Which stocks are either a fan favorite or a must-avoid? Penny stocks. These tickers going for less than $5 apiece are particularly divisive on Wall Street, with those in favor as well as the naysayers laying out strong arguments.

These names are too appealing for the risk-tolerant investor to ignore. Given the low prices, you get more for your money. On top of this, even minor share price appreciation can translate to massive percentage gains, and thus, major returns for investors.

However, there is a but here. The critics point out that there could be a reason for the bargain price tag, whether it be poor fundamentals or overpowering headwinds.

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.

Enter billionaire Steven Cohen. The legendary stock picker, who began his investing career at Gruntal & Co. where he managed proprietary capital for 14 years, founded S.A.C Capital Advisors in 1992. In 2014, his investment operations were converted to Point72 Asset Management, a 1,500-plus person registered investment advising firm. Throughout his career, Cohen has consistently delivered huge returns to clients, giving the Point72 Chairman, CEO and President guru-like status on the Street.

Turning to Cohen for inspiration, we took a closer look at two penny stocks Cohen’s Point72 made moves on recently. Using TipRanks’ database to find out what the analyst community has to say, we learned that each ticker boasts a “Strong Buy” consensus rating from the analyst community and massive upside potential.

X4 Pharmaceuticals (XFOR)

We’ll start with late-stage biopharma company X4. This firm is working on new orally dosed medications for a variety of rare diseases, mainly primary immunodeficiency conditions. The company is targeting the CRCX4 pathway in its research, as this is an important chemokine pathway, a class of molecular interactions that can stimulate cell migrations – especially of the white blood cells so important to immune function.

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This is an important distinction for the company’s primary drug candidate, mavorixafor, which offers potential, through its mode of action, to become a broad-based treatment for primary immunodeficiency diseases (PIDs). The drug is currently undergoing several clinical trials, including a Phase 3 trial in the treatment of WHIM syndrome (warts, hypogammaglobulinemia, infections, and myelokathexis). There are currently no approved or effective treatments for WHIM.

In its earlier clinical trials, X4 has shown that mavorixafor demonstrated clinically significant effect in treatment, as well as a tolerable safety profile. The Phase 3 trial completed enrollment of 31 adult and pediatric patients this past October – the trial was originally designed to 18 patients, so the over-enrollment offers a chance for additional data – and top line data is expected in 4Q22.

Mavorixafor is also undergoing two Phase 1 trials, in the treatment of chronic neutropenia and in the treatment of Waldenström’s macroglobulinemia (WM). The Phase 1 trial on WM has 16 patients enrolled in a dose escalation study, with data expected later this year.

Cohen is among those that have high hopes for this healthcare name. Pulling the trigger on X4 for the first time, Point72 purchased more than 1.6 million shares in Q4. The value of the firm’s new holding comes in at over $2.4 million.

In coverage for Roth Capital, analyst Zegbeh Jallah points out the high potential of mavorixafor, and writes: “There remains a large unmet need for convenient, chronically dosed therapies, and Mavorixafor could be the holy-grail, being a safe, effective, and convenient option, which physicians are likely to prescribe, decreasing treatment burden and improving patients’ quality-of-life. Moreover, a significant advantage of Mavorixafor is that it specifically targets CXCR4, a master regulator of the immune system, thus addressing the root cause of many diseases including WHIM, Waldenstrom, SCN and other PIDs, by increasing white blood cell counts across the board…”

“Overall,” the analyst added, “We see a place for Mavorixafor, and ongoing precommercial efforts, which include patient identification, patient diagnostics, U.S. payer research and the intent to hire a CCO in 2022, has us optimistic about its commercial outlook… Mavorixafor seems very appealing from a payer and physician perspective, and approval in WHIM as the initial indication could significantly de-risk its approval in other indications.”

To this end, Jallah rates XFOR a Buy, based on his opinion of the lead candidates broad-based potential, and sets a price target of $28, suggesting an enormous upside of 1,766% from current levels. (To watch Jallah’s track record, click here)

Overall, 4 Buys and no Holds or Sells have been assigned in the last three months. Therefore, the analyst consensus is a Strong Buy. The shares are priced at just $1.50 each, but the average price target of $17.25 implies a 1,050% upside in the next 12 months. (See X4 stock forecast on TipRanks)

Harpoon Therapeutics (HARP)

The second stock we’ll look at is another biopharma company, Harpoon Therapeutics. Harpoon is focused on clinical stage immunotherapies, developing T cell based medications for use in the treatment of various cancers. The company has a proprietary development platform, called Tri-specific T cell Activating Construct (TriTAC), with which it is creating an active pipeline featuring five drug candidates and three early discovery tracks.< /p>

The company’s four leading drug candidates are at the Phase 1 clinical trial stage, where they are being investigated as treatments for small cell lung cancer, multiple myeloma, ovarian cancer, and prostate cancer. These are serious cancers, with relatively few effective treatments, and large potential patient bases.

In a clinical program update released last month, Harpoon noted that the leading candidate, HPN328, is continuing in the dose escalation portion of the trial. The company aims to have an RP2D determination – that is, an appropriate dose for the expansion stage of the trial – by the end of this year. HPN328 is a potential treatment for small cell lung cancer.

The next trial, of HPN217 for the dangerous hematological cancer multiple myeloma, is also nearing completion of the dose escalation stage. Harpoon is working on selecting the RP2D, and aims to initial the dose expansion cohort of the trial during 1H22.

Finally, HPN536 and HPN424, which are under investigation as treatments for ovarian cancer and prostate cancer respectively, are both undergoing dose escalation studies with completion expected by the end of 2022.

Harpoon has another drug candidate, HPN601, a possible treatment for GI cancers, which is ready to enter the clinical pipeline. The Investigational New Drug (IND) application is expected to be completed for submission by year’s end.

With such an active pipeline, it’s no wonder that Harpoon attracted an investor of Steve Cohen’s caliber. Cohen’s Point72 put $2.66 million into the company, to buy up 650,000 shares in Q4.

Cohen isn’t the only one bullish here. Truist analyst Asthika Goonewardene gives HARP a Buy rating, with a $16 price target that suggests room for 290% growth in the coming 12 months. (To watch Goonewardene’s track record, click here)

Backing this stance, Goonewardene sees HPN328 as the key, and writes: “After seeing the first look at HPN328 in December, where it achieved 1 confirmed PR (in a SCLC patient dose-increased from 1215µg to 3600µg), and 3 more pts with 21%-38% tumor reduction, we are more positive on the asset, especially given no Gr3+ CRS was reported… Updates from Amgen’s R&D day [also] bode well for Harpoon’s HPN328, in our view. This gives us hope that HPN328 can also show deep responses and clinically meaningful durability in late-line small cell lung cancer (SCLC) – a brutal disease with typically poor outcomes.”

“During our catch up… management stated that they will ‘no doubt’ have additional data this year (targeting a presentation at a medical meeting rather than their planned R&D day), although they were not sure if it would be a 1H or 2H release,” the analyst added.

Overall, Harpoon gets a Strong Buy from the consensus of Wall Street’s analysts, and it’s unanimous, based on 4 positive reviews. The stock is priced at $4.10, with an average target, $27.33, that implies a one-year upside potential of ~575%. (See HARP stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.