The old adage of ‘buy low, sell high’ is an oft-repeated mantra in investing circles, and it makes sense, too. There are other investing strategies, though, one of which is momentum investing. This tactic involves buying stocks that have already yielded strong returns in the past few months, with the expectation of further returns to come. Though this type of investing can be risky, the justification for the use of it is made by the claim that far more money is made buying high and selling at even higher prices.
The pros on the Street don’t appear averse to it, either; Multinational investment firm Jefferies occupies the third spot on TipRanks’ Top Performing Research Firms ranking, so they must know a thing or two about picking winning stocks.
The company recently took note of three interesting momentum stocks. All three posted strong returns in 2019, and according to Jefferies, they are set to continue the trend in 2020. Running each stock through the Stock Screener tool at TipRanks, we’ve confirmed that all presently boast a Strong Buy consensus rating from the Street. Here’s what you need to know about them.
Kodiak Sciences (KOD)
If you’re about to invest in a momentum stock, then you might as well do so with style. Kodiak Sciences share price grew by over 900% in 2019, the bulk of which occurred in the last two months of the year alone.
The retinal disease focused biotech’s surge came off the back of a two-pronged catalyst; (1) The favorable data from a phase 1b study of its lead candidate, KSI-301, a treatment for patients with anti-VEGF wet age-related macular degeneration (AMD), diabetic macular edema (DME), and macular edema due to retinal vein occlusion (RVO), and (2) the positive news that followed: Baker Bros were to purchase a 4.5% royalty right on potential global net sales of the drug in return for a $225 million investment. The investment secures Kodiak’s financial position for the foreseeable future, and acts as an indication of how confident the company is in the drug’s potential to succeed.
So, after such a mercurial run up, is it still worth backing Kodiak in 2020? It is, according to Jefferies’ Michael Yee. The 4-star analyst thinks the drug can generate “close to $3-4 billion in peak sales.” Yee noted, “KOD is one of the simpler and more straightforward stories in biotech. We think the primary drug KSI-301 will be highly likely to show strong Phase II/III data in wet AMD and RVO over the next 6-12+ months proving it's much better than current therapies and further de-risking the asset. We see stock going up given data catalysts in 2020-21 and potential M&A optionality.”
Yee, therefore, initiated coverage of Kodiak with a Buy rating and a price target of $100, indicating KOD has fuel in the tank for a further gain of nearly 60%. (To watch Yee’s track record, click here)
It appears the rest of the Street unanimously agrees with Yee. A Strong Buy consensus rating is formed of solely Buys – 6 to be precise. The average price target comes in at $81.25 and implies upside potential of 30% over the next 12 months. (See Kodiak stock analysis on TipRanks)
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is unique in that it is currently the only company in the world with approved drugs for the treatment of the underlying cause of cystic fibrosis (CF).
In October, Vertex’s CF drug, Trikafta, was approved by the FDA. While the company already has other CF treatments on the market, they only serve a small percentage of CF patients. Trikafta, on the other hand, addresses the needs of CF patients with the most common CF causing mutation. More regulatory approvals are projected in Europe, which will further increase Vertex’s market-penetrating potential.
While the CF story is one major aspect driving Vertex forward, the company has other treatments in the pipeline, too. These include CRSP CTX-001, a treatment for sickle cell disease, and beta-thalassemia currently in Phase 1/2 trials and VX-814, a treatment for Alpha-1 antitrypsin deficiency, which can cause liver and lung disease. Antitrypsin deficiency treatment represents a potential $3 billion a year market.
With Vertex currently trading at 33x future earnings, the question remains as to whether or not the stock is already at a premium. Not yet, according to Jefferies’ Michael Yee, who also covers the large-cap biotech. Yee said, “We think the Trikafta launch will do well and see upside to 2020. Ultimately, revenue should grow from $3.5B towards $9B+ which would create a parabolic ‘earnings cycle’ where EPS could rise from $5 to $12 in the next few years. We think good stories can continue to work and we are optimistic about upside towards $275 this year from a big CF launch but also data from VRTX's pipeline programs.”
The 4-star analyst reiterated a Buy recommendation on Vertex alongside the aforementioned price target of $275. Should the target be met, investors will be pocketing a 22% gain over the coming 12 months.
Vertex enjoys a healthy following from the Street, with the vast majority on its side; The biotech’s Strong Buy consensus rating breaks down into 19 Buys vs. 3 Holds and is accompanied by an average price target of $239.26. The figure indicates upside potential of ~5%. (See Vertex stock analysis on TipRanks)
Gentex Corporation (GNTX)
What would you tell someone if they were to ask you, “Should I buy Gentex right now?” After all, Gentex stock is still well off its highs. For Jeffries’ David Kelley the answer is quite clear — the analyst sees this stock as a flower that keeps blossoming.
Gentex specializes in a number of areas; along with smoke detectors and signaling devices, Gentex provides dimmable aircraft windows for the aviation markets. The bulk of its business, though, is in the global automotive industry, for which it supplies a variety of products, most notably automatic-dimming rear-view mirrors and camera-based driver assistance systems.
Kelley thinks “global production appears poised for a favorable rate of change in 2020 for the first time since 2016” and notes that Gentex’s FDM (Full Display Mirror), a hybrid interior mirror/camera, could have a meaningful impact on revenue. The analyst estimates 33% year-over-year sales growth through 2021.
Kelley added, “While most auto supplier estimates appear poised for another round of cuts (although likely lower magnitude vs. '19 revisions) with '20 guidance reveals in January, we believe GNTX is best positioned among our coverage for potential upside surprise given improving revenue outlook & potential margin upside… Scarcity value of production outgrowth remains a key differentiator and thus we see multiple expansion potential.”
With “growth inflection approaching” according to Kelley, now is the time for a reevaluation on Gentex. The 4-star analyst upgraded his rating from Hold to Buy in addition to increasing his price target from $27 to $37. This implies upside potential of 22% from current levels. (To watch Kelley’s track record, click here)
The rest of the Street is currently rather quiet on Gentex, with only 2 other analysts chiming in with a view on the company’s prospects. Both, though, consider the stock a Buy, and therefore Gentex has a Strong Buy consensus rating. The average price target is $34.33, and suggests 12% upside potential. (See Gentex stock analysis on TipRanks)