The big question on investors’ minds right now is, where will inflation go? And the related follow-up question, for everyone, is, how far will the Fed hike rates in response? The potential answers cover the full range of possibilities, from President Biden’s happy talk about ‘zero percent inflation,’ to the market bears predicting a full-blown economic depression.

 

Count JPMorgan’s chief asset management strategist David Kelly among the bulls. He’s not convinced by the doomsayers, and sees the recent drop in inflation as a sign that the worst is getting behind us. While current conditions are still hard, Kelly believes that the stock market can and will show additional strength going forward. In his words, “I would be fully invested in equities at this point because I do think that equities can move higher here.”

 

So let’s follow JPM a little further down this trail. The banking giant’s stock analysts have picked out two stocks that they believe are ready to surge ahead – by the order of 40% or more. In fact, the JPM experts are not the only ones singing these stocks’ praises.

 

BeiGene (BGNE)

 

The first JPM pick is BeiGene, a clinical-stage biopharmaceutical company, with, in its words, ‘a broad and deep pipeline’ that takes a shotgun approach to the field of oncology. The company is developing a tremendous number of drug candidates, more than 50, both in-house and as collaborative efforts, to address treatment needs in some 80% of cancer malignancies. A pipeline that size gives the company a competitive advantage when compared to peers.

 

BeiGene is a truly international biotech firm, operating in Asia, in Europe, and in the Americas, and boasting administrative offices in Beijing, China, Cambridge, Massachusetts, and Basel, Switzerland. From these offices, the company oversees its development activities, and the commercialization activities for its line of approved commercial-stage products.

 

The leading approved products are zanubrutinib, branded as Brukinsa, pamiparib, branded as Partruvix, and tislelizumab, branded under its own name. As a group, these drugs are approved in several international jurisdictions for the treatment of various hematological cancers and solid tumors. BeiGene has been actively commercializing them for several years now, and in 2Q22 the company realized $304.5 million in total sales revenue. This number included $128.7 million from Brukinsa and $104.9 million in sales of tislelizumab in China. The company’s total revenue, which includes collaboration fees, reached $341.6 million, compared to $150 million in the year-ago quarter.

 

Covering the stock for JPMorgan, analyst Xiling Chen believes BGNE presents a compelling risk reward. Kumar rates the stock an Overweight (i.e. Buy) along with a $296 price target that implies a 50% one-year upside.

 

Backing his bullish stance, Chen writes: "We see BeiGene shares as undervalued given quality of assets/growth and highlight the stock as one of our top picks in the sector... BeiGene has grown into a fully integrated biopharma company with best-in-class clinical development capabilities, one of the largest and best oncology commercial platforms in China, and unmatched partnership skills with global biopharma companies. We expect the company’s 16 commercial assets and broad pipeline to drive very attractive, diversified long-term growth. While we remain moderately below consensus on long-term sales, we see additional pipeline traction as upside to our estimates..."

 

Overall, 6 Wall Street analysts have chimed in on this biotech giant, and left 5 Buy recommendations against 1 Hold for a Strong Buy consensus rating. The shares are priced at $192.77 and their $253.76 average price target indicates an upside potential of ~29% in the coming months.

 

Xenon Pharmaceuticals (XENE)

 

The second stock we’re looking at is Xenon, another biopharma firm at the clinical stage. Xenon is working on new therapeutic agents in the field of neurology, looking for novel drugs to treat neurological conditions with high unmet medical needs. The company has a particular focus on treatments for epilepsy.

 

Xenon has two leading drug candidates in this field, XEN496 and XEN1101, at Phase 3 and Phase 2 trials stages respectively. XEN496 is Kv7 potassium channel opener, and is being investigated for a rare pediatric form of epileptic seizure disorder. The company expects to complete the Phase 3 EPIK study of XEN496 during 2023.

 

XEN1101, however, is the company’s flagship drug candidate. It is currently undergoing several Phase 2 trials, for focal onset seizure epilepsy (FOS), primary generalized tonic-clonic seizures (PGTCS), and major depression. The Phase 2b X-TOLE trial, against FOS, is expected to be completed this year, and the company has two identical Phase 3 trials, X-TOLE2 and X-TOLE3, in preparation to run when the current trial is completed. The Phase 3 trials will run in parallel and enroll up to 360 patients.

 

Xenon is also planning the X-ACKT Phase 3 trial, to continue its study of XEN1101’s efficacy against PGTCS. This study will run simultaneously with the X-TOLE trials.

 

Finally, Xenon has the Phase 2 X-NOVA study ongoing to evaluate XEN1101 against major depressive disorder. Topline results from this X-NOVA study, which has enrolled 150 patients, are expected in 2023.

 

JPM analyst Tessa Romero sees XEN1101 as the key factor in this stock, and lays out a clear case why: “Bolstered primarily by compelling phase 2b X-TOLE data as well as positive physician feedback, we view XEN1101 as having a high probability of success as an adjunctive treatment in its lead indication of focal onset seizures (FOS). At the same time, we also see the potential for XEN1101 to work in both patients with focal and/or generalized seizures and forecast ~$1B in peak sales in the U.S. alone in the combined epilepsy indications (~$700M of which is FOS) where our estimates could prove conservative."

 

"We believe there is an opportunity in XENE shares at current levels which under-reflect the potential of XEN1101 to expand to additional high unmet need indications beyond FOS where there is convincing emerging rationale,” the analyst added.

 

Romero rates shares in XENE as Overweight (i.e. Buy), and her $55 price target implies a 46% upside by the end of next year. 

 

Wall Street is clearly upbeat on this biopharma, as all 8 of the recent analyst reviews are positive – for a unanimous Strong Buy consensus rating. The stock is selling for $37.57 and its $51 average price target suggests ~36% one-year upside potential.