With the third quarter in full swing, the bulls have not lost their grip on equities. The market momentum isn’t likely to run out of steam anytime soon, according to UBS strategist Vincent Heaney, who stated in a note, “We believe the fundamental backdrop remains supportive for equities, driven by solid economic and earnings growth, interest rate cuts, and rising investment in AI.”

The positive sentiment is spilling over to companies of all sizes and sectors, including penny stocks, which as the name suggests are cheap and generally trade in the over-the-counter market for below $5 per share. Penny stocks are inherently riskier compared with more established companies, as many have yet to achieve desirable fundamentals and tend to be quite volatile amid less liquidity and trading volumes compared with more well-known names.

However, many of today’s major companies were once penny stocks too, if adjusted for stock splits. Take iPhone maker Apple (Nasdaq: AAPL), which in its early days as a listed company traded for a split adjusted $0.80 per share. Astute investors who have ridden the Apple wave now have exposure to one of the most valuable companies in the world, as Apple is currently worth $3.4 trillion.

By the same token, Ford Motor (NYSE: F), one of the Big 3 automakers, trades for only $13 per share while in 2020 the stock price was hovering at just $3 per share. But don’t let the stock price fool you, as Ford also boasts a market cap of $51 billion, is profitable, and generated sales of $176 billion last year, the furthest thing from a penny stock.

If investors are going to target penny stocks, it is crucial to research them first. We have uncovered four penny stocks with an average upside potential of 735% across all three companies based on Wall Street analyst price targets. All of these penny stocks operate in the healthcare and biotech sectors, where critical clinical trials and drug approvals dictate the size of their balance sheets.

Rockwell Medical: Growing Market Share

Rockwell Medical (Nasdaq: RMTI), a Wixom, Mich.-based healthcare provider that specializes in dialysis products, trades for $1.79 per share. With a market capitalization of $54.2 million, Rockwell shares have bucked the bullish trend in the market, shedding 5.2% year-to-date. Cautious investor sentiment around Rockwell has also spilled over to the broader pharmaceutical sector, as stocks take the brunt of the Biden administration’s harsh criticism of the industry and pursuit of lower drug prices.

However, if Wall Street analysts are right, RMTI is a penny stock that could present a buying opportunity to investors. With a median target price of $7 per share, analysts are betting Rockwell Medical has massive upside at 284%. Of the forecasts, the highest price target is $9 per share while the lowest is $5, both of which reflect bullish predictions. Both Wall Street analysts who cover the stock have attached a “buy” rating to Rockwell Medical.

In its Q1, Rockwell reported net sales of $22.7 million, a 15% year-over-year increase, fueled by record quarterly concentrates product sales. However, the company is also operating at a loss, reporting a net loss of $1.7 million in the quarter compared with $1.8 million in the year-ago period. Rockwell had cash, cash equivalents and investments accessible for divestments of $8.6 million at the end of Q1. Gross margin hit a record high at 14%, and management expects it to climb higher over the course of the next several years amid a long-term target of over 30%.

In 2023, Rockwell acquired the hemodialysis concentrates business from Evoqua Water Technologies, bolstering its market share to roughly 25% and growing. Rockwell also participates in the growing home dialysis market, where it supplies products to leading to dialysis providers globally.

BioAtla: Investors Await Clinical Trial Results

BioAtla (Nasdaq: BCAB), which describes itself as a ” clinical-stage biotechnology company focused on the development of Conditionally Active Biologic (CAB) antibody therapeutics for the treatment of solid tumors,” is currently trading for $1.27 per share. Meanwhile, Wall Street analysts have an average price target of $13 per share on this stock, reflecting massive upside potential of 923%. JMP Securities analyst Reni Benjamin reportedly has a “market outperform” rating on the stock with a $12 price target attached.

However, BCAB stock has been reeling of late since asset manager BlackRock reported dumped its 2.8 million share position in this biotech company. Other major asset managers including Vanguard and Morgan Stanley continue to hold BCAB shares. BioAtla’s stock is trading 68% below its 52-week high of over $4 per share. Adding insult to injury, BioAtla lost its position in several Russell indexes, resulting in less exposure to investor portfolios.

BioAtla’s Q1 net loss of $23.2 million was narrowed from $27.4 million in the year-ago period. The company also has $80.6 million in cash and cash equivalents on its balance sheet, which it says is adequate to fund its operations into H2 2025.

BioAtla has been active in multiple healthcare conferences as investors await positive developments from its clinical trials. The company is expected to provide its latest clinical program and R&D pipeline update on July 25, which could influence the stock in either direction.

Immuneering Corporation: Beware of Volatility

Immuneering Corporation (Nasdaq: IMRX), a clinical stage oncology company that specializes in cancer medicines for patients, trades at $1.12 per share. With a market cap of $33 million, the stock has fallen almost 90% from its 52-week high. The company’s Phase 1 clinical trial outcome for its flagship IMM-1-104 solid tumor therapy left investors with overall feelings of uncertainty despite the company’s positive messaging about the results.

This stock’s performance is a good reminder of the price volatility that’s inherent with penny stocks. However, four Wall Street analysts have attached a “buy” rating to the stock with an average price target of $12.30, suggesting that there’s upside potential of 998%.

Immuneering operated at a Q1 net loss of $14.3 million compared with $13.6 million loss in the year-ago quarter. The company believes it has enough cash runway to fund its operations into the latter half of 2025.

Disclaimer: The author and 24/7 Wall Street has no position in RMTI, BCAB or IMRX.

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