Choosing a top stock pick for the year ahead is always an interesting exercise. There are a couple different approaches that can be used. If you are trying to choose a stock that will have the largest percentage return, then the best strategy is to select a very low-priced stock that has the potential to jump multi-fold if you are right. A high-risk biotechnology name is often a good choice.

The right low-priced, small-cap stock will almost certainly outperform any well-known big-cap name. The best stocks in the Dow Jones Industrial Average or the S&P 500 will never do better than the best stocks in the Russell 2000 Index of small-cap stocks.

Rather than gamble on some low-priced speculative stock, my approach here is to look for something with solid upside potential but with a lower level of risk. There will be other stocks that do better, but this one has the potential of a big gain but with limited downside. My top pick for 2020 is a stock that I discussed often in 2019: Aurinia Pharmaceuticals Inc. (AUPH) .

In 2019 Aurinia had two big events. The most important was that its drug for the treatment of lupus nephritis achieved very robust results. This is a very large potential market and the stock traded up sharply on the news. Earlier in the year, Aurinia announced superior results for its voclosporin ophthalmic solution that is used for the treatment of dry eye syndrome.

With the strong data from two indications under its belt, the next big move for Aurinia is to start the process of commercializing its drugs. This is where the opportunity lies for the stock.

A large sales force is not needed to market to a small population of nephrologist and the company can undertake that task, but on its conference calls management has stated that it making marketing plans "in the event that we don't get acquired." There are clear hints that management will be looking for a deal.

Indeed, just this morning, after this article was written, Dealreporter issued a "flash note" to its subscribers that Pharmaceutical mergers and acquisitions will likely stay hot in the first half of 2020 and it is keeping an eye on Aurinia Pharmaceuticals in the rare disease area. This is further confirmation of my thesis that Aurinia management is looking for a takeover deal.

Aurinia probably won't win a stock-picking contest, but the potential for a sizable gain in 2020 is good.

I'll be posting some other ideas for 2020, but this is one that has the potential for a triple-digit percentage gain with relatively limited risk to the downside.



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