Penny stocks, they divide market watchers like no other. Some investors steer clear of these tickers going for less than $5 apiece, as poor fundamentals or overwhelming headwinds could be keeping them down in the dumps.On the other hand, penny stocks lure the more risk-tolerant. Not only does the bargain price tag mean you get more bang for your buck, but also even minor share price appreciation can yield huge percentage gains. The implication? Major returns for investors.Based on the above, weeding out the long-term underperformers from the penny stocks going for gold can pose a significant challenge. In this case, the activity of legendary stock pickers can provide some inspiration.Among these Wall Street titans is Ken Griffin. The guru, who began trading from his dorm room at Harvard University, went on to found hedge fund Citadel in 1990, with Griffin serving as CEO. Given that the fund now manages over $33 billion in capital, it’s no wonder investor focus locks in on Citadel when moves are made.Currently, “we’re in the moving business. So unless we think there’s a very clear reason as to why an asset we own is going to appreciate soon, that’s just not where we’re going to be. And we drove our business away from balance-sheet intensive businesses to – in a sense – all skill-based businesses,” Griffin commented.Taking all of this into consideration, we used TipRanks’ database to find out what the analyst community has to say about three penny stocks that Griffin’s fund snapped up recently. It turns out that the analyst consensus has rated each a “Strong Buy.” Not to mention substantial upside potential is also on the table.Millendo Therapeutics (MLND)Primarily focused on developing new treatments for endocrine diseases, Millendo Therapeutics wants to address the significant unmet medical needs of patients. At $2.07, its share price could reflect the ideal entry point given everything the company has going for it.Pulling the trigger for the first time, Griffen joined MLND’s growing list of fans. Recently, Citadel bought up 374,653 shares, with the value of this new holding coming in at just under $2 million.Also singing the healthcare name’s praises is Roth Capital analyst Yasmeen Rahimi. At the beginning of May, MLND announced that it expects to have interim data in Q3 2020 from currently enrolled patients in the Phase 2b study evaluating nevanimibe (ATR-101), its ACAT1 inhibitor, in classic congenital adrenal hyperplasia (CAH), which was halted due to COVID-19. This development is especially exciting for the 5-star analyst as she believes success in this indication is very likely.Currently, the only approved treatment option for patients with CAH are glucocorticoid and mineralocorticoid replacement therapies, but these can lead to overtreatment and growth retardation. “Thus, in our view, there remains an urgent need for interventions that can alleviate the serious health risks associated with cortisol deficiency and excessive androgen levels in CAH,” Rahimi said.MLND tackles the condition from a different angle as “nevanimibe’s mechanism of action (MOA) utilizes an elegant approach to CAH treatment by working upstream of these pathways and reducing the available reservoir of cholesterol esters, which are used in the synthesis of steroid hormones.” This allows for the suppression of excess steroid production as well as a more selective MOA.Expounding on this, Rahimi noted, “In our view, nevanimibe’s selectivity gives it a major advantage in specifically reducing steroid synthesis in the adrenal cortex, which targets the root cause of CAH… Nevanimibe’s strength lies in its potential to offer an adrenal-targeted approach that can allow patients to better balance their control of excess androgen secretion with the required glucocorticoid replacement therapy.”With data from nevanimibe’s Phase 2a trial demonstrating strong levels of both efficacy and safety, the deal is sealed for Rahimi. To this end, the top analyst rates MLND a Buy along with a $6 price target. This target implies shares could climb 190% higher in the next twelve months. (To watch Rahimi’s track record, click here) Looking at the consensus breakdown, most other analysts are on the same page. With 3 Buys and 1 Hold, the word on the Street is that MLND is a Strong Buy. The $5.25 average price target puts the upside potential at 153%. (See MLND stock analysis on TipRanks)MEI Pharma (MEIP)Hoping to build a top oncology franchise, MEI Pharma boasts a strong development pipeline that includes four compelling drug candidates. Currently going for $3.49 apiece, the share price could present investors with the chance to get in on the action.Not wanting to miss out on an opportunity, Citadel added a new MEIP holding to the fund. Griffin’s fund acquired 1,055,185 shares, with the value of the purchase landing at $1.7 million.Turning now to the analyst community, Wells Fargo’s Jim Birchenough is also optimistic about MEIP’s long-term growth prospects. The 5-star analyst explains that a recent ASCO KOL investor event related to its lead candidate, ME-401, strengthened his bullish thesis.“We continue to view ME-401 as a best-in-class PI3Kδ inhibitor with superior safety and tolerability driving long-term dosing resulting in improved outcomes. We remain confident that the pivotal TIDAL follicular lymphoma (FL) trial will be positive and support product approval in 2021. The recent global alliance with Kyowa Kirin will accelerate development beyond 3rd line-plus FL into earlier stage disease and more broadly into other lymphomas in 2021,” Birchenough commented.Looking at the trial’s design, it utilizes a 60mg once per day dose for two 28-day cycles, which is then followed by a 7-days on 21 days off intermittent dosing schema. This design is important as the intermittent dosing “mitigates against the risk for early discontinuation due to immune-related toxicity secondary to on-target inhibition of regulatory T cell function.” Additionally, should an 83% response rate be achieved, “both duration of disease and progression free survival will be superior to those for approved PI3K inhibitors, ZYDELIG, ALIQOPA and COPIKTRA.”It should be noted that FL has a complicated treatment landscape. However, based on efficacy data for ME-401±rituximab, Birchenough argues that the therapy could be a second-line chemo-free option that’s more easily tolerated.In line with his bullish take, Birchenough reiterated an Overweight call and $13 price target. Should the target be met, a twelve-month gain of 272% could be in store. (To watch Birchenough’s track record, click here) Like Birchenough, other analysts also take a bullish approach. MEIP’s Strong Buy consensus rating breaks down into only Buys, 5, in fact. Given the $11.40 average price target, the upside potential lands at 204%. (See MEIP stock analysis on TipRanks)Kezar Life Sciences Inc. (KZR)Last but not least we have Kezar Life Sciences, which develops treatments for patients with autoimmune diseases and cancer. With encouraging new data supporting its most advanced asset, KZR-616, some think that its $4.96 share price looks like a steal.This appears to be the stance taken by Griffin. Boosting its KZR holding by a whopping 1,338%, Citadel snapped up 859,760 shares. Now at 924,034 shares, the fund’s total stake in the company is valued at over $4 million.Weighing in for H.C. Wainwright, 5-star analyst Raghuram Selvaraju says the recently published interim data from the Phase 1b part of the MISSION trial testing KZR-616 is incredibly promising. Pointing out this readout is most likely one of several data sets from interim analyses, he notes that “improvements were seen across seven measures of disease activity, and two out of two patients with lupus nephritis (LN) experienced a >50% reduction in proteinuria, a biomarker of disease severity.” On top of this, the candidate exhibited a robust safety and tolerability profile at the step-up dose, which could solve the tolerability issues produced by a higher dose.Digging a bit deeper into the results, as of the data cutoff on May 4, the trial had 39 systemic lupus erythematosus (SLE) patients enrolled across five dose cohorts evaluating 45mg and step-up dosing to 60mg weekly for 13 weeks. Out of the patients that finished treatment in cohorts 2a and 2b, a majority saw all seven measures of disease activity improve.Selvaraju added, “Improvement in disease activity persisted following completion of treatment, pointing to sustained impact with KZR-616. We are hopeful that this could prove a harbinger of disease-modifying potential.”Even though COVID-19 has led to significant slowdowns and forced the company to fully pause some of its three KZR-616 studies, the situation may be improving soon, in Selvaraju’s opinion. KZR is still able to conduct trials at private clinics, and it already implemented an in-home nursing solution.It should come as no surprise, then, that Selvaraju stayed with the bulls. In addition to keeping a Buy rating on the stock, the analyst bumped up the price target to $12. This new target suggests shares could soar 148% in the next year. (To watch Selvaraju’s track record, click here)All in all, other analysts echo Selvaraju’s sentiment. 4 Buys and no Holds or Sells add up to a Strong Buy consensus rating. Based on the $15 average price target, which is more aggressive than Selvaraju’s, a twelve-month gain of 210% could be in the cards. (See KZR’s stock-price forecast on TipRanks)To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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