For more than a year, investors have been spoiled by an epic rally on Wall Street. After losing 34% of its value in a span of just 33 calendar days in the first quarter of 2020, the benchmark S&P 500 has roared back to gain 87% since hitting its bear-market bottom on March 23, 2020, through this past weekend.
Though large-cap stocks (companies with market caps of at least $10 billion) have been the stars of this rally, it's small-cap stocks ($300 million to $2 billion market cap) that Wall Street believes are ready to shine. Small-caps are typically riskier in that their operating models aren't time-tested or proven. But they can usually deliver superior growth prospects compared to more mature companies.
Based on the consensus one-year price targets of Wall Street analysts, the following five small-cap stocks all offer upside ranging from 60% to as much as 140%.
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Vaxart: Implied upside of 140%
There are close to 2,000 small-cap stocks and securities for investors to choose from. However, Wall Street professionals believe you'll have a hard time topping the potential 140% return over the next year from clinical-stage biotech stock Vaxart (VXRT -4.79%).
The Vaxart rags-to-riches story will come down to how well the company's coronavirus disease 2019 (COVID-19) treatment option, VXA-CoV2-1, fares in clinical studies. What makes this treatment so unique is that it's a tablet, rather than a shot, which could play a key role in overcoming vaccine resistance and administration. After all, you don't need trained medical personnel to administer to a tablet.
At the beginning of February, Vaxart announced a positive first step for VXA-CoV2-1 in a phase 1 trial. Preliminary data showed it had reached all of its primary and secondary safety and immunogenicity endpoints. Plus, there were early signs it could be effective against the original and variant strains of COVID-19.
It's far too early to tell if Vaxart's oral COVID-19 treatment will be a success in mid-or-late-stage trials, but it certainly offers game-changing potential if it is effective.
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Harvest Health & Recreation: Implied upside of 90%
With cannabis expected to be a major growth trend this decade, perhaps it's no surprise to find a lofty 12-month price target assigned to U.S. multistate operator (MSO) Harvest Health & Recreation (HRVSF). If Wall Street's price target is accurate, Harvest Health could gain 90% over the next year.
Unlike most U.S. MSOs, Harvest Health was a bit too wide-eyed in 2019 and overextended itself. After terminating a handful of deals and raising capital, the company is now on track to potentially eke out a profit in 2021 on an estimated $380 million in full-year sales. For context, this represents implied sales growth of 64%.
Currently, the company has 37 operational retail locations in five states, with a core focus on four markets: Arizona, Florida, Maryland, and Pennsylvania. Florida is raking in big bucks despite only being legal for medical marijuana, while Pennsylvania is a limited license state, which should provide some degree of competitive protection for the company as it aims to gobble up share. But with 15 stores open its home state of Arizona, the Grand Canyon State represents Harvest Health's greatest opportunity.
Though it'll have to prove to investors that it's overcome its early operating missteps, Harvest Health looks to be on its way to "going green" in 2021.
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EverQuote: Implied upside of 83%
Another small-cap stock with serious upside potential is online insurance marketplace provider EverQuote (EVER 5.46%). Based on a consensus price target of $61.58, EverQuote could gain up to 83% over the next year, if analysts are accurate.
Talking about anything having to do with insurance is usually enough to put people to sleep. EverQuote aims to change that with its online marketplace where consumers can quickly and easily get price policies from leading insurance providers. According to the company, 1 in 5 consumers ends up purchasing a policy on its platform, which demonstrates that its shoppers tend to be motivated. In other words, insurers are getting more bang for their advertising buck by entrusting EverQuote's marketplace.
According to the company, digital insurance ad spending is expected to grow by 16% annually over the next four years. By comparison, total ad and distribution spending for the insurance industry, including digital spending, is only forecast to grow by 4% annually through 2024. EverQuote is catering to the sweet spot of insurance industry growth.
It's also a company that's been transitioning to new verticals. Even though auto insurance has always been its marketplace bread-and-butter, it's added home, renters, health, and life insurance options in recent years. These new verticals are growing at a much faster clip than traditional auto policies.
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Jushi Holdings: Implied upside of 60%
Just in case you didn't catch the emphasis the first time around, Wall Street is really upbeat on most U.S. marijuana stocks over the next 12 months. Small-cap MSO Jushi Holdings (JUSHF 0.89%) is no exception. If Jushi does hit Wall Street's price target, it'll be rewarding its shareholders with a gain of 60%.
Whereas Harvest Health is focusing on four markets, Jushi is primarily honed in on three: Pennsylvania, Illinois, and Virginia. Though it has a presence in around a half-dozen states, this trio limits how it assigns retail licenses. Pennsylvania and Illinois have capped the number of allowed dispensaries, whereas Virginia assigns licenses by jurisdiction. The takeaway is that Jushi is going to have a solid opportunity to build up its business in these states while facing minimal competition.
This is a company that hasn't been afraid to put its capital to work, either. It's made a host of acquisitions since the year began, including expanding its retail or cultivation footprint in Massachusetts, Ohio, Pennsylvania, and California.
If you're looking for one more catalyst, consider that executives and insiders contributed approximately $45 million of the first $250 million in capital raised. When the interests of insiders and shareholders align, we often see good things happen.
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Inovio Pharmaceuticals: Implied upside of 128%
Finally, clinical-stage biotech stock Inovio Pharmaceuticals (INO -2.02%) is believed to offer significant upside. Based on a 12-month price target of $15.63, Inovio's shares could more than double. But this one instance where I strongly disagree with Wall Street.
For much of the past year, Inovio has flown higher on the expectation that it would be among the frontrunners to develop a COVID-19 vaccine. But despite flying though phase 1 studies, Inovio encountered a partial clinical hold in phase 2/3 trials in the United States. This past week, the company announced that its phase 3 study for INO-4800 as a treatment for COVID-19 would take place outside the U.S., and that the U.S. Defense Department would cease funding the company's late-stage studies for INO-4800.
There are really two issues at hand here. First, Inovio has fallen so far behind its peers due to the Food and Drug Administration's (FDA) partial clinical hold that it may not be able to carve out a meaningful percentage of global COVID-19 vaccine sales, even if INO-4800 is successful in clinical studies.
Secondly, Inovio has nothing to show for itself after more than four decades. In spite of plenty of ongoing research, none of the company's experimental treatments have ever been approved by the FDA. That's a pretty glaring red flag.
