Small-cap growth stocks are highly likely to outperform the broader markets over the next three to five years. One key reason is that the Federal Reserve is widely expected to start cutting interest rates this year, which has historically been a significant tailwind for small-cap stock performance.
Additionally, small-cap stocks, on balance, are trading at steep discounts relative to their mid- and large-cap peers due to the Federal Reserve's aggressive rate hikes over the past two years. Lower interest rates also tend to boost investors' appetite for risk, a trend that often benefits smaller growth companies.
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Which small caps have the brightest outlooks in 2024? Wall Street is expecting big things from Beam Therapeutics (BEAM -1.02%), Edgewise Therapeutics (EWTX 1.44%), and Monte Rosa Therapeutics (GLUE -2.20%) in 2024 and beyond. Read on to find out more about these three high-risk, high-reward healthcare stocks.
1. Beam Therapeutics
Beam Therapeutics is developing a new type of genomic medicine based on a technique called base editing. Base editing is a more accurate and versatile version of CRISPR gene editing, which does not cause double-stranded breaks in the DNA molecule.
Beam has chosen to first test its innovative gene therapy platform in sickle cell disease (a rare blood disorder), alpha-1 antitrypsin deficiency (a liver protein disorder), and glycogen storage disease type 1a (an inherited condition that leads to complex sugars building up in the liver and kidneys).
Analysts who follow the biotech believe its shares could increase by 82.5% in the next 12 months. Although this tech is still unproven, Beam is expected to announce several clinical updates this year that could boost its stock higher.
2. Edgewise Therapeutics
Edgewise Therapeutics focuses on developing novel treatments for severe muscle diseases. The company's most advanced drug candidate is EDG-5506, an oral, small molecule indicated for both Becker and Duchenne muscular dystrophies. These inherited muscle-wasting disorders have both high unmet medical need and multibillion-dollar market potential.
In addition to EDG-5506, Edgewise is also developing EDG-7500, an oral drug that modulates the function of cardiac sarcomeres, the basic units of heart muscle contraction. EDG-7500 is intended to treat hypertrophic cardiomyopathy (HCM), a condition that can lead to sudden cardiac death. HCM is expected to become a multibillion-dollar market over the next 10 years.
Edgewise sports a high-value pipeline of innovative drugs for serious muscle diseases, yet its market capitalization is less than $700 million, as of this writing. This small-cap biotech could thus turn out to be a hidden gem -- that is, if one or more of its pipeline candidates pan out. Keeping with this theme, Wall Street analysts think the biotech's shares could jump by 164% over the next 12 months.
3. Monte Rosa Therapeutics
Monte Rosa Therapeutics is on the cutting edge of human medicine. The company is developing a novel class of therapeutics known as molecular glue degraders (MGDs).
This emerging field has attracted significant attention from big pharma over the past year, with Roche, Bristol Myers Squibb, and Merck all signing deals with collaborators to explore the utility of MGDs in autoimmune disorders, cancers, and neurological diseases. Monte Rosa, for its part, struck a strategic collaboration with Roche in late 2023 to develop MGD-based medicines for cancer and neurological conditions.
Monte Rosa's platform is still in the proof of concept mode, and it will likely be years before it produces an approved product. Nonetheless, Wall Street analysts think the biotech's shares could rip higher by 152% over the next 12 months in response to additional clinical updates for its lead candidate MRT-2359 in MYC-driven solid tumors.
Now, this development biotech stock is the epitome of high risk. But the promise of MGD-based medicines is enormous. Monte Rosa could thus be a good way to get in on the ground floor of a truly novel modality.
