These 2 Stocks Have Run Circles Around the Magnificent Seven This Year, and Wall Street Says There Is More Upside Ahead

The Magnificent Seven is a group of tech (or tech-adjacent) companies that are among the leaders in their respective industries and have delivered outstanding long-term returns. It includes Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA).

Their performances have been fairly mixed and volatile this year. Tesla is in the red, while Microsoft and Meta also spent significant time in negative year-to-date return territory before recently bouncing back.

It's always worth keeping an eye on these stocks, but there are plenty of lesser-known companies that have performed much better than the Magnificent Seven and, according to average Wall Street price targets, still have significant room to run. Let's consider two such examples: Revolution Medicines (NASDAQ:RVMD) and Oruka Therapeutics (NASDAQ:ORKA). Both have more than doubled this year, but are they worth investing in at current levels? Let's find out.

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1. Revolution Medicines

Revolution Medicines, an oncology-focused biotech, made a significant breakthrough this year. The company earned approval for Rasonque, a medicine for certain patients with metastatic pancreatic cancer.

Rasonque targets RAS-driven cancers (RAS is a protein), which were long considered very challenging to treat effectively. But Revolution Medicines has cracked the code.

In a Phase 3 study comparing it with the current standard of care, cytotoxic chemotherapy, Rasonque led to a median overall survival of 13.2 months versus 6.7 months for cytotoxic chemotherapy in patients with metastatic pancreatic cancer. The recent approval in this indication may only be the beginning.

Revolution Medicines is testing Rasonque across several other potential indications, including lung cancer. According to some analysts, Rasonque could generate $15.1 billion in sales for pancreatic cancer alone by 2034. And if it earns indications across other fields, it may rack up $20.8 billion in total peak revenue.

With projections like those, it's no wonder Revolution Medicines' shares have soared this year, and the company is also developing other candidates. Revolution Medicines is clearly a promising stock, but is it too expensive at current levels?

The company has a market cap of about $41 billion, which is significant for a biotech company that recently launched its first product. This valuation reflects Revolution Medicines' significant potential, especially across pancreatic cancer, and according to Wall Street, the stock is still undervalued.

It has an average price target of $259.14, implying a 35.7% upside from current levels. In my view, that's too optimistic. And even at current levels, the stock has little room for error and may decline significantly if it encounters clinical or regulatory setbacks, particularly with Rasonque.

So, I'd stay away from Revolution Medicines for now while keeping the stock on my watch list.

2. Oruka Therapeutics

Oruka Therapeutics doesn't have a single approved medicine right now. Like most clinical-stage biotechs, it generates no revenue and is consistently unprofitable. However, the drugmaker has a highly promising candidate in the pipeline. Oruka Therapeutics' leading candidate is ORKA-001, which it is developing for plaque psoriasis.

ORKA-001 is posting highly encouraging clinical trial results. In an ongoing Phase 2a study, the medicine is showing strong efficacy in patients with moderate-to-severe plaque psoriasis. And the best part is that ORKA-001 could be administered once or twice a year. The best-selling medicines in this space, including those marketed by leading pharmaceutical companies, are typically administered more often than that.

So, Oruka Therapeutics could attract a significant number of patients with its more convenient dosing, provided it can earn approval. Wall Street is optimistic. Oruka Therapeutics has an average price target of $155, implying a 95% upside from current levels. Is The Street's optimism justified?

Somewhat, but there is significant uncertainty, and investors need to take that into account before initiating positions. ORKA-001 hasn't even started Phase 3 clinical trials yet. No matter how promising Phase 2 studies look, some medicines ultimately fail pivotal trials.

If that happens to Oruka Therapeutics, the company would struggle to recover, and investors might be left with worthless shares. It wouldn't be the first time something like that has happened in the volatile biotech industry. So, Oruka Therapeutics looks like a very risky stock right now, even more so than Revolution Medicines.

Prosper Junior Bakiny has positions in Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.