3 Small-Cap Biotech Stocks That Analysts Love

Throughout 2023, biotech stocks came under pressure in part due to high interest rates that are a major headwind for long-dated assets. However, as analysts continue to expect at least one interest rate cut in 2024 with more to follow next year, investors should take a fresh look at biotech valuations in search of growth opportunities. 

While investors can be seduced by the low price of many biotech stocks, a note of caution is required. The saying ‘it’s cheap for a reason’ is very relevant for biotech firms, many of which are in the pre-clinical phase defined by the absence of a commercially available product. 

One strategy to mitigate risk involves paying attention to stocks receiving analysts’ upgrades. Though far from a perfect science as even the Street’s top analysts get it wrong sometimes, there are several highly recommended biotech stocks worth looking at. 

An Innovative Approach to Drug Development 

Gingko Bioworks (NYSE:DNA), a biofoundry, collaborates with partners to expedite the drug development process using software, artificial intelligence (AI), and robotics. In theory, partners can provide Gingko with specifications for a specialized bioengineered microorganism, and Gingko would then produce the precise chemical or cellular products needed. 

The potential for drug discovery is large and represents a clear catalyst for Gingko Bioworks’ stock. Additionally, Gingko collaborates with firms in agriculture, food production, and industry. The company’s dedication to automation aims to achieve economies of scale, positioning Gingko as a preferred provider of its unique services that are difficult to duplicate. 

Before releasing its Q4 2023 earnings, analysts were largely bullish on DNA stock. Sentiment has declined following the earnings report as revenue fell short of expectations by approximately 15%. The guidance issued by Ginkgo, notably its upper range being 15% below analyst expectations, has raised particular concerns. 

Nevertheless, analysts maintain a $2.21 price target for DNA stock, implying an 82% upside. Among the group of analysts, two out of eight analysts rate the stock as a Strong Buy. 

Analysts Remain Optimistic Despite Regulation 

Clover Health (NASDAQ:CLOV), offering Medicare Advantage plans through its Clover Assistant software, was an early adopter of AI. The global pandemic showcased the real-world applicability of its software, making its public debut in June 2020 seemingly well-timed. 

Since its IPO, CLOV stock has sharply declined, largely due to rising interest rates. The company’s efforts to scale up occurred when borrowing costs were low, a situation that has since reversed, impacting its financial performance. 

Despite these challenges, Clover anticipates achieving positive EBITDA in 2024. Analysts, assuming a cautiously optimistic stance, have set a price target of $1.33 for the stock. This implies an upside potential of more than 60% from current levels. 

Earnings Could Send bluebird bio Soaring 

Bluebird bio (NASDAQ: BLUE), the final potential multibagger worth watching, specializes in the exciting field of gene therapy, focusing on treatments for severe genetic disorders 

As of March 8, 2024, BLUE stock has risen by 41% for the month and 7.6% for the year. The surge followed FDA approval of its treatments for sickle-cell disease and LYFGENIA, marking significant milestones likely to boost the company’s revenue. 

However, the costliness of gene therapy poses a risk. Affordability may hinge on government subsidies, especially as drug pricing faces heightened scrutiny from politicians and regulators during an election year. 

Despite these challenges, BLUE stock is followed by 13 analysts who collectively set a consensus price target of $5.46, suggesting a substantial 263% potential for share price growth, with five analysts recommending a Strong Buy or Buy.