[cnxvideo id=”509258″ placement=”ros”]Everybody likes to look for the home run stocks, and with good reason. Hitting the long ball on a stock pick brings in stellar capital gains and can help a moribund portfolio look real good, real fast. The danger for many investors is putting too big a bet on a stock looking for big gains. The smart things to do when finding an idea that has big upside potential, but could have big downside if a catalyst is not met, is to put on a small position, that can be increased if the positives are indeed there.
We recently reviewed some top picks from Stifel, and found three companies the firm likes that have massive upside potential. While not suitable for all accounts, these three companies make good sense for investors that have capital that can be placed on aggressive trades. All are rated Buy at Stifel.
Cempra
This top biotech has been absolutely eviscerated since printing highs last summer. Cempra Inc. (NASDAQ: CEMP) is a clinical-stage pharmaceutical company focused on developing antibiotics to meet critical medical needs in the treatment of bacterial infectious diseases. Cempra’s two lead product candidates are currently in advanced clinical development. Solithromycin (CEM-101) has successfully completed two Phase 3 clinical trials for community-acquired bacterial pneumonia, and new drug applications for the intravenous and oral capsule formulations have been submitted to the FDA.
Solithromycin is licensed to company’s strategic commercial partner Toyama Chemical, a subsidiary of Fujifilm Holdings, for certain exclusive rights in Japan. Solithromycin is also in a Phase 3 clinical trial for uncomplicated urogenital urethritis caused by Neisseria gonorrhoeae or chlamydia.
The company recently released very positive results for a Phase 2, multi-center, randomized, double-blind study that was conducted by Toyama to evaluate the efficacy, safety and pharmacokinetics of solithromycin in Japanese patients. The Stifel analysts view the release of oral solithromycin data demonstrating numerically superior efficacy to levofloxacin in the Phase 2 study conducted by Toyama as a very positive result.
Stifel has an incredible $47 price target for the stock, while the Wall Street consensus price target is $38.25. The stock closed most recently at $21.27.
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Ferroglobe
This company recently posted earnings way below Wall Street expectations and could be offering investors an outstanding entry point. Ferroglobe PLC (NASDAQ: GSM) offers silicon metal that is used by aluminum and silicone chemical producers, as well as used in the production of polysilicon; silicomanganese, which is used as deoxidizing agent in the steel manufacturing process; and ferromanganese, which is used as a deoxidizing, desulphurizing and degassing agent in the removal of nitrogen and other harmful elements from steel, as well as powdered products.
Ferroglobe also provides ferrosilicon products for use in the production of electrodes, stainless steel, carbon steel, and various other steel alloys; removal of oxygen from the steel; enhancing the quality and strength of iron and steel products, as well as in the production of aluminum; silico calcium for use in the deoxidation and desulfurization of liquid steel; nodularizers and inoculants, which are used in the production of iron; and silica fume that used in the production of concrete and mortar. In addition, it generates and supplies hydroelectric power and operates quartz mines located in Spain and South Africa.
Despite the missed earnings, Stifel notes that the European Commission retained a 16.8% anti-dumping tariff against Chinese silicon metal imports. The report also noted:
Ferroglobe’s average second quarter 2016 silicon metal selling price of $1.01/lb remained well above spot prices in the area of $0.90/lb. This implies a significantly higher realized price on North American tonnes vs. spot given the decision to contract 2016 European production on an indexed basis. The decision to float European sales was made in late 2015 prior to the merger’s completion, a decision that contrasts with the North American predecessor Globe Specialty Metals, which marketed its 2016 tonnes on a mix of fixed price and floating contracts that included price floors.
Shareholders are paid a 3.72% dividend. The $17 Stifel price target was lowered to $16, and the consensus target is $12.65. Shares closed Monday at $8.60.
Nivalis Therapeutics
This clinical stage pharmaceutical company also has massive upside potential for shareholders. Nivalis Therapeutics Inc. (NASDAQ: NVLS) focuses on the discovery, development and commercialization of product candidates for patients with cystic fibrosis, a life-shortening genetic disease. Its lead product candidate is SNO6, formerly known as N91115, a small molecule that is in Phase 2 clinical trial, which addresses a defect in cystic fibrosis transmembrane conductance regulator (CFTR), resulting from mutations in the CFTR gene.
The analysis recently met with management and reconfirm that clinical data from the SNO6 trial, which is due late this year, is critical. The Stifel report noted:
In addition, the relevance of the SNO7 trial testing cavosonstat in Kalydeco-treated patients was also emphasized as the bar for success may be lower in these patients further up the CFTR function curve. Finally, the importance of generating data for cavosonstat that might yield a broad label for the use in combination with other correctors or potentiators was discussed. We view these data as important in light of the fact that lumacaftor (where cavosonstat is currently being tested) may eventually be replaced with VX-661 or other small molecules in development.
While the Stifel price target is a stunning $16, and the consensus target is much higher at $25. The shares closed most recently at $6.16.
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All these stocks are far better suited for very aggressive accounts. It is important to remember, especially with biotech companies, that clinical failure could be a mortal wound. With that in mind, success could provide the proverbial home run.
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