Despite a difficult start in August, investor sentiment has remained resilient S&P500 rose almost 9% since the August 5 low.
This upward momentum was driven by a series of positive economic data, including better-than-expected initial unemployment claims and strong retail sales.
Wall Street also reacted positively to comments from Fed Chairman Jerome Powell on Friday, in which he indicated the Fed is prepared to cut rates as the labor market softens and inflation approaches the Fed’s 2% annual target.
With this bullish wave in play, the key question is: how can you spot the next hot stocks in this environment? One effective strategy is to focus on stocks with high price appreciation, which are endorsed by analysts at leading investment banks such as Morgan Stanley. These experts bring valuable experience and in-depth knowledge.
In fact, Morgan Stanley analysts have highlighted two stocks that they believe will post significant gains in the coming year – with potential upside of as much as 220% in one case. If that’s not tempting enough, says the TipRanks databaseBoth stocks are also rated as Strong Buys by analyst consensus. Let’s see what’s driving the unanimous praise from analysts.
COMPASS trails (CMPS)
The first Morgan Stanley pick we’ll look at is COMPASS Pathways, a biopharmaceutical company developing innovative treatments for hard-to-treat mental disorders by harnessing the psychedelic effect of psilocybin. As the active compound in ‘magic mushrooms’, psilocybin has attracted attention in psychiatric circles for its potential to effectively treat a wide range of mental health conditions.
COMPASS has developed a synthetic psilocybin formulation known as COMP360, designed to be used in combination with psychological support and therapy. The treatment process involves an initial series of sessions during which the patient and therapist build rapport, followed by controlled drug administration sessions during which the patient is given psilocybin. During these sessions, the patient is closely monitored, and post-session conversations with the therapist help process the experience.
Currently, COMPASS’s most advanced pilot program focuses on the use of psilocybin to treat patients with treatment-resistant depression (TRD), a serious mental illness that significantly reduces quality of life. The company is investigating treatment with COMP360 in two Phase 3 clinical trials (COMP005 and COMP006); COMP005 evaluates the effects of single-dose monotherapy in 255 participants, with topline data expected in Q4 2024 or early 2025. Meanwhile, COMP006 focuses on fixed repeat-dose monotherapy in a larger cohort of 568 participants, with topline results expected mid 2025.
In addition to this late-stage study in TRD, the company’s COMP360 treatment has also been the subject of an open-label Phase 2 study for the treatment of PTSD. The study involved 22 patients, with an emphasis on safety and tolerability. Positive results were announced in the second quarter of this year. Building on these results, the company is now evaluating the best approach to advance the treatment of PTSD.
Morgan Stanley analyst Vikram Purohit, who covers the stock, sees CMPS as an attractive risk-reward opportunity. Highlighting the company’s leading clinical program, he states: “Progress continues with the PhIII program for COMP360 in TRD, with the next fundamental milestone being the topline data from the PhIII COMP005 trial in 4Q24… The PhII data for COMP360 in TRD are competitive, KOL’s feedback on the data and usage potential for COMP360 is positive, and the commercial opportunities in TRD are well defined.”
“Based on the data generated and the stage of development for COMP360, CMPS appears significantly undervalued and we believe the risk/reward has a positive impact on the data catalysts in 2024/2025, which we believe could drive significant share appreciation ,” the analyst added.
Given this, Purohit rates CMPS stock Overweight (i.e. Buy), and his $23 price target points toward a robust one-year upside potential of ~220%. (To view Purohit’s track record, click here)
The broader analyst community shares Purohit’s optimism. Based solely on buy recommendations – seven in total – analysts collectively rate CMPS as a strong buy. With the stock currently trading at $7.19, the $40.57 average price target implies an impressive 464% upside potential for the year ahead. (To see CMPS stock forecast)
Rocket pharmaceutical products (RCKT)
Next on Morgan Stanley’s list is Rocket Pharmaceuticals, a biotech company at the forefront of gene therapy. Rocket uses adeno-associated (AAV) and lentiviral (LVV) vectors to deliver breakthrough treatments for complex, rare hematological and cardiovascular diseases, areas of significant unmet medical need and limited treatment options.
Rocket’s most advanced programs are focused on hematology. The company markets LV RP-L102, a drug candidate designed to treat Fanconi anemia, and Kresladi, a potential treatment for LAD-1.
At the Fanconi circuit, Rocket recently released positive data from its Phase 1/2 trial and confirmed that regulatory filings remain on track.
Conversely, the company suffered a setback in June when the FDA issued a Complete Response Letter for the Biologics license application for Kresladi, requesting additional CMC information to complete the review. Rocket management has assured that the review process is ongoing and that they are actively working with senior leaders and reviewers at the FDA’s Center for Biologics Evaluation and Research to resolve the issue.
On the cardiovascular front, Rocket’s research programs are making good progress. Among the most prominent candidates are PR-A501 and RP-A601. PR-A501, a potential treatment for Danon’s disease, is currently in a pivotal Phase 2 trial, while RP-A601, targeting arrhythmogenic PKP2 cardiomyopathy, is enrolling patients in a Phase 1 trial.
Rocket’s large and diverse pipeline has caught the attention of Morgan Stanley analyst Michael Ulz, who is particularly impressed by its cardiovascular progress.
“Our Overweight rating is based on Rocket’s position as a leader in the gene therapy space, combined with a robust pipeline and experienced management team. We view RP-A501 (AAV) in Danon disease as a key driver with blockbuster potential and see broader potential from the cardiovascular pipeline (PKP2 and BAG3). While we expect the focus to be on the cardiovascular pipeline, we believe the more advanced hematology (LV) franchise offers near-term opportunities,” Ulz opined.
Ulz supplements its Overweight (i.e. Buy) rating on RCKT with a $45 price target, implying a 142% upside for the stock over the next twelve months. (To view Ulz’s track record, click here)
No one disputes this view of Wall Street. The stock’s Strong Buy consensus rating is based on Buy recommendations alone: 8 in total. The forecast calls for an annual gain of ~147%, as the average price target is $45.86. (To see RCKT stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best stocks to buya tool that unites all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.