Small caps turned out to be some of the most profitable investments in the third quarter of 2024. The iShares Russell 2000 ETF (which tracks the performance of the Russell 2000 index) reported an 8.87% return versus 5.43% for the large-cap S&P 500, points out Georgiy Timoshin, a financial analyst at Freedom Finance Global. He has spotlighted five stocks from the Russell 2000 that delivered third-quarter returns of over 100%.
Lumen Technologies
Market capitalization: $6.84 billion
Third-quarter return: +545.5%
Lumen provides broadband services, cloud solutions, and IT infrastructure for consumers, governments, and businesses. In recent years, it has faced financial difficulties and restructured its business, Timoshin notes. The gains in Lumen stock are attributable to undertaken cost-cutting measures, network expansion, debt management, and leadership changes. The company plans to complete the restructuring by 2025 and return to sustainable growth, he says. However, risks for investors remain. According to FactSet, the average 12-month target price for Lumen stock among analysts is $4.32 per share, meaning downside of around 36% versus the last closing price (as of October 2) of $6.73 per share.
CommScope Holding Co
Market capitalization: $1.34 billion
Third-quarter return: +396.8%
CommScope provides infrastructure solutions for communications networks. Like Lumen, it has faced financial challenges, including declining demand in some business segments and excessive inventory, which has hindered revenue growth, Timoshin explains. In response, the company has implemented a restructuring plan aimed at reducing costs, selling noncore assets, optimizing debt, and focusing on strategically important segments. The Freedom Finance Global analyst believes the improved operational stability is already reflected in the stock price. The FactSet consensus target price is $2.40 per share, for downside of 61% versus the October 2 closing price of $6.19 per share.
In Timoshin’s view, Lumen and CommScope stocks are overbought, and the positive momentum from the restructuring announcements and partial repricing of expectations has already played out. “The future of these companies depends on the successful execution of management plans, while the fundamentals of the businesses appear rather bleak,” he says.
Capricor Therapeutics
Market capitalization: $583.8 million
Third-quarter return: +218.9%
Capricor is a biotech company developing cell therapies to treatDuchenne muscular dystrophy (DMD), a congenital disorder affecting about 20,000 Americans. In late September, the company’s share price tripled. Timoshin attributes the surge to the announcement that Capricor, following meetings with the U.S. FDA, plans to file an application for full approval of its leading cell therapy candidate, deramiocel, for DMD cardiomyopathy. If approved, deramiocel would become the first available treatment for this life-threatening condition, the Freedom Finance Global analyst notes. The FactSet consensus 12-month target price is $34.40 per share, indicating upside of more than 100% relative to the October 2 closing price.
Summit Therapeutics
Market capitalization: $14.36 billion
Third-quarter return: +180.8%
Summit Therapeutics develops drugs to treat and improve the quality of life of cancer patients. The main driver of recent gains in the company’s stock, Timoshin notes, was promising interim clinical trial results for ivonescimab, a drug for non-small cell lung cancer, one of the most common and aggressive forms of the disease. In a study conducted in China, ivonescimab demonstrated statistically significant improvement in progression-free survival, outperforming Merck’s blockbuster drug Keytruda (active ingredient: pembrolizumab). The results are unprecedented and provide a strong foundation for an FDA-approval application for ivonescimab as a first-line treatment for lung cancer in the U.S. Indeed, if approved, ivonescimab could become a direct competitor to Keytruda and one of the biggest breakthroughs in cancer immunotherapy in recent years, according to the Freedom Finance Global analyst. The FactSet consensus 12-month target price is $36 per share, indicating over 84% upside versus the October 2 close.
Q32 Bio
Market capitalization: $508.7 million
Third-quarter return: +148.6%
Q32 Bio develops monoclonal antibody-based therapeutics to treat autoimmune diseases. Its portfolio includes two molecules: bempikibart, for atopic dermatitis and alopecia, and ADX-097, for kidney damage caused by pathogenic immune responses. Both are in phase II clinical trials, with results expected later this year (bempikibart) and next year (ADX-097). The FactSet consensus 12-month target price is $77.80 per share, for upside north of 84% versus the October 2 close.
