Innovation is what drives human societies forward. Major companies of today were once small companies working on innovative and disruptive ideas. A 2019 report by T. Rowe Price entitled “How Innovative Companies Gain a Powerful Edge on Rivals” quotes an interesting data point which shows the power of innovation. It says that just five US companies — Microsoft, Amazon, Apple, Alphabet, and Facebook — produced over a whopping $4000 billion in market cap. Over the past several these companies have dominated the US stock market space. These companies also account for huge part of the total stock market gains in the US. What made these companies great was innovation. But the question is: has innovation ended at these companies? Will there by any Facebooks or Amazons in the future? There’s no one in this world who’d answer this question with a No. Everyone knows that as long as human societies continue to exist there’d always be disruptive and innovative companies. Just look at how ChatGPT came along and threatened the very basis of major tech giants including Google. That’s why whenever there’s a discussion on what are the most promising penny stocks or small companies of today that can grow big tomorrow, there’s always talk of innovation as where there’s innovation there’s promising opportunities to make money.
The Science of Innovation
The T. Rowe price also shares some interesting insights which show how Europe is lagging when it comes to innovation. Due to complex policies, lack of private equity funding and regional dynamics, Europe has been unable to make a mark in the world when it comes to innovation and technological advancements. On the other hand China and US have literally dominated this space over the past few years. Name any technological innovation and it’d be coming from the US or China. The report says Europe’s current weight (as of 2019) in disruptive technology is around 5% of the MSCI Europe Index. On the other hand, China enjoys a 40% share of the index while US had 33%.
However, Europe has a significant share in other sectors, including finance, healthcare and commodities. But the report warned that China’s low-cost technological products and solutions were starting to flatten the regional competition in Europe as well. Technology coming from China is having a direct effect on different sectors including financials, transportation and commodities.
The T. Rowe Price report makes an interesting comment about value stocks in the context of change and innovation. It said that value stocks have often been on the “wrong side of change.” It also said that despite the fact that value stocks had underperformed growth stocks for “much of the last decade” it does not mean that a major shift to value was needed. The report said that many value companies have been facing “attrition” due to rapid technological changes.
However, this comment of the report, which was published in 2019, did not age well. In 2022, when inflation started to rise and the Federal Reserve decided to begin raising interest rates, everyone started quitting risky bets and value came back with a vengeance. However, the T. Rowe Price is right about the role of disruption and the importance of change. The report adds:
Being on the right side of these changes is more important than ever, particularly given the dispersion of outcomes between winners and losers. Disruption has no respect for borders, so having a global perspective is best. Valuation entry points are important, so investors need a degree of courage to add to their best ideas when market conditions may be volatile. Difficult choices are sometimes needed, but that is where skill, experience, and deep insights into the return opportunities of the future come into play.
Most Promising Penny Stocks According to Analysts
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Most of the penny stocks are risky. That’s why they suffered when investors were flocking to safer value plays. But now the tide is turning. As markets rebound, investors are pouring money into small companies. A Wall Street Journal in June said, citing data from Jefferies, that ETFs focused on small-cap companies saw inflows of about $1.6 billion in a single week. Since the start of 2023 through June small-cap stock ETFs have seen inflows of about $3.5 billion.
There are thousands of penny stocks trading in the market. Many of them might be scams, many pump and dump schemes and many don’t even have a business model. But hidden in these stocks could be the major companies of tomorrow. Most of the penny stock of today that are expected to grow big tomorrow are working on innovative products and solutions that will have a huge number of users or real-life applications in the future. That’s why in this article we decided to take a look at some penny stocks which Wall Street analysts believe are promising.
Our Methodology
To find the most promising penny stocks we used the stock screener from TipRanks. We narrowed down to penny stocks with “Strong Buy” ratings and average analyst price targets that are much higher than their current prices. We sorted the resultant dataset based on upside potential of stocks from their current levels based on average analyst price estimate. The list is ranked in ascending order of upside potential.
eFFECTOR Therapeutics, Inc. (NASDAQ:EFTR) has posted solid returns this year, having gained about 61% year to date. eFFECTOR Therapeutics, Inc. (NASDAQ:EFTR) is engaged in the development of selective translation regulator inhibitors for the treatment of cancer.
Of the 943 hedge funds in Insider Monkey’s database, 5 hedge funds reported owning stakes in eFFECTOR Therapeutics, Inc. (NASDAQ:EFTR). The most significant stakeholder of eFFECTOR Therapeutics, Inc. (NASDAQ:EFTR) among these funds was Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management which had a $840,359 stake in the company.
In May, eFFECTOR Therapeutics, Inc. (NASDAQ:EFTR) shares jumped after Stifel upgraded the stock citing interim Phase 2 data for its investigational therapy zotatifin as part of a drug combination in patients with breast cancer.
Leap Therapeutics, Inc. (NASDAQ:LPTX) was trading at around $2.44 as of August 8 while the stock’s average analyst price estimate was $23. This way Leap Therapeutics, Inc. (NASDAQ:LPTX)’s upside potential based on its current price is about 800%.
Leap Therapeutics, Inc. (NASDAQ:LPTX) is a Massachusetts-based company that makes antibody therapies to treat cancer.
As of the end of the first quarter of 2023, 14 hedge funds in Insider Monkey’s database of 943 funds reported owning stakes in Leap Therapeutics, Inc. (NASDAQ:LPTX). The biggest stakeholder of Leap Therapeutics, Inc. (NASDAQ:LPTX) during this period was Julian Baker and Felix Baker’s Baker Bros. Advisors which owns a $2.5 million stake in the company.
Atara Biotherapeutics, Inc. (NASDAQ:ATRA) makes treatments for solid tumors, hematologic cancers, and autoimmune diseases in the United States. According to Yahoo Finance data, Atara Biotherapeutics, Inc. (NASDAQ:ATRA)’s average price estimate is $16.27.
As of the end of the first quarter of 2023, 14 out of 943 hedge funds in Insider Monkey’s database reported owning stakes in Atara Biotherapeutics, Inc. (NASDAQ:ATRA). The most significant stakeholder in Atara Biotherapeutics, Inc. (NASDAQ:ATRA) during this period was Lee Ainslie’s Maverick Capital which owns an $18.2 million stake in the company.
Altimmune, Inc. (NASDAQ:ALT) is working on treatments for obesity and liver diseases. Altimmune, Inc. (NASDAQ:ALT) ranks 7th in our list of the most promising penny stocks to buy according to analysts.
As of the end of the first quarter of 2023, 25 hedge funds in Insider Monkey’s database of 943 hedge funds reported owning stakes in Altimmune, Inc. (NASDAQ:ALT).
Recently there’s been a lot of talk about weight loss drugs and investors are upping their bets on companies making quality drugs for weight loss. Recently, a new survey by the healthcare policy organization Kaiser Family Foundation showed that half of the US adults surveyed would like to use weight loss drugs if they are safe and effective.
IN8bio, Inc. (NASDAQ:INAB) is a New York-based company that is working on gamma-delta T cell therapies for cancer treatment. IN8bio, Inc. (NASDAQ:INAB)’s average price target set by Wall Street analysts is around $11. This shows an upside potential of about 800%.
As of the end of the first quarter, just one hedge fund in Insider Monkey’s database had stakes in IN8bio, Inc. (NASDAQ:INAB).