If there is one way to describe the markets recently, it would be very heavy. Mega-caps, the largest US companies, have outperformed broader indices and by their sheer size are dragging the rest of the markets down. To give an idea of the scale, the three largest companies listed on the S&P are Apple, Microsoft and Alphabet; together they have a combined market capitalization of over $6.9 trillion and represent a large portion of the total value of the S&P 500. That $6.9 trillion represents a market capitalization greater than that of all markets. national fellows from around the world outside of the United States.
This kind of scale makes market giants hard to ignore. But that doesn’t mean investors should stay locked into the few dominant mega-cap stocks. As BMO Chief Investment Strategist Brian Belski points out, there are other games in town: “It is undeniable that the strong outperformance of mega-caps in 2023 with the five largest stocks by market capitalization eclipsing the S&P 500 by 30 percentage points year-to-date and on pace to outperform for the fifth consecutive month.That being said, however, our work shows that once the relative performance of these megacaps declines or the winning streaks have come to an end, the broader market has historically held up well, with wins more common than losses.
We can put Belski’s view into practice and start tracking some of the smaller high-rising stocks. Using the TipRanks platform, we identified two stocks in the small cap category, both offering ‘Strong Buy’ ratings and both with more than 100% upside potential, according to analyst forecasts.
Folding Therapeutics (PLRX)
We’ll start with Pliant Therapeutics, a clinical-stage biopharmaceutical company focused on the discovery and development of new treatments for fibrotic diseases. Fibrotic diseases belong to a class in which an abnormal deposition of connective tissue, usually occurring during wound healing and scarring, obstructs and inhibits the normal functioning of organs. These diseases can affect various organ systems in the body, including the lungs and the liver.
Pliant’s research pipeline, for now, targets diseases of these two organs, including idiopathic pulmonary fibrosis (IPF), primary sclerosing cholangitis (PSC), and NASH-associated liver fibrosis. These programs are currently in clinical trials; the company has two complementary avenues of research, targeting solid tumors and various muscular dystrophies, currently in preclinical studies.
The Company’s ongoing clinical trials present two lead candidates: PLN-74809, also known as bexotegrast, and PLN-1474. Last month, Pliant published data from the Phase 2a INTEGRIS-IPF trial, showing that bexotegrast demonstrated a “favorable” safety and tolerability profile, as well as positive indications of antifibrotic activity in the treatment of IPF (idiopathic pulmonary fibrosis). Data from the INTEGRIS-PSC trial, also a Phase 2a study of bexotegrast, is expected in 3Q23. Pliant’s third clinical lead involves PLN-1474, a potential treatment for NASH-associated liver fibrosis. A phase 1 trial on this lead has been completed and showed positive results.
The pipeline here, particularly the IPF track, caught the attention of Canaccord analyst Edward Nash, who writes, “There is considerable market opportunity in IPF with global sales for Esbriet and Ofev generating >3.7 billion combined in 2021. We believe that bexotegrast’s potential superior efficacy, high selectivity and minimal side effect profile, combined with oral administration, have the potential to gain significant market share, as well as the potential to be prescribed as a complementary treatment to the current standard of care. We believe bexotegrast could be a $1.7 billion drug in REIT in the year of our projections, 2037.”
Quantifying his position, Nash gives Pliant shares a buy rating with a price target of $48 that suggests upside around 109% for the next 12 months. (To see Nash’s track record, click here)
Overall, this stock has full street support. Based on 13 positive analyst reviews, PLRX earns a strong buy consensus rating. The stock’s trading price of $23 and the average price target of $48.62 imply a one-year upside potential of 111%. (See PLRX Stock Forecast)
Kura Oncology (KORA)
Let’s stick to clinical-stage biopharmacies and now look at Kura Oncology. This company is focused on novel precision drugs in the area of cancer treatment and is working to create new small molecule drugs that will target cancer signaling pathways. Kura takes it a step further by combining its drug candidates with molecular and/or cellular diagnostics, to develop a more precisely targeted drug by tailoring it directly to the patient – Kura’s treatments are aimed at patients most likely to show a positive response to the drug candidate.
The bulk of Kura’s pipeline is in the preclinical stage, with multiple drug candidates being investigated across multiple leads. In the lead, ziftomenib has several lines of research underway. The most advanced pipeline track is the KOMET-001 clinical trial, in which the drug is being evaluated as an oral menin-KMT2A (MLL) inhibitor for the treatment of acute myeloid leukemia (AML). Rolling Phase 1 data from KOMET-001 are expected on June 11 at the 2023 European Hematology Association (EHA) Congress in Frankfurt, Germany.
Kura has two other clinical trials in the works. The KURRENT-HN trial is a combination study examining the drug candidate tipifarnib with alpelisib in the treatment of certain squamous cell carcinomas of the head and neck. Enrollment here is ongoing, with determination of the biologically active dose expected by the middle of this year.
Additionally, the FIT-001 trial will be a dose escalation study of drug candidate KO-2806, an FTI inhibitor and potential treatment for several cancers, including clear cell renal cell carcinoma. Patient dosing in FIT-001 is expected in 2H23.
All of this gives Kura plenty of “shots on goal”, and BTIG analyst Justin Zelin sees this as a net positive for the company.
“Ziftomenib has shown promising Phase 1 data with clear evidence of clinical activity, differentiated pharmacological properties compared to revumenib, and efficacy exceeding regulatory approval limits. Kura is expected to be the second on the market, about 1 year behind in development, and we expect the large menin class to be large enough to support multiple players with blockbuster potential for Syndax and Kura,” noted Zeline.
“While investors have focused on ziftomenib, we expect Kura’s underappreciated farnesyltransferase inhibitor (FTI) program to demonstrate combined proof-of-concept (POC) data in solid tumors, opening up a great solid tumor opportunity with no competition in the class,” Zelin continued to add.
Looking ahead, Zelin gives KURA shares a Buy rating, and his price target of $31 indicates confidence in a 137% upside over the one-year period. (To see Zelin’s track record, click here)
And what about the rest of the street? Everyone is on board. The stock has a strong buy consensus rating, based on a unanimous consensus of 8 buys. The forecast calls for 12-month gains of 135%, given that the average price target stands at $30.71. (See KURA Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.