The market is now at record levels. And according to Barclays, the rally isn’t going to stop anytime soon. The firm now sees a 65% chance the S&P 500 will surge 10% higher from current levels.
“After the truce in the U.S.-China trade war post the G-20 meeting in Osaka, the ‘melt-up’ scenario ... is now our highest probability outcome,” says Maneesh Deshpande, head of equity derivatives strategy at Barclays.
Deshpande adds that he believes two bullish catalysts will help push shares higher. First he is confident that the Fed will still embark on an easing cycle. “The weakness in global manufacturing continues unabated and the subdued inflation and softening inflation expectations will likely prompt some ‘insurance cuts’ from the Fed” says the analyst.
At the same time “the current manufacturing weakness is unlikely to morph into a full recession given the resilience in the services sector of the economy,” says Deshpande.
So with this bullish outlook in mind, which stocks are primed to swing higher? Here we turned to the Street to see which stocks analysts believe still have plenty of growth potential ahead. That’s according to the upside potential from the average analyst price target. Let’s see how that works out now:
1. VMware (VMW)
Software stock VMware virtualizes computing, from the data center to the cloud to mobile. For its customers, VMware can help lower IT costs, provide more flexibility, and offer more automated and resilient systems. Shares in the Dell (DELL) subsidiary are up 23% year-to-date, with the company delivering a robust first quarter despite not raising guidance.
Most excitingly, VMware will now run on Microsoft’s (MSFT) Azure public cloud. The news, announced back in April, comes after a similar deal was struck with heavyweight Amazon's (AMZN) Amazon Web Services (AWS) three years ago. According to Wedbush analyst Daniel Ives, “VMW is looking to position itself as the key engine and virtualization platform; a clear catalyst for growth heading into FY20 and beyond in our opinion.”
He has just reiterated his buy rating on the stock with a $210 price target (24% upside potential). “In a nutshell we remain very positive on VMware's technology and execution and believe it is uniquely well positioned to be a clear leader in enabling hybrid cloud deployments” writes Ives.
Over the last three months, 13 analysts have published buy ratings on the stock vs 3 hold ratings. With an average price target of $215, analysts are looking for upside potential of 27%.
2. Dicerna (DRNA)
This biopharma has already soared over 38% year-to-date, but according to the Street sizable upside potential continues to lie ahead. In the last week, four analysts reiterated their buy ratings on Dicerna stock. That’s after the company unveiled its rare liver disease program for the treatment of alpha-1 antitrypsin (A1AT) deficiency (AATD).
Analysts reacted positively to the announcement. “The choice of AATD as first entry into a rare, genetic liver disease makes a lot of sense on multiple levels” sums up HC Wainwright’s Ed Arce. For example, AATD is an indication with a significant unmet medical need (no approved therapies; severe cases can be life-threatening), while also presenting a rapid and efficient development path to approval.
The analyst continues: “We view this as another key milestone, not just in further solidifying a track record of execution, but more importantly, in the long-term growth plan of a rapidly expanding and maturing company that we believe represents a core, pure-play holding in the greater nucleic acid therapy space.”
Taking a step back we can see that his bullish tone is reflected by the Street. Seven analysts have published recent buy ratings on the stock, and their $22 average price target suggests impressive upside potential of 47%.
3. Columbia Sportswear (COLM)
Five-star Guggenheim analyst Robert Drbul has just hosted meetings in Kansas City and Chicago with the COLM management team including CEO Tim Boyle and Director Andrew Burns. With a price target of $125, Drbul sees shares ripping 24% higher over the coming months.
He is encouraged by ongoing strong momentum and sees footwear as a sizable opportunity for the company. That’s because right now it only represents about 22% of the company’s business today. And looking ahead, COLM’s goal is to double footwear in 3 to 5 years under the leadership of Peter Ruppe.
“We continue to believe COLM is one of the more attractive growth names in our group, with significant long-term top-line growth and operating margin expansion opportunities, while the company continues to invest in demand creation in an effort to improve consumer demand” enthuses the analyst.
Overall, 7 analysts have published buy ratings on the stock, with only 1 analyst staying on the sidelines. Meanwhile the average analyst price target of $121 indicates 20.5% upside potential from current levels.
4. GW Pharma (GWPH)
If you haven’t heard of GW Pharma before, this is one of the world’s most prominent cannabis companies. British-based GWPH developed the first ever cannabis plant-derived medicine to receive FDA approval. Called Epidiolex, the drug treats seizures associated with Lennox-Gastaut syndrome or Dravet Syndrome, two rare and severe drug-resistant epilepsy syndromes.
So far the company’s Epidiolex launch has proved tremendously successful. For example, the drug’s first quarter sales of $33.5 million sailed past the expected figure of just $20.7 million. Top Piper Jaffray analyst Danielle Brill commented, "expectations for this launch have been sky high - and GWPH continues to deliver.”
Brill is optimistic for the company’s outlook, writing: “We think the growth trajectory will continue over the coming quarters given expected EU launch, ongoing dose-titrations, increasing penetration into adult population, transition of remaining expanded access program patients to commercial product, and expansion into new indications."
With this in mind, she reiterated her buy rating and $210 price target (22% upside potential). In fact this is slightly more conservative than the Street’s average analyst price target of $220 (28% upside potential). Ten analysts are covering the stock right now; all rate GWPH a ‘buy.’
5. Alibaba (BABA)
It’s all change over at Chinese e-commerce king Alibaba. The company recently announced that CFO Maggie Wu will replace Executive Vice Chair Joe Tsai as head of strategic acquisitions and investments. That’s as the company reorganizes several business divisions including DingTalk and Freshippo. Separately, in a recent 6-K filing, Alibaba proposed a one-for-eight stock split, to increase “flexibility in the company’s capital raising activities, including the issuance of new shares.”
Following the news, top-rated Stifel Nicolaus analyst Scott Devitt reiterated his bullish outlook on the stock. “We recently added shares of BABA to the Stifel Select List and continue to recommend the idea for investors with long-term investment horizons” said the analyst.
He approves of the recent developments at BABA. For, example, the analyst writes of Maggie Wu’s new appointment: “Wu has been CFO since 2013 and first joined Alibaba in 2007; we view her increased responsibilities at the top of the organization as a natural progression in the company’s leadership.”
More importantly, he views the stock split proposal as a step towards a reported Hong Kong listing. Indeed, Alibaba recently filed confidential paperwork for a listing on the Hong Kong stock exchange with plans to raise as much as $20B, according to multiple news reports.
“New capital could be deployed for buybacks or to extend the company’s competitive lead” contends Devitt. “Investors in mainland China, who can buy and sell Hong Kong-listed stocks through a cross-boundary trade link, could also stimulate demand for shares” the analyst added.
In total the company has received 15 back-to-back buy ratings from the Street over the last three months. They are predicting (on average) 28% upside potential from current levels.