These 2 Stocks Could More Than Double Your Money, According to Wall Street. Is It Time to Buy?

Key Points

• Analyst expectations are far above the prices you'd need to pay now to own a couple of biotechnology stocks.

• Compass Pathways is developing psilocybin as a treatment for depression.

• Viking Therapeutics recently began a pivotal study with a weight-loss drug that could outperform the competition.

• 10 stocks we like better than Compass Pathways Plc ›

Investors seeking stocks that can put up dramatic gains in a short amount of time can find what they're looking for in the biotechnology industry. Investment bank analysts on Wall Street have tagged a pair of pre-revenue businesses with price targets that are miles above their current stock prices.

Compass Pathways (NASDAQ: CMPS) is developing a depression treatment based on a recreational drug that produced some interesting results in a clinical trial. Viking Therapeutics (NASDAQ: VKTX) is developing anti-obesity treatments that could compete toe-to-toe with blockbusters like Wegovy and Zepbound.

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At recent prices, the average targets that analysts set for these drugmakers suggest they can more than double your money over the next 12 months. Before opening your brokerage account and filling it with these stocks, it's important to remember that sell-side analysts will quietly adjust their price targets downward if things don't work out. Replacing the losses you could incur by following a bad prediction isn't nearly as easy. Here's a closer look at some of the risks these companies face so you can see whether their shares deserve a place in your portfolio.

1. Compass Pathways

Shares of Compass Pathways spiked during the COVID-19 pandemic, and at one point, the pre-commercial-stage drugmaker boasted a market cap above $2 billion. The stock collapsed by about 93.3% from its previous peak, but analysts who follow the company expect a comeback. The consensus price target of $15.78 at the moment implies a gain of more than 300% from recent prices.

Compass Pathways is one of several companies developing recreational psychedelics as treatments for millions of underserved folks with depression and related ailments. Its only clinical-stage treatment candidate at the moment is COMP360, a proprietary formulation of synthetic psilocybin.

Psilocybin is the psychoactive ingredient in "magic" mushrooms. Long known to produce a powerful hallucinogenic effect, psilocybin has gained popularity among drug developers due to its effects on serotonin receptors implicated in major depressive disorder.

In June, Compass Pathways reported successful results from the COMP005 trial with treatment-resistant depression (TRD) patients and COMP360. Six weeks after receiving a single administration, TRD patients who received COMP360 scored an improvement on the Montgomery-Asberg Depression Rating Scale (MADRS) that was 3.6 points better than the placebo group.

An MADRS score above 6 indicates mild depression, while anything above 35 is considered severe. Since COMP360 reduced scores by 3.6 points after one administration, investors are more than a little excited to see upcoming results from the COMP006 study, which will compare results from two fixed doses taken three weeks apart.

Compass Pathways is what some investors call a lottery ticket stock. If the MADRS reduction benefits recorded during the multidose COMP006 trial are any stronger than those observed during the single-dose COMP005 study, this stock could soar. COMP360 could generate over $1 billion annually as a new TRD treatment, but the market currently has much lower expectations. At recent prices, Compass Pathways' recent market cap is just $363 million.

A successful result for COMP006 could cause this stock to soar, but depression is hard to measure. Placebo groups in clinical trials measuring depression often respond well to the extra attention. This makes depression study results highly unpredictable. Even investors with a high tolerance for risk should tread lightly with this stock.

2. Viking Therapeutics

Viking Therapeutics is another clinical-stage drugmaker stock that is way off its all-time high. Early last year, its market cap soared past $9 billion. When the market closed on July 17, the stock's price was 66% below the peak it had reached last year.

Wall Street analysts who follow Viking Therapeutics think its best days are still ahead. The consensus price target of $90.26 suggests its price can rocket 181% higher in about a year.

This stock spiked last February after the company announced success with its lead candidate, a dual GLP-1/GIP receptor agonist tentatively named VK2735. Patients with obesity achieved a placebo-adjusted weight loss of 13% after just 13 weeks of treatment. These results suggest it could outperform Zepbound from Eli Lilly in terms of weight loss.

In November 2023, Zepbound earned approval from the Food and Drug Administration (FDA) to treat obesity. In the first quarter this year, it generated an annualized $9.3 billion in sales. Biotech stocks tend to trade at mid- to high-single-digit multiples of trailing-12-month sales. Viking Therapeutics' market cap of just $3.6 billion seems extremely low for a company with a drug candidate in late-stage trials that could go on to generate Zepbound-sized sales.

Viking Therapeutics appears underappreciated, but it's still a risky stock with a long road ahead. In June, the company started a phase 3 study designed to support a new drug application. If the new 4,500-patient trial uncovers any tolerability issues we missed in smaller phase 2 studies, Viking's price could collapse. This is another stock that's appropriate only for investors with a high risk tolerance.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.