Last year’s bull market, dominated by mega-cap tech stocks, has shifted this year to favor smaller, lesser-known companies. This shift in momentum is driven by a set of economic factors supporting a positive sentiment.
Most prominent among those factors is the slowing rate of inflation. While prices remain elevated compared to four years ago, the slowing rate of increase bodes well – and backs up the conventional wisdom that the Federal Reserve will initiate further interest rate cuts and provide additional support, before the summer ends.
David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, sums up the shift, writing, “Against a backdrop of extreme equity market concentration, four factors explain the reversal: (1) Decelerating inflation and increased confidence the Fed will cut in September; (2) steady economic growth data; (3) jump in prediction market probability of a Republican sweep; and (4) forecast compression in the EPS growth premium of large-cap stocks vs. peers.”
“Small-cap and equal-weight benchmarks will continue to outperform unless the big Tech stocks’ 2Q reports cause analysts to raise sales estimates for 2H 2024 and 2025,” Kostin added.
Goldman’s stock analysts echo Kostin’s outlook and predict a surge of up to 165% for two small-cap stocks. According to the TipRanks database, these stocks have received 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.
RegenXBio (RGNX)
The first Goldman pick we’ll look at is RegenXBio, a gene therapy company specializing in single-dose treatments for severe diseases with few or no existing therapies. The company is a leader in AAV therapeutics, using adeno-associated viruses to deliver modified genes directly into patients’ affected cells. This innovative approach has the potential to revolutionize medical treatments for millions of people.
RegenXBio currently has three drug candidates in its pipeline. Two of these are being developed independently, while the third is in collaboration with AbbVie. The most advanced candidate, RGX-121, is progressing through clinical trials and regulatory processes. The company plans to submit a Biologics License Application (BLA) for RGX-121 later this year, following a pre-BLA meeting with the FDA in June. RGX-121 is intended to treat Hunter syndrome, also known as MPS II, by delivering the human iduronate-2-sulfatase (IDS) gene directly to the central nervous system.
Another promising candidate is RGX-202, which is solely owned by RegenXBio. This drug is being investigated as a treatment for Duchenne muscular dystrophy and utilizes a ‘novel microdystrophin construct’ as its active agent. In June, RegenXBio began enrolling pediatric patients aged 1 to 3 in its Phase I/II AFFINITY DUCHENNE trial. The company has also scheduled an End-of-Phase II meeting with the FDA and anticipates starting a pivotal trial in late Q3 or early Q4 of this year.
Finally, RegenXBio is working in partnership with AbbVie to develop ABBV-RGX-314, a novel, one-time, subretinal treatment designed as a therapy for chronic retinal conditions such as wet AMD and diabetic retinopathy. The next clinical data from the Phase II AAVIATE trial is anticipated in Q3 this year, with regulatory submissions planned for the first half of 2026.
For Goldman analyst Paul Choi, a key point here is the diversity and quality of RegenXBio’s pipeline. This is a major asset for the company, and an important attractive quality for investors.
“We see the potential for RGNX’s gene therapy platform to address unmet needs in multiple attractive markets… We view the limited RGX-202 DMD data to date as intriguing and look for additional dosing data and longer-term follow up, but we see it potentially opening up additional (i.e., older) patients not addressed by current therapies (e.g., SRPT’s Elevidys). Lastly, the imminent filing and anticipated approval of RGX-121 for MPS II (Hunter syndrome) provide near-term regulatory catalysts and a commercial product with a small but well identified opportunity,” Choi opined.
“We see a tangible catalyst path (additional DMD data, Hunter filing, and suprachoriodal wAMD/DR data in 2H24; subretinal wAMD data and filing in 2025) driving RGNX’s share performance over the near- to intermediate term,” the analyst summed up.
To this end, Choi rates RGNX a Buy along with a $38 price target. This figure indicates room for a one-year upside of 165%. (To watch Choi’s track record, click here)
Overall, the Street agrees with the bullish stance. RGNX shares have a unanimous Strong Buy consensus rating, based on 9 positive analyst reviews. These are complemented by a $39.44 average price target that suggests a 175% gain in the next 12 months. (See RGNX stock forecast)
Viridian Therapeutics (VRDN)
The second stock on today’s list is Viridian Therapeutics, a biotech firm whose work focuses on the development of novel treatments for autoimmune diseases. The company’s main focus is on thyroid eye disease, or TED, a serious condition that can lead to blurred vision or blind spots.
Viridian is advancing two drug candidates for TED in clinical trials, including VRDN-001, which is currently being evaluated in two Phase 3 studies, THRIVE and THRIVE-2. VRDN-001 is administered via intravenous infusion, with a regimen of five treatments given at three-week intervals. It is considered a potential best-in-class therapy. This drug candidate, an IV monoclonal antibody targeting IGF-1R, has demonstrated strong clinical activity and a favorable safety profile in earlier studies. The trials are investigating the drug’s effectiveness in both active and chronic TED, with topline results from THRIVE expected in September and THRIVE-2 results anticipated by the end of the year.
The second drug candidate, VRDN-003, is particularly noteworthy. It is an anti-IGF-1R drug designed for subcutaneous injection, offering patients a more convenient, self-administered treatment option. VRDN-003 is similar to VRDN-001 but features an extended half-life, which aims to improve patient comfort and compliance. Importantly, neither VRDN-001 nor VRDN-003 is administered directly to the eye, addressing a common concern regarding discomfort associated with existing eye disease treatments.
This company’s strong treatment development program for thyroid eye disease caught the attention of Goldman Sachs analyst Richard Law, who sees it as a potential new standard-of-care in the long-term.
“Our Buy rating is driven by VRDN-003 potentially having best-in-class SC profile in TED… Although Tepezza is now an established SOC, we believe the new start nature of the TED market and strong enthusiasms from clinicians willing to prescribe SC over IV products will open the opportunity for VRDN-003 to compete well. Although it is still early and many novel assets have not reported much data, ‘003’s half-life extension, small injection volume, and autoinjector pairing could be positioned well against SC assets that lack these attributes,” Law opined.
“We believe VRDN-001’s shorter treatment course has more limited competitive advantages over Tepezza but could help establish a network of payors/prescribers for ‘003’s launch. We model both assets achieving ~$1.8B WW non-risk-adjusted, or ~$798M risk-adjusted, peak sales in 2040,” the analyst added.
Along with that Buy rating, Law gives Viridian shares a $23 price target, suggesting a 38% upside over a one-year horizon. (To watch Law’s track record, click here)
The Goldman view may turn out to be the more conservative outlook for VRDN. The stock’s Strong Buy consensus rating is supported by an average price target of $33.08, suggesting 98% upside from the current share price. (See VRDN 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.