As we make our way into the new decade, it’s normal for changes to occur. However, one constant has proven resilient to the passage of time. No matter what, investors are always after returns, and the most compelling opportunities that can make those returns a reality.
Typically, the stocks poised to deliver significant returns are the ones with not only impressive long-term growth prospects, but that also have the support of financial analysts. However, as any Wall Street observer will tell you, all this potential can come with a hefty price tag.
That being said, the pros remind investors that while not always easy to find, there are hidden gems out there trading at a fraction of the cost. So how’s an investor supposed to spot these affordable yet high-quality names? I recommend making use of the investment tools from TipRanks.
The platform’s Stock Screener filtered my search results by current share price, analyst consensus and price target upside, revealing six stocks flagged by the analysts as likely to outperform. The icing on the cake? Each trades for $7 or less.
Here’s the lowdown.
Cheap Stocks to Buy: Callon (CPE)
Independent oil and natural gas company Callon Petroleum (NYSE:CPE) specializes in the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin. After finalizing its purchase of Carrizo Oil & Gas, RBC Capital’s Brad Heffern thinks that shares look cheap right now at $4.05.
He told investors that he already liked CPE’s solid asset positions in the Permian and Eagle Ford basins. Heffern also noted that the recent acquisition makes him even more confident in the company’s long-term success.
“Given the recent acquisition of CRZO, we think CPE has successfully transitioned from a Permian pure play growth story, to sustainable corporate return model with asset diversification, centered around sustainable growth and free cash flow generation,” Heffern explained. “As CPE transitions to a free cash flow model, we would expect the company to continue to fortify the balance sheet, although the balance sheet remains relatively insulated today with respectable leverage ratios.”
Taking this into consideration, the four-star analyst decided to stay with the bulls, reiterating an “outperform” rating. At his $8 price target, shares could be in for a 90% gain over the next 12 months.
What does the rest of the Street have to say? Looking at the consensus breakdown, other analysts generally agree with Heffern. Eight buy ratings and a single hold add up to a strong buy consensus rating. Based on the $7.33 average price target, the upside potential lands at 90%.
Ovid Therapeutics (OVID)
Ovid Therapeutics (NASDAQ:OVID) is a biotech company whose goal is to improve the lives of patients suffering from rare neurological disorders. Given its $3.50 price tag, some members of the Street advocate getting on board before it shoots up.
Citing key data catalysts for lead programs OV101 and soticlestat, RBC Capital analyst Brian Abrahams thinks 2020 could be a big year for the healthcare name. Top-line data from the pivotal Phase 3 NEPTUNE trial of OV101 in Angelman’s Syndrome should be ready in mid-2020. That data could be “transformative” for the company.
“While we acknowledge some risk given disease heterogeneity, unclear dose dependence, and inconsistent subdomain effects in Phase 2, we believe there are underappreciated signals of efficacy — particularly the effects on the more sensitive CGI-I scale — that when coupled with preclinical and mechanistic support should provide a very reasonable chance of success in achieving what is likely to be a low regulatory bar in this disease,” Abrahams commented.
Should the drug be approved, the analyst estimates that peak sales could reach more than $450 million. It also doesn’t hurt that the company reported promising data for soticlestat earlier in the fall, lending to the five-star analyst’s conclusion that there’s “another viable pipeline shot on goal.”
Accordingly, Abrahams tells clients that he still sides with the bulls, reiterating an “outperform rating.” His 12-month price target of $12 implies 250% upside.
With 100% Street support, the message is clear. OVID is a strong buy stock. Adding to the good news, the $13.33 average price target puts the upside potential at 282%, above Abrahams’ forecast.
QEP Resources (QEP)
When a stock receives not one, not two, but three upgrades in three months, it’s a signal to investors that now is the time to pay attention. This is the case for independent oil and natural gas exploration and production company QEP Resources (NYSE:QEP).
One of the analysts now singing QEP’s praises is Stephens’ Gail Nicholson. While noting that he is cautious about the sector, he thinks QEP has a solid position in the space. The current share price near $3.90 represents an attractive entry point.
“Despite previous exogenous events (activist, exploring strategic alternatives, etc.) which caused stock price volatility, the new management team in our opinion has surpassed market expectations as it consistently executes, lowered its cost structure, positioned itself to handle near-term maturities, and has a plausible path to FCF generation in a myriad of pricing scenarios,” he stated.
As a result, the analyst set a $7 price target in addition to boosting the rating to “overweight.” This conveys his confidence in QEP’s ability to climb 80% higher in the coming 12 months.
Based on the consensus breakdown, the rest of the Street has also been impressed with QEP. Three buy ratings and 1 hold assigned in the last three months add up to a strong buy analyst consensus. In addition, the $5.63 average price target brings the upside potential to 45%.
NexTier Oilfield Solutions (NEX)
Another stock scoring recent upgrades is NexTier Oilfield Solutions (NYSE:NEX). The company offers its customers a variety of integrated well completion services including hydraulic fracturing and wireline divisions. It also provides other services like coiled tubing, cementing and drilling division. While 2019 was definitely a tough year, that hasn’t stopped analysts from betting on NEX for 2020. Some note that its $6.50 share price presents a unique buying opportunity.
Goldman Sachs’ Angie Sedita tells investors that NEX has won her over. She notes that even though it boasts stronger profitability, the company’s shares trade at a 25% discount to its competitors. That represents a “compelling valuation.”
On top of this, the C&J Energy Services merger stands to increase diversification, spur cost synergies and expand its scale. It also doesn’t hurt that NEX remains committed to returning cash to shareholders, according to Sedita.
All of the above factors led the analyst to boost the rating from “neutral” to “buy.” If that wasn’t enough, she also increased her price target to $9, implying 45% upside potential.
In general, other Wall Street analysts are bullish as well. Out of five analysts that have published a rating in the last three months, four see the stock as a buy. As a result, the consensus rating amounts to a strong buy. Additionally, the $7.90 average price target suggests shares could surge 22% in the next 12 months.
Kadmon Holdings (KDMN)
Kadmon Holdings (NYSE:KDMN) is best known for developing innovative treatments and immuno-oncology therapies. With Nomura analyst Christopher Marai giving it a thumbs up, is now the right time to buy at $4.20 per share?
The company’s KD025 candidate — used for treating chronic graft-versus-host disease — has been progressing through clinical trials. Chronic GVHD is a side effect from bone marrow or blood stem cell transplants. Complications from these transplants can cause the donor cells to attack the recipient’s healthy cells. KD025 is also progressing through trials to examine its use in treating systemic sclerosis, a chronic immune disorder.
Kadmon is set to release trial data in the second half of 2020, Marai sees significant upside in store for KDMN shares. “Recent data put KDMN on the radar and significant potential upside to shares; we see relatively low-risk upside into a $350mn opportunity in cGVHD, which now is set for approval and should trade closer to 3x sales — this would see ~33% from current levels, and still not incorporate the pipeline,” he explained.
Based on his conclusion that Wall Street is underestimating the market opportunity by about 25%, Marai is taking the bulls’ side. In addition to starting coverage as a “buy,” the four-star analyst set a $10 price target. That puts the upside potential at a whopping 135%.
In the last three months, analysts have all issued buy ratings on the stock. Thanks to this action, KDMN earns a strong buy consensus. What’s not to like? Plus, with a 12-month average price target of $15, 250% upside could be in store.
Cidara Therapeutics (CDTX)
Cidara Therapeutics (NASDAQ:CDTX) is a biotech company that specializes in developing unique anti-infectives. After attending an analyst event centered around its lead product candidate, rezafungin, BTIG’s Tim Chiang remains convinced that the company looks like a long-term winner.
With a share price near $3.40, the analyst believes that now is the time to get on board. Chiang cites rezafungin, which is a once-weekly preventative treatment for severe fungal infections. The U.S. Food and Drug Administration gave the drug orphan drug status and named it a qualified infectious disease product. These designations give it additional years of possible marketing exclusivity in the U.S.
On top of this, Chiang argues that the rising costs of antifungal treatments as well as the growing number of cases of serious fungal infections create a substantial market opportunity.
“We remain positive [about] CDTX and believe the shares are undervalued,” the analyst explained. “… Assuming positive results are achieved for its pivotal studies we think rezafungin peak sales could reach $500 million or more by 2032.” As a result of this analysis, Chiang reiterated a “buy” rating and $7 price target.
Turning now to Wall Street, it appears that other analysts are on the same page. With 100% Street support, the verdict is unanimous: CDTX is a strong buy. Adding to the good news, the $7.50 average price target indicates 122% upside potential.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of over 5,000 Wall Street analysts. As of this writing, Maya Sasson did not hold a position in any of the aforementioned securities.
