New indicators of a cooling economy eased inflation concerns, driving the S&P 500 to record highs last week. The index, which dropped around 4% in April, is now up 11% for the year.
Will this momentum continue? Savita Subramanian, head of US Equity and Quantitative strategy at Bank of America, believes it will. She’s taking an upbeat stance on the current market outlook, and backs it with a look at long-term results from the past 300-plus quarters. “20 were recessionary, 13 were stagflationary, and 90% of the time things were OK,” Subramanian noted.
In practice, Subramanian’s outlook leads her to bang the drum for long-term shareholding, and she advises investors to eschew timing the market. In her words, “‘Time in the market beats timing the market’ is an old but prescient adage. The risk of losing money in equities plummets as time horizons extend, a phenomenon unique to equities vs. other asset classes. Best days usually follow worst days, and missing those best days is costly: since the 1930s, missing the 10 best S&P 500 days per decade would have yielded a paltry gain of 66% vs. ~23,000% from remaining invested.”
Subramanian’s colleagues among the Bank of America stock analysts are running with this positive outlook, and are advising investors to buy two stocks in particular. Both have solid upside potential – as much as 200% in one case. According to the TipRanks databanks, both stocks get a ‘Strong Buy’ rating from the broader analyst consensus, too; let’s take a closer look and find out why they are primed for gains.
Sutro Biopharma (STRO)
The first Bank of America pick we’ll look at, Sutro Biopharma, is a clinical-stage medical research company with a strong oncological focus. The company is committed to developing new medicines to treat the unmet needs common in many cancers; Sutro is pursuing this goal by developing a research pipeline composed of drug candidates with improved therapeutic profiles.
To meet this goal, Sutro has first developed a proprietary technology platform, dubbed XpressCF. The company has recognized an inherent limitation in most drug candidate creation – that the compounds, especially the proteins, are created using existing lines of living cells. Because these cells must be intact and functioning, there are some molecules they cannot produce, and the production methods can be cumbersome.
Sutro’s XpressCF platform uses cell-free technology, using an extract of the cellular components that produced proteins. This novel platform technology allows Sutro to produce ‘single proteins at g/L yields in 8-10 hours at any scale,’ and form them into new drug candidates. Using its platform, Sutro can develop compounds as varied as small peptides and monoclonal antibodies.
The leading drug candidate in Sutro’s pipeline is STRO-002, also called luveltamab tazevibulin, or luvelta for short. This new therapeutic agent has shown promise in early testing against ovarian cancer, and is currently undergoing a Phase 2/3 study, called REFRαME-O1, in the treatment of platinum-resistant ovarian cancer (PROC). The trial has two portions, a dose optimization portion that is fully enrolled with 50 patients, and a randomized registration-directed trial, Part 2, that was opened for enrollment in April. Part 2 of this trial, the Phase 3 portion, is expected to enroll up to 500 patients.
For Bank of America’s analyst Tazeen Ahmad, this company’s potent combination of a high-potential drug candidate and an equally high-potential development platform is too attractive for investors to pass up. She writes of the drug candidate, “We think that luvelta has the potential to treat up to 80% of PROC patients, a significant improvement over the ~30% eligible for AbbVie’s Elahere (approved FolRα ADC). While we do not model all eligible patients getting the drug, we think that luvelta represents an attractive commercial opportunity in PROC, with potential to expand into other high-unmet-need oncology indications… We currently model risk-adjusted peak sales for luvelta in PROC of $597mn.”
Going on, Ahmad explains how Sutra’s development platform is another solid asset: “To date, STRO’s differentiated approach has generated strategic partnerships with prominent names including Astellas, Merck, Ipsen, and Bristol Myers Squibb. We note that these partnerships will be integral to the company continuing to maximize the reach of its XpressCF platform and innovative product candidates in areas of high unmet need.”
Together, these assets back up Ahmad’s Buy rating on STRO, and her $12 price target points toward a robust one-year upside potential of ~199%. (To watch Ahmad’s track record, click here)
Overall, the Strong Buy consensus rating on STRO is based on 10 recent analyst reviews, including 9 Buys and 1 Hold. The shares are selling for $4.01 and their $11.44 average price target suggests that the stock will gain 185% in the next 12 months. (See STRO stock forecast)
Avidity Biosciences (RNA)
The second stock on today’s list is another biotech, Avidity Biosciences. This company is focused on the development of targeted RNA therapeutic agents, and has set up its own proprietary development platform to achieve this. The platform, called Antibody Oligonucleotide Conjugates, or AOC, is described as having a ‘broad and disruptive potential, and the company has already put a portfolio of muscle disease programs into the research pipeline.
Genetic diseases are particularly difficult to treat, and at the same time have a deep impact on patients’ lives – making the development of new therapeutics an urgent need. Avidity’s AOC platform lets the company design and engineer drug candidates that offer both the tissue selectivity of monoclonal antibody treatments and the precision of oligonucleotide-based drugs in a move that promises to redefine RNA therapeutics. The resulting drug candidates have potential to more effectively target the underlying genetic causes of many diseases.
So far, Avidity has used its platform to put three RNA therapeutics into the clinical trial pipeline. These candidates are intended to target the specific genetic root cause of three rare muscle diseases, each of which has proven untreatable with previously available RNA therapies. The company has already had some success in its research program, and has made the first-ever reported successful targeted delivery of RNA into muscle tissue. This early success underlies its three clinical programs for myotonic dystrophy type 1 (DM1), Duchenne muscular dystrophy (DMD), and facioscapulohumeral muscular dystrophy (FSHD).
The DM1 track, featuring drug candidate AOC-1001, is the most advanced. The drug, dubbed delpacibart etedesiran and abbreviated as del-desiran, showed reversal of disease progression in multiple functional measures in early testing – an important achievement for a drug targeting an often fatal neuromuscular disease that lacks any current approved treatment. Avidity will be initiating a global Phase 3 trial of AOC-1001, HARBOR, during the current quarter.
A second drug candidate, AOC-1044, was in February granted Rare Pediatric Disease Designation by the FDA for the treatment of DMD44. The company will release 5 mg/kg cohort data from the Phase 1/2 EXPLORE 44 study of AOC-1044 in people living with DMD44 during the second half of 2024.
The company’s third clinical-stage drug candidate, AOC-1020, is a treatment for FSHD. Avidity is on track to present preliminary data from approximately half of the patients participating in the Phase 1/2 FORTITUDE clinical trial of the drug candidate. This data release is expected during this quarter.
Those are some significant ‘shots on goal,’ and have caught the attention of analyst Geoff Meacham. In his coverage of this company for Bank of America, Meacham lays out an optimistic stance: “We think RNA stands to benefit from robust demand for its innovative AOC therapies and estimate peak adjusted sales of $2.3B by 2033 from the company’s rare muscle disorder portfolio (AOC 1001 in DM1, AOC 1044 in DMD amenable to exon 44 skipping, and AOC 1020 in FSHD). With an innovative platform and a path to commercialization as early as 2026, we view RNA as an attractive risk-reward opportunity.”
Looking ahead, the analyst rates RNA shares as a Buy, and his $40 price target indicates room for an upside potential of 35.5% on the one-year horizon. (To watch Meacham’s track record, click here)
A bullish take is no outlier here; RNA stock has 7 unanimously positive analyst reviews behind its Strong Buy consensus rating. The stock is currently trading for $29.50 and has an average price target of $42.67, for a 45% upside potential this coming year. (See RNA stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
