It’s a new year, and Wall Street’s market watchers are putting together their lists of stocks to buy and stocks to avoid. Expect to see headlines about Conviction Lists and Top Picks, and pay attention – you are likely to find some good ideas there.
Loop Capital, named for Chicago’s famous downtown neighborhood and financial center, got its start in 1997, and has since grown into a global investment firm, offering trading and brokerage, risk management, and other financial services. Their growth has been powered by a simple commitment: put the client first, every time. And now Loop Capital has released their list – the Best Ideas for 2020.
We filtered the Loop's picks through our Stock Screener tool, looking for those with Strong Buy consensus ratings, perfect 10s from the Smart Score, and a solid upside potential. We found three that fit the profile. Let's take a closer look.
SmileDirectClub, Inc. (SDC)
Digital technology has impacted so many areas of our daily lives. The internet has supercharged the speed with which we communicate, the way we gather information, and the way we interact with technology. The rise of telemedicine, consultation with medical professionals via two-way streaming video, is a prime example of these changes in action.
SmileDirectClub inhabits the telemedicine sector, in the dentistry niche. The company produces clear aligners as a competitor to braces, through 3D printing. Customers interact with the company’s orthodontists virtually, receive tooth impression kits through the mail and later receive the finished product the same way. All tooth molds are reviewed by licensed dentists and orthodontists.
SDC started trading publicly in September last year, and failed to impress investors. The stock fell 47% by the end of 2019. On January 6, however, the company’s fortunes started turning around. Management announced an exclusive sales agreement with Walmart, including a line of oral-care products only available through the giant retailer. In response, SDC shares spiked 29% in one day. While that is just a small part of the previous losses, it appears stable to far and rests on a strong marketing development.
Writing about SDC for Loop, analyst Laura Champine says, “We are highlighting SDC today as a small-cap growth stock with potential for a significant rebound in 2020 as investors appreciate the company’s growth prospects...” Champine noted important partnerships with pharmacy chains and insurance companies, but particularly pointed out expansion of the customer base as an avenue for growth: “The company’s new night-time aligner product can be used 10 hours per day versus the 22 hours per day for the core product – opening the youth market to SDC in our view.”
Champine puts a Buy rating on the stock, along with a $15 price target that suggests an upside of 44%. (To watch Champine’s track record, click here)
Champine is certainly not the first analyst with an optimistic outlook for the online dentistry company, as TipRanks analytics showcasing SDC stock as a Strong Buy. With an average price target of $18.80, analysts are predicting an upside of nearly 90%. In total, the stock has received 10 'buy' ratings vs. just 1 'hold' in the last three months. (See SmileDirectClub’s stock analysis at TipRanks)
Alibaba Group (BABA)
Even with lower levels of internet penetration, China still has the world’s single largest online market – upwards of 800 million people, more than double the entire US population. This is the base that supports Alibaba, the largest Chinese e-commerce company.
Unlike Amazon, which controls both product supply and shipping along with the online customer contact platform, Alibaba is primarily a sales platform. The company connects merchants with customers, and takes a cut. As a measure of success, this past Singles Day (November 11, the company’s best online shopping day of the year), Alibaba set a new sales record of $38.4 billion.
Strong sales performances have powered strong earnings and revenues. The week before Singles Day, BABA reported fiscal Q2 earnings and beat both the revenue and EPS forecasts. Revenues hit $16.65 billion, $180 million better than expected, while EPS came in at $1.83, 22% higher than expected. Even better for BABA’s prospects, the company saw monthly active users rise by 30 million in the quarter, to 785 million.
Rob Sanderson, 5-star analyst with Loop, writes of this stock, “We are highlighting BABA as a blue-chip mega-cap that offers meaningful upside potential… While BABA shares outperformed their US mega-cap peers with an impressive 52% gain in 2019 (vs. S&P 500 up 27%), the stock is still a laggard on a two-year basis. We expect this performance gap will continue to narrow in 2020 as trade dynamics move along the path to resolution, the company executes on merger and other ecosystem synergies and robust earnings growth continues.”
In line with this upbeat outlook, Sanderson puts a Buy rating on BABA. His $280 price target indicates confidence in 28% upside growth in the next 12 months. (To watch Sanderson’s track record, click here)
BABA shares get a unanimous thumbs up, with 19 Buys backing the stock’s Strong Buy consensus rating. Shares sell for $221, and the average price target of $238 suggests an upside potential of 7.5%. While not spectacular, Wall Street agrees that this is as close to a sure thing as investors are likely to find. (See Alibaba stock analysis at TipRanks)
Adesto Technologies (IOTS)
The Internet of Things (IoT), the catch phrase of connected devices, especially in industry, is the premier example of the way that digitization is impacting the economy. From factory robots to autonomous cars, IoT is expanding its reach. Adesto produces the semiconductor chips and embedded systems devices need to make IoT networks function. The company sells to equipment manufacturers rather than the open market.
That still gives Adesto a customer base of more than 5,000 companies around the world. IoT depends on connectivity, and will be heavily involved in the rollover to 5G and network tech improves and expands. Adesto’s chips provide advanced controller and memory functions, making the company essential in an essential industry. IOTS gained 82% in 2019.
Adesto’s most recent quarterly earnings, reported in November for Q3 2019, show the company’s strong position. The 3 cent EPS was 50% higher than the forecast, but also far ahead of the year-ago quarter’s 4 cent loss. The solid revenue figure, $32.03 million, beat the forecast by 3% and the previous Q3 by 45%. It was the fourth consecutive quarter that IOTS beat estimates.
David Williams wrote up Loops view of IOTS shares, “We believe Adesto is well-positioned to deliver outsized returns relative to peers, driven by strong execution, improving design win pipeline and secular trends relating to the ramp of 5G. We are particularly encouraged by the success within the core memory business and view adoption by multiple tier-one customers… as indicative of the quality pipeline of design wins.”
Williams showed his confidence in a $13 price target, suggesting a robust 55% upside, and a Buy rating on the stock. (To watch Williams’ track record, click here)
Adesto is another company with a unanimous Strong Buy consensus rating. Three of Wall Street’s top analysts have given the stock a Buy rating in the last two months. Considering the potential here, shares are priced at a bargain – just $8.72. The average price target, $12, suggests an upside of 38%. (See Adesto stock analysis at TipRanks)