVDA) were all penny stocks at one point or another, and the patient investors who stuck through the slow, “dead money” periods in these stocks have amassed generational wealth now, thanks to their investments in these companies.
As inflation starts to trend lower, setting the stage for a likely Fed rate cut at the September meeting, the macro environment is ripe for investors to add a few carefully selected penny stocks with solid fundamentals and promising growth prospects.
To that end, here are three stocks from the space that have attracted bullish attention from analysts, with significant upside potential expected from current levels.
#1. Opal Fuels
Based out of White Plains, NY, Opal Fuels (OPAL) is a leading vertically integrated producer and distributor of renewable natural gas (RNG) for use as a transportation fuel and renewable electricity. The company operates across the entire RNG value chain, from the production and processing of RNG to its distribution and sale. The company is currently valued at a market cap of $674 million.
OPAL stock is down 29% on a YTD basis, and trades near 52-week lows.
Although the results for the latest quarter saw Opal missing Wall Street's estimates, it was still an improvement from the previous year. Revenues for the first quarter went up by 51% on a YoY basis to $65 million, while losses narrowed from $0.06 per share in the previous year to $0.01 per share.
During Q1, Opal produced 0.8 million MMBtu of RNG, up 33% from the previous year. Notably, RNG sold as a transportation fuel was 16.4 million GGEs, up 98% from the prior year.
The company closed the quarter with a cash and equivalents balance of $34.2 million. Net cash from operating activities more than tripled to $13.7 million from $4.2 million in the prior year.
Apart from its prowess in the RNG domain, Opal has other revenue drivers, as well. Its Fuel Station Services business is engaged in the construction and O&M of fuel stations for third parties, as well as its own. Opal's fuel services business has also seen steady growth over the years; in FY23 it operated through 298 stations, up from 137 in FY22 and just 68 in FY21.
Moreover, the company's renewable Power segment engages in electricity generation from biomethane with a nameplate capacity of 112MW, making up 21.4% of its total revenues in FY23.
With its expertise in the growing RNG market and other revenue drivers, analysts have a consensus rating of “Strong Buy” for OPAL stock, with a mean target price of $8.38. This denotes an upside potential of about 114% from current levels.
Out of 8 analysts covering the stock, 7 have a “Strong Buy” rating and 1 has a “Strong Sell” rating.
#2. Ocular Therapeutix
Founded in 2008 and based out of Bedford, Mass., Ocular Therapeutix (OCUL) is a biopharmaceutical company focused on developing innovative therapies for eye diseases. The company's core technology, Elutyx, involves using a biodegradable polymer platform to deliver drugs directly to the eye. The company's market cap currently stands at $1.25 billion.
OCUL stock is a notable outperformer, having rallied 80.5% on a YTD basis.
While revenue and earnings missed estimates in the first quarter, Ocular did report top-line growth. Revenues grew by 10.5% from the previous year to $14.8 million, as core product revenues climbed to $14.7 million from $13.2 million in the year-ago period. However, losses widened to $0.49 per share (vs $0.39 per share in Q1FY23), coming in much wider than the consensus estimate of a loss of $0.19 per share.
The company's cash balance received a substantial boost from the start of the year to end Q1 at $482.9 million, compared to just $195.8 million in Q1FY23. The cash balance towered over the company's debt levels of $74.4 million.
Ocular's commercial product, Dextenza, for post-surgical ocular inflammation and pain - which is also indicated for ocular itching due to allergic conjunctivitis - has gained noteworthy market acceptance in the retinal therapy space. As of 2023, the company claims that around 400,000 eyes had been treated, with a net product revenue of $57.9 million.
Moreover, the company also has various drugs in the development phase as well. Ocular Therapeutix's pipeline includes Axpaxli, an axitinib intravitreal implant, in Phase 3 trials for wet age-related macular degeneration (AMD). Enrolled in Q1 2024, the trial aims to potentially expand Axpaxli's indication to diabetic retinopathy in Phase 1/2 studies.
Additionally, Paxtrava, an intracameral travoprost implant in Phase 2, targets glaucoma and ocular hypertension. Positive Phase 2 topline results were announced in April 2024. Travoprost, a prostaglandin analog, reduces intraocular pressure to protect the optic nerve. The implant delivers continuous drug release within the eye's anterior chamber.
Ocular's expansion plans gained momentum as partner AffaMed Therapeutics secured Singapore Health Sciences Authority approval for Dextenza's New Drug Application. AffaMed collaborates with Ocular to develop and distribute Dextenza and Paxtrava across Greater China, South Korea, and other Asian markets.
Taking all of this into account, analysts have deemed OCUL stock a “Strong Buy,” with a mean target price of $15. This indicates an upside potential of roughly 86% from current levels. Out of 9 analysts covering the stock, 8 have a “Strong Buy” rating and 1 has a “Hold” rating.
#3. Nuvation Bio
We conclude our list of compelling penny stocks with Nuvation Bio (NUVB), a New York-based clinical-stage biopharmaceutical company focused on developing innovative cancer treatments. The company's pipeline includes a range of drug candidates targeting specific cancer types and mechanisms. Its market cap currently stands at $810 million.
NUVB stock has been on a tear in 2024 so far, more than doubling with a return of 117%.
Primarily focused on research and development like many early-stage biopharmaceutical companies, Nuvation is still pre-revenue.
In the first quarter, research and development expenses slid by 32% from the prior year to $12.8 million. The company attributed the improvement to a $6.7 million decline in third-party research services and drug manufacturing costs.
Nuvation exited the quarter with a cash balance of $597 million, much higher than its total debt balance of just $3.5 million.
There's plenty of optimism stemming from its all-stock acquisition of AnHeart Therapeutics, allowing Nuvation to secure access to taletrectinib, a potential best-in-class ROS1 inhibitor. The deal also brought safusidenib, a Phase 1 mutant IDH1 inhibitor that demonstrates high blood-brain barrier penetration.
Additionally, Nuvation's in-house BD2 selective oral small molecule BET inhibitor, NUV-868, epigenetically regulates tumor growth and differentiation. The company recently secured IND approval for NUV-1511, a DDC targeting solid tumors in early-stage development.
Overall, analysts have a rating of “Strong Buy” for NUVB stock, with a mean target price of $6.6, which denotes an upside potential of about 101% from current levels. Out of 6 analysts covering the stock, 5 have a “Strong Buy” rating and 1 has a “Moderate Buy” rating.
