Tech companies in certain high-growth sectors like semiconductors, AI, and cloud predominantly drove this year’s bull market. But while these giants made headlines, many penny stocks continued trading at bargain prices. After the post-covid boom fizzled out, penny stocks have been a neglected asset class.
Most importantly, investors de-risking their portfolios for nearly the past two years have had a tremendous impact on most penny stocks. So, it’s difficult to find penny stocks that are trading at even their pre-pandemic levels.
Reasons for this exist. Most penny stock businesses don’t provide the upside for potential investors. And why pay a premium for their stock if they have to endure wild swings?
However, diamonds in the rough exist, which can deliver life-changing gains if the stars align. Let’s look at three today.
Redbubble (RDBBF)
Redbubble (OTCMKTS:RDBBF) is an e-commerce marketplace for independent artists. It faced a lot of setbacks in the past two years after a tremendous boom in 2020. That’s largely due to the business struggling to attract new e-commerce customers in the post-pandemic era and some questionable management decisions. RDBBF stock sits nearly 95% below its Jan. 2021 peak.
However, change is happening as we speak. The company’s original founder has returned as the CEO, and investors are confident that he is steering the business in the right direction again. The stock is up 44% from its trough in June, and I believe this momentum won’t be tough to sustain in the long run.
For starters, the price-to-sales ratio here is 0.2 times better than 85% of the company’s peers. Such a valuation hints at a company in decline, and that is true. Redbubble is expected to report a 5.3% decline in sales this year. But looking further, revenue growth is expected to accelerate sharply to 6.2% next year and 13.2% the year after. The current share price is far below what I’d be willing to pay for that sort of growth.
Precision BioSciences (DTIL)
Precision BioSciences (NASDAQ:DTIL) is a biotech company that develops gene editing therapies for various diseases using its proprietary ARCUS platform. The company has several candidates in clinical trials targeting cancers, genetic disorders, and infectious diseases.
Biotech companies are naturally very risky and speculative plays. But investing in ones that are already trading at depressed prices can lead to an eye-watering upside. Analysts, on average, believe that it can deliver a 1,055% upside from its current price. Even the lowest price target is $4.0. Several catalysts on the horizon justify that increase.
Last year, the company announced a partnership with Novartis (NYSE:NVS) worth up to $1.5 billion. It also has many other partnerships in play to drive up revenue in the long term.
Another important factor regarding biotech companies is cash. The company has a strong cash position of $158 million, which can fund its operations for at least another year. Thus, I believe Precision BioSciences is a high-risk, high-reward biotech play that could pay off big time if its pipeline delivers.
Atreca (BCEL)
Atreca (NASDAQ:BCEL) is another promising biotech company that analysts view with optimism. Atreca is developing novel antibody-based immunotherapies for solid tumors using its differentiated platform that interrogates the active human immune response.
Atreca’s lead candidate is ATRC-101, which targets an antigen expressed by various cancers, such as ovarian, lung, breast, colorectal, and pancreatic cancers. The company is currently conducting a phase 1b trial of ATRC-101 in combination with pembrolizumab (Keytruda), a blockbuster checkpoint inhibitor from Merck (NYSE:MRK). It recently reported positive interim data from its phase 1b trial of ATRC-101.
I see Atreca as a hidden gem in the biotech sector that could soar if ATRC-101 proves to be effective in treating solid tumors. However, the stock has been trading below $1 since May, as investors remain wary of its cash burn and dilution risk. Indeed, that’s quite a big problem, especially when it is still in phase 1b.
Nonetheless, the average Wall Street analyst sees a 1,442% upside here.
Penny Stocks
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.