Small-cap stocks have been under pressure ever since the Federal Reserve started hiking interest rates in the first quarter of 2022. As a result, scores of companies in this category sport rock-bottom valuations right now. With the Fed possibly set to reverse course on interest rates next year, though, it might be a smart idea to start adding some select names to your portfolio.
Which small-cap stocks stand out as the most promising? Although it's important to remember that small growth companies are inherently risky, there are several names that screen as incredible bargains at current levels, especially in the heavily sold-off biotech industry. From a risk-to-reward perspective, Agenus (AGEN -2.13%) and Coherus BioSciences (CHRS) stand out from the crowd. Here's why.
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Agenus: An immunotherapy company with a 733% upside potential
Agenus is a biotech that specializes in developing immunotherapies to combat cancer. Wall Street analysts predict that its stock price could skyrocket by 733% in the next year.
What's behind this uber-bullish take? One of the main factors is that Agenus plans to submit a Biologics License Application to the Food and Drug Administration (FDA) for its lead product candidate, botensilimab, as part of a combination therapy for patients with advanced microsatellite stable metastatic colorectal cancer by mid-2024.
This form of CRC has an exceptionally poor outlook and limited treatment options. If approved, this combo therapy could generate annual sales of $240 million to $500 million at peak for Agenus, which is a significant amount for a later-line cancer drug. To further put this preliminary sales projection into perspective, Agenus has a market cap of only $298 million at the time of this writing. Hence, Wall Street's lofty price target may have a solid premise behind it.
However, Agenus does have some significant risks to consider. One of the most important is its less-than-ideal financial position. Even after a recent milestone payment from partner BMS, the company appears to have less than two full years of cash remaining. On the bright side, Agenus may be able to attract a partner with deep pockets based on botensilimab's impressive clinical profile in the solid tumor setting.
Coherus BioSciences: A drugmaker with a 501% upside potential
Coherus BioSciences is a biopharmaceutical company that focuses on two areas: biosimilars and immuno-oncology. The company has three biosimilars on the market: Udenyca, a Neulasta biosimilar; Cimerli, a Lucentis biosimilar; and Yusimry, a Humira biosimilar. Moreover, the company recently won FDA approval for its immuno-oncology drug, Loqtorzi, as a treatment for advanced nasopharyngeal carcinoma. Coherus plans to launch Loqtorzi in the first quarter of 2024.
Despite its growing product portfolio, Coherus' stock has still plummeted by 74% this year. The main issue is the company's unfavorable cash situation. Coherus has less than a year of cash left at its current burn rate. Now, management has pledged to reduce expenses to move the company back to profitability. But investors appear to be waiting for hard evidence that this plan will bear fruit.
However, aggressive investors may want to take a flier on this beaten-down biopharma company ahead of the crowd. While it is true that its financial situation isn't ideal, the biopharma's diversified portfolio should transform it into a profitable operation within the next 12 months. And longer term, Coherus' oncology pipeline could provide more value-creating opportunities for shareholders.
