Bank of America Predicts Massive Surge for These Two High-Potential Biotech Stocks
New signs of a cooling economy have eased inflation worries, propelling the S&P 500 to record highs last week. After experiencing a decline of about 4% in April, the index is now up 11% for the year. This rally has sparked discussions about whether the momentum will continue. Savita Subramanian, head of US equity and quantitative strategy at Bank of America, is optimistic. She bases her positive outlook on historical data spanning over 300 quarters, noting that despite periods of recession and stagflation, “90% of the time things were OK.”
Subramanian emphasizes the importance of long-term investing, advising against trying to time the market. She states, “‘Time in the market beats timing in the market’ is an old but prescient adage. The risk of losing money in equities plummets as time horizons extend, a phenomenon unique to equities vs. other asset classes. Best days usually follow worst days, and missing those best days is costly. Since the 1930s, missing the 10 best S&P 500 days per decade would have yielded a paltry gain of 66% vs. ~23,000% from remaining invested.”
Her colleagues at Bank of America have identified two biotech stocks that they believe are poised for significant gains, with potential upside as high as 200%. Both stocks have received a ‘Strong Buy’ rating from the broader analyst consensus. Let’s delve into these stocks and understand why they are expected to perform well.
Sutro Biopharma is a clinical-stage medical research company focused on oncology. The company is dedicated to developing new medicines to address unmet needs in cancer treatment. Sutro’s unique approach involves a proprietary technology platform called XpressCF, which utilizes cell-free technology for protein synthesis. This platform allows for the production of proteins at high yields and rapid rates, enabling the creation of a diverse range of drug candidates, from small peptides to monoclonal antibodies.
The leading candidate in Sutro’s pipeline is STRO-002, also known as luveltamab tazevibulin (luvelta). This therapeutic agent has shown promise in early tests against ovarian cancer and is currently in a Phase 2/3 study, REFRαME-O1, for treating platinum-resistant ovarian cancer (PROC). The study’s Phase 3 portion, expected to enroll up to 500 patients, started enrollment in April.
Bank of America analyst Tazeen Ahmad is optimistic about Sutro’s prospects, citing the high potential of Luvelta and the XpressCF platform. She estimates that luvelta could treat up to 80% of PROC patients, a significant improvement over existing treatments. Ahmad projects risk-adjusted peak sales for Luvelta in PROC at $597 million. She also highlights Sutro’s strategic partnerships with major industry players like Astellas, Merck, Ipsen, and Bristol Myers Squibb, which enhance the reach and potential of its innovative product candidates.
With these assets, Ahmad assigns a buy rating to STRO, with a price target of $12, indicating a potential upside of ~199%. The consensus among analysts is overwhelmingly positive, with 9 buys and 1 hold, reflecting a strong buy rating overall. The stock, currently trading at $4.01, has an average price target of $11.44, suggesting a potential gain of 185% over the next 12 months.
Avidity Biosciences is another biotech firm on Bank of America‘s radar. The company focuses on developing targeted RNA therapeutics using its proprietary Antibody Oligonucleotide Conjugates (AOC) platform. This platform aims to combine the tissue selectivity of monoclonal antibodies with the precision of oligonucleotide-based drugs, offering new possibilities in RNA therapeutics.
Avidity’s pipeline includes three clinical programs targeting rare muscle diseases, which have been historically challenging to treat. These programs are based on the AOC platform’s ability to deliver RNA therapeutics directly to muscle tissue, a groundbreaking achievement in the field.
Bank of America analyst Geoff Meacham is bullish on Avidity, citing the robust demand for its AOC therapies and estimating peak sales of $2.3 billion by 2033 from its rare muscle disorder portfolio. Meacham views RNA as an attractive risk-reward opportunity, given its innovative platform and potential for commercialization by 2026. He rates RNA shares as a buy, with a price target of $40, suggesting a 35.5% upside.
The consensus among analysts is uniformly positive, with all 7 analysts giving a strong buy rating. The stock, currently trading at $29.50, has an average price target of $42.67, indicating a potential upside of 45% in the coming year. Bank of America’s optimistic market outlook and strong endorsements for Sutro Biopharma and Avidity Biosciences highlight the potential for significant gains in the biotech sector. Both companies are making strides in developing innovative treatments for unmet medical needs, supported by proprietary technologies and strategic partnerships. Investors looking for high-potential stocks might find these biotech firms attractive options for their portfolios.
