Is it May 2020 or March 2009? As Wall Street observers traverse the confused economic environment, flashbacks of the Great Recession are coming to mind. Those looking at the glass half empty will point out the bear market that emerged took 18 months to reach the lowest point. However, the optimists are singing a different tune.
Among the bulls is Morgan Stanley’s head of U.S. equity strategy, Michael Wilson. In a recent note to clients, he argues that the current state of the market bears a striking resemblance to March 2009, the period in which the U.S. economy began to recover, with the S&P 500 embarking on what would become the longest bull-market run on record.
“Markets are tracking the Great Financial Crisis period very closely in many ways,” Wilson wrote. To support this claim, the strategist highlights the fact that stocks are bouncing back in a “similar pattern,” at the same time the amount of stocks, especially cyclicals, that have exceeded their 200-day moving average is on the rise. This is important as cyclicals usually lead the charge when a market recovery kicks off. Wilson also notes that the equity-risk premium, or the expected earnings yield for the S&P 500 minus the ten-year Treasury yield, looks the same as it did in March 2009, which played into his decision to call a stock-market bottom on March 16 of this year.
Taking Wilson’s views into consideration, risk-tolerant investors are on the hunt for promising names now trading at lower levels, specifically within the biotech space. As it just takes one positive catalyst like strong data or a favorable FDA ruling to send shares skyrocketing, massive returns are on the table. That being said, as the opposite also holds true, these stocks come with their fair share of risk.
Acknowledging the risk involved, we used TipRanks’ database to pinpoint compelling, yet affordable biotech stocks. We found three trading for under $5 that have not only received enough bullish recommendations from analysts to earn a “Strong Buy” consensus rating, but also sport colossal upside potential.
Gamida Cell Ltd. (GMDA)
It has certainly been a rough week for Gamida Cell, which develops therapies that could potentially cure blood cancers and other blood diseases.
On Tuesday, the company unveiled the pricing for its underwritten public offering of 13,333,334 ordinary shares, which landed at $4.50 per share. The fund raise sent shares tumbling, with GMDA walking away from the day’s trading session down 26%. However, the new share price, $4.42, offers an attractive entry point, according to the analyst community.
Weighing in for Oppenheimer, five-star analyst Mark Breidenbach cites recently released positive top-line data from its randomized Phase 3 trial of omidubicel in patients receiving bone marrow transplants as a key component of his bullish thesis. The trial had 125 participants between the ages of 12-65 with high-risk hematologic malignances (AML, CML, MDS, lymphoma), and GMDA’s candidate was studied against standard umbilical cord blood (UCB) grafts.
Not only did omidubicel meet its primary endpoint, but the asset’s failure rate came in at 4% while the UCBs had a failure rate of 12%. After the readout, the company announced that it plans on initiating a rolling BLA submission in the fourth quarter.
Expounding on the implications of the results, Breidenbach stated, “While expecting to see full results are at a medical meeting later this year (likely ASH), we believe these data could support a 2021 FDA approval and help spur uptake at transplant centers.” He added, “We believe omidubicel has been de-risked with the successful Phase 3 results.”
Adding to the good news, Breidenbach argues that the results show omidubicel is “competitive with more widely used grafts, including matched unrelated donor (MUD) and mismatched-related donor grafts.” He noted, “As such, these data may support wider adoption of omidubicel among transplant physicans, although longer follow-up will be required to assess relapse rates and treatment-related mortality.”
Based on all of the above, Breidenbach keep an Outperform (i.e. Buy) rating on the stock. Along with his bullish call, he also bumped up the price target from $18 to $20. This implies upside potential of a massive 352%. (To watch Breidenbach’s track record, click here)