Despite initial turbulence in August, investor sentiment remains robust, with the S&P 500 experiencing an impressive 9% rebound since its August 5th low. This resurgence can be attributed to positive economic data releases, such as better-than-expected initial jobless claims and strong retail sales figures. Federal Reserve Chair Jerome Powell's recent comments signaling potential interest rate cuts have also garnered favor on Wall Street. With this bullish surge underway, investors are now seeking the next hot stocks to capitalize on the market momentum.

One effective strategy advocated by analysts at top-tier investment bank Morgan Stanley is focusing on high-upside stocks recommended by these industry experts. Of particular interest are COMPASS Pathways and Rocket Pharmaceuticals, both of which have caught the attention of Morgan Stanley analysts, offering significant potential for gains in the coming year.

COMPASS Pathways, a biopharmaceutical company, is at the forefront of developing innovative treatments for hard-to-treat mental health disorders by harnessing the therapeutic effects of psilocybin, the active compound in 'magic mushrooms.' Their groundbreaking therapy involves utilizing a synthetic psilocybin formulation, known as COMP360, in conjunction with psychological support and therapy. Through closely monitored sessions, patients receive controlled doses of psilocybin, while post-session discussions with therapists aid in processing the experience. Currently, COMPASS is conducting late-stage trials for treating treatment-resistant depression (TRD) using the COMP360 treatment, with top-line data expected in late 2024 or early 2025. The company's research efforts also extend to exploring the potential of COMP360 in addressing post-traumatic stress disorder (PTSD) after announcing positive results from an open-label Phase 2 study earlier this year.

Morgan Stanley analyst Vikram Purohit, a renowned expert in the field, highlights COMPASS Pathways' rigorous clinical program and its potential to revolutionize the treatment of mental health conditions. Purohit emphasizes the positive feedback from key opinion leaders (KOL) and believes that COMP360's commercial opportunity in TRD is well-defined. With upcoming data catalysts in 2024 and 2025, Purohit sees COMPASS Pathways as significantly undervalued and expects substantial appreciation in the company's shares.

Rocket Pharmaceuticals, another company endorsed by Morgan Stanley analysts, is a leading biotech company focused on gene therapy. Utilizing adeno-associated (AAV) and lentiviral (LVV) vectors, Rocket aims to develop treatments for complex, rare hematologic and cardiovascular conditions with limited treatment options. The company's most advanced programs concentrate on hematology, including LV RP-L102 for treating Fanconi anemia and Kresladi for LAD-1. Rocket recently released positive data from its Phase 1/2 study for Fanconi anemia, confirming that regulatory filings are on schedule. However, a setback was faced when the FDA requested additional information for Kresladi's review, which Rocket is currently working to resolve.

Morgan Stanley analyst Michael Ulz finds Rocket Pharmaceuticals appealing for its leadership in the gene therapy sector, an extensive pipeline, and an experienced management team. Ulz views RP-A501 in Danon disease as a key driver with blockbuster potential, and he also sees promise in Rocket's cardiovascular pipeline, particularly PKP2 and BAG3. While the cardiovascular pipeline offers long-term potential, Ulz believes the more advanced hematology franchise presents near-term opportunities.

As investors seek the next big breakthroughs in the market, the recommendations from Morgan Stanley analysts for COMPASS Pathways and Rocket Pharmaceuticals showcase their confidence in these companies' abilities to deliver substantial returns. It is important for investors to conduct thorough analysis and evaluation before making any investment decisions, as market volatility and risks always exist.