Have you ever experienced sticker shock when looking at a stock? If so, it was probably for something like Berkshire Hathaway (NYSE: BRK.A), with an eye-popping price of $419,020 per share. Thankfully, there are much cheaper companies to buy, and some of them might even grow a bit faster than Warren Buffett's business.
If you're short on ideas for where to find such shares, let's look at a pair of sub-$15 stocks that are obvious buys for investors willing to take on some risk for potential growth.
1. Catalyst Pharmaceuticals
With its shares trading for around $13, having gained 139% in the past 12 months, Catalyst Pharmaceuticals (CPRX 1.00%) is a little-known biotech stock that's positioned to keep paying off for investors thanks to its progress in treating a rare neuromuscular disease called Lambert-Eaton myasthenic syndrome (LEMS).
After launching its medicine called Firdapse to treat LEMS in early 2019, the company has seen impressive uptake. In the last three years, its trailing 12-month net income grew by an impressive 477%, reaching $54.5 million. Firdapse is the only treatment on the market for LEMS in the U.S., and it's also sold in Canada, with Japan on the docket for commercialization next with the help of a local partner.
Since Japan has an estimated 1,500 LEMS patients compared to the 3,000 in the U.S., that market should be fairly lucrative, and the company is now doing a phase 3 trial there to pave the way for Firdapse's future launch, assuming local regulators approve. The study is slated to conclude in early 2023.
After that, Catalyst can move on to entering other international markets with large LEMS patient populations for additional growth, since it doesn't have a footprint in most of the world's most populous countries. If its performance in the U.S. is any indication, it'll be experiencing both strong revenue and earnings growth for at least the next couple of years, if not far longer. And there's no competition in sight, which is yet another reason this stock is an obvious buy.
2. Compass Pathways
While Catalyst Pharmaceuticals is targeting a single very small population of patients, Compass Pathways (CMPS -1.05%) is targeting a handful of quite large populations, since it aims to make therapies for mental illnesses like treatment-resistant depression (TRD) and post-traumatic stress disorder (PTSD). It's developing an entirely new approach to addressing these conditions.
Whereas legacy psycho-pharmaceuticals typically are pills that patients take at home each day for maintenance of their chronic mental health symptoms, Compass' lead program, COMP360, combines a structured talk-therapy process with a dose of a chemical called psilocybin that's derived from psychedelic mushrooms.
COMP360 will enter phase 3 trials sometime this year, and it could have a global patient population of 100 million people if it ever gets approved for sale. So far, at least in trials, the therapy appears to be highly effective at durably reducing depression symptoms, and results from earlier-stage trials indicate that it is largely safe.
Beyond the favorable initial safety and efficacy data, it's also important to recognize that Compass doesn't yet have any medicines on the market, so it has no revenue. That makes it at least as risky as most other pre-commercial biotech companies. But it also has a few legal hurdles to overcome before its psychedelics-based therapies can hit the market: Psilocybin will need to be decriminalized for medicinal use in whichever jurisdictions the company wants to compete in.
That's an issue as psilocybin is currently federally prohibited in the U.S. as a Schedule 1 drug, and it's also illegal to possess or use in most of the world. However, as of the last few years, there are a few cities in the U.S., as well as the state of Oregon, where psilocybin is decriminalized. And while there isn't much in the way of widespread momentum for decriminalization for the purposes of medicinal use yet, the Food and Drug Administration (FDA) granted Compass a breakthrough therapy designation for COMP360 in 2018, indicating that key regulatory authorities believe its approach has significant merit -- and therefore a fighting chance at overcoming legal hurdles in the future.
Right now, you can buy a share of this stock for around $12. Despite the substantial risks, if Compass can get the regulatory stars to align and prove that COMP360 is effective in its phase 3 trial, the upside for people who invest in it today could be huge. Therefore, buy a few shares with money you're willing to lose, but be prepared to wait for a couple of years before seeing a return, as a lot needs to happen for the company to succeed.
