Between the war in Ukraine, the reimposition of COVID lockdowns in China, and the Fed’s policy shift toward rate hikes and monetary tightening, markets are facing a bewildering array of headwinds and cross currents. Inflation is high, reflecting both higher commodity prices and increased consumer demand, and there are fears that, at some point, inflation will reach high enough to start damping demand.
It all adds up to uncertainty. But in uncertain times, there are also opportunities.
“There are definitely opportunities out there from a valuation perspective, said JPMorgan’s global market strategist Meera Pandit. "And now we're seeing massive differentiation on the basis of profits. So profits is going to be a huge distinguishing factor as we go forth throughout the rest of the year in terms of some of those better opportunities for investors.”
We'll follow that line, and see just what sort of equities JPMorgan's stock analysts are picking out as opportunities in today’s conditions. We’ve used the TipRanks database to find two of these JPM picks; Buy-rated stocks and in the JPM view, more than 40% upside for the coming year.
Signature Bank (SBNY)
We'll start in the banking industry. Signature bank is one of the largest banks in the US, ranked in the top 25, and is based in New York City. The bank has operations in the NYC metro area, in North Carolina, and in California. Signature boasted total assets of $118 billion as of the end of 2021, a sum that included $85.3 billion in deposits and $65.2 billion in loans.
Signature’s customer base includes high-net-worth clients, including privately owned business, their owners, and their senior managers. The bank is building a reputation as one of the nation’s most crypto-friendly banking institutions, and currently some 16% of its total deposits come from cryptocurrency clients.
Earlier this month, Signature reported its financial results for the first quarter of 2022. The bank’s net interest income grew more than 41% year-over-year to reach $573.6 million, a gain of $167.1 million. In another key metric, the bank reported having asset-earning assets of $117.45 billion. This was up by $38.7 billion from the year-ago quarter, a gain of 49.2%.
What this came down to at the bottom line was an EPS per diluted share of $5.30. Year-over-year, this represented earnings growth of 63%.
Looking at this bank stock for JPM, analyst Steven Alexopoulos notes Signature’s strong growth in deposits and loans – but adds that these are not the key metrics.
“With Signature transforming its balance sheet over the past several years to become more asset sensitive, it now has 51% of loans that are floating rate and 43% of deposits in non-interest bearing deposits, which should benefit bank earnings as interest rates move higher. Although 1Q22 was a tough quarter for crypto markets with prices declining sharply, there was clearly no slowdown in the institutional adoption of crypto with Signature onboarding the most crypto clients on record in 1Q with 160 new clients added (vs. 147 for FY2020 and 382 for FY2021). We believe the pace of institutional adoption is the key to fueling Signature’s crypto banking business through volatile crypto markets,” Alexopoulos opined.
These comments support Alexopoulos’ Overweight (i.e. Buy) rating on SBNY, which he describes as a Top Idea. His price target on the stock, $460, implies an upside potential of 82% for the year ahead. (To watch Alexopoulos’ track record, click here)
Overall, this banking stock gets a unanimous Strong Buy, as all 10 of its recent analyst reviews are positive. The stock is selling for $253.39 and the $409 average price target suggest a 61% upside from current trading levels. (See SBNY stock forecast on TipRanks)
United Airlines Holdings (UAL)
United Airlines Holdings is, as the name says, a holding company; its major subsidiaries are the two operating arms of United Airlines. The company’s hubs are located in such major urban areas as Chicago, Houston, and San Francisco, and United is the largest air carrier in North America. The company flies over 3,100 daily departures to approximately 400 destinations in the US and internationally, and operates a modern, fuel-efficient fleet of more than 800 aircraft.
Like much of the airline industry, United saw heavy losses in 2020 – and has been bouncing back since the second quarter of 2021. Revenues for the full year 2021 came in at $24.6 billion, meeting the company’s goals and coming well above the 2020 result of $15.3 billion. In the first quarter of 2022, United reported $7.6 billion, meeting its own forecasts, and in-line with the 2021 results.
Compared to 2019, the last pre-pandemic year, United’s revenues and passenger capacity remain down. This is an industry-wide problem, and reflects the fact that, in the wake of COVID, economies are not yet fully reopened and consumers are not yet fully ready to trust air travel again. These problems were exacerbated in recent months by the Ukraine war and the renewed lockdowns in China.
Looking ahead, United issued new guidance with its 1Q22 report, showing that the company expects to return to profitability this year. In addition, United expects that Q2’s top line will reach a company record for quarterly revenues. United is expected total revenue per available seat mile (TRASM, a standard industry metric) to grow 19% from the comparable data in 2Q19.
In coverage of United for JPMorgan, analyst Jamie Baker writes: “Despite recent volatility in the space, we believe that UAL has endured the pandemic better than most and is emerging amid favorable trends. Our Overweight rating reflects the efforts of UAL’s Next strategy beginning to take hold, and the early stages of a business and international travel demand recovery that should benefits UAL comparatively more than other leisure-focused airlines.”
Baker’s Overweight (i.e. Buy) rating comes with a $76 price target, suggesting UAL has room to grow ~46% in the year ahead. (To watch Baker’s track record, click here)
While JPMorgan takes a bullish view of this airline stock, opinions from other analysts are more spread out. Of the 18 recent analyst reviews here, 10 are to Buy, 6 are to Hold, and 2 are to Sell – giving UAL a Moderate Buy consensus rating. (See UAL stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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.