While most of Wall Street focuses on large and mega cap stocks, as they provide a degree of safety and liquidity, many investors are limited in the number of shares they can buy. Many of the biggest public companies, especially the technology giants, trade in the low-to-mid hundreds, all the way up to over $1,000 per share. At those steep prices, it’s pretty hard to get any decent share count leverage.
Many investors, especially more aggressive traders, look at lower-priced stocks as a way to not only make some good money but to get a higher share count. That can really help the decision-making process, especially when you are on to a winner, as you can always sell half and keep half.
Every week we screen our 24/7 Wall St. research database looking for stocks covered by top Wall Street analysts that trade under the $10 level and could provide investors with some solid upside potential. While much more suited for aggressive accounts, they could prove exciting additions to portfolios looking for solid alpha potential. Last week’s picks included Vonage and SRC Energy.
Hexo
This is a popular stock in the fast-expanding marijuana/cannabis segment. Hexo Corp (NYSE: HEXO) is a diversified cannabis company, selling a portfolio of cannabis and related products. The company is based in Quebec, where it is a preferred supplier to the province’s provincial cannabis purchaser. Hexo also has national distribution, with plans to expand internationally, and it made our list of the 2018 list of the 10 largest marijuana companies.
Through its hub and spoke business strategy, Hexo is partnering with Fortune 500 companies, bringing its brand value, cannabinoid isolation technology, licensed infrastructure and regulatory expertise to established companies, leveraging their distribution networks and capacity. As one of the largest licensed cannabis companies in Canada, Hexo operates with 1.8 million square feet of facilities in Ontario and Quebec and a foothold in Greece to establish a eurozone processing, production and distribution center. The company serves the Canadian adult-use and medical markets.
Merrill Lynch recently started coverage with a Buy rating and a $10 price target. The Wall Street consensus target for the stock was not available. Shares were trading on Friday’s close at $7.79 apiece.
iPic Entertainment
This company may be poised to strike it rich with the new “Avengers: Endgame” movie having just opened, and no doubt on its way to becoming one of the top Marvel movies. iPic Entertainment Inc. (NASDAQ: IPIC) engages in the operation of dine-in theaters. It provides visionary entertainment escapes, chef-driven culinary and mixology offerings that include movie theaters plus a bar and restaurant.
The analysts at Alliance Global are very positive on the company and noted this in a recent report:
We expect IPIC will benefit from the Avengers blockbuster. Last year, Avengers: Infinity Wars generated $258 million in box office sales during its opening week and went on to generate $679 million in box office sales, the fourth highest grossing movie of all-time. Avengers: Endgame is the culmination of 21 superhero movies and to capture the demand, theaters are extending their hours of operation and dedicating many screens per theater. Given few other solid movies to compete that are currently in theaters, IPIC is also dedicating 4-5 screens per theater to Endgame, based on our checks.
Alliance Global has a $7 price target, though the consensus target is even higher at $8.33. The stock closed Friday at $3.68 a share.
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Kala Pharmaceuticals
The analysts at Oppenheimer just started coverage on this small-cap company with an Outperform rating. Kala Pharmaceuticals Inc. (NASDAQ: KALA) is a clinical-stage biopharma company developing improved therapies for ocular diseases using its novel Mucus Penetrating Particles nanotechnology.
Kala’s lead asset is KPI-121 (loteprednol), approved as the treatment of post-operation inflammation and pain (under Inveltys) and the temporary relief of signs and symptoms of dry eye disease.
Oppenheimer noted this when it initiated coverage:
With strong initial uptake of Inveltys, and KPI-121 regulatory catalyst in 3Q19, we believe KALA is well positioned for top line growth. Our channel checks with ocular surgeons support Inventys prescription growth over the next twelve months. Separately, we believe KPI-121 (if approved) may address a significant unmet need in the nascent dry eye disease market. While we note potential volatility related to KPI-121, we remain buyers as we believe management is proactively preparing to address potential FDA queries on its NDA.
The $11 Oppenheimer price target is well below the $21.67 consensus target, but the shares were last seen trading at $7.60.
Northern Oil and Gas
Stifel is very positive on this small-cap energy play. Northern Oil and Gas Inc. (NYSE: NOG) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.
The company is the largest non-operator in the Williston Basin. With Bakken returns continuing to improve to well above 50%, and its operating partners representing what is seen as the best operators in the basin, there is upside potential.
The company announced last week that it will purchase additional Williston Basin properties from VEN Bakken for $165 million in cash, a $130-million 6% three-year senior unsecured note due 2022 and 5.6-million Northern Oil and Gas common shares. The newly divested assets are estimated to produce 6,600 barrels of oil equivalent per day in the second half of 2019 and generate $44.9 million in cash flow from operations. Capital expenditure budget in the second half of the year is projected at $15.6 million.
Stifel is very bullish on the company with a Buy rating and a $6.90 price target. The consensus target is $4.06 and shares ended the week at $2.65.
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Range Resources
This is a defensive natural gas stock that many on Wall Street like now. Range Resources Corp. (NYSE: RRC | RRC Price Prediction) is primarily a producer of natural gas, with operations in Appalachia, Oklahoma, Louisiana and Texas. The company specializes in developing low-risk, long-lived natural gas reserves in unconventional gas formations.
The company posted solid first-quarter results, with production topping guidance and the company utilizing free cash flow to reduce borrowings on credit facility. This is the second quarter is a row the company has beaten estimates and, despite a somewhat negative outlook by some on Wall Street toward natural gas, the stock is a solid value at current levels.
A stunning $18 price target accompanies Stifel’s Buy rating. The consensus target was last seen at $15.17, and the stock closed at $9.24 a share.
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These are five stocks with sizable upside potential for very aggressive accounts looking to get share-count leverage. While not suitable for all investors, these are not penny stocks with absolutely no track record or liquidity, and major Wall Street firms have research coverage.
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