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We’re starting the week with a serious divergence in some important economic indicators. At a macro level, the stock market is doing well. The three main indexes are all poised just below their all-time high levels. Clearly, investors are in a buying mood.
But what about the average consumer? The scene here may not be so salutary. The University of Michigan consumer confidence survey came out on Friday, and it registered a dismal figure of 66.8. This was down from 71.7 the month before, and even worse, it’s the lowest reading in the last decade. The drop in consumer confidence comes as inflation is reaching thirty-year highs. Consumers are starting to feel that pinch, and it’s affecting their outlook on the future.
On Wall Street, the major banking and investment firms are taking note of the split in the indicators – but they are still picking out the stocks that are poised to surge in the current environment.
We’ve checked in with Morgan Stanley, a venerable name among the banking giants, to find three stocks which the firm’s analysts recommend. These are stocks which, in their view, are poised to surge 60% or more over the coming months. Using TipRanks’ database, we found out that the rest of the Street is also on board, as each boasts a “Strong Buy” consensus rating.
2seventy Bio (TSVT)
The first stock on Morgan Stanley's radar, 2seventy Bio, is a new company, having spun off from its parent, BlueBird Bio, earlier this year. 2seventy is the independent incarnation of the parent company’s oncology unit, inheriting an investigational approach to cancer treatment featuring novel cell therapies, as well as $442 million in cash to fund the development program into 2023 and Abecma, an approved cell-based gene therapy medication for the treatment of multiple myeloma.
Having an approved medication on the market gives 2seventy a leg up as it gets started. 3Q21 was Abecma’s first full quarter after its commercial launch – and it generated an impressive $67 million in US sales revenue. 2seventy Bio is commercializing the drug in partnership with pharma giant Bristol Myers Squibb, in a 50/50 arrangement; if Abecma’s first quarterly sales are a baseline, then 2seventy can count on at least $33 million in quarterly revenue going forward.
Turning to the pipeline, 2seventy has several upcoming catalysts. The company has an ongoing Phase 1 study of bb21217, a BCMA-directed CAR T cell therapy which, like Abecma, is a treatment for multiple myeloma. bb21217 is being tested in patients with ‘relapsed and refractory’ multiple myeloma, and the Phase 1 data will be presented by the end of this year.
Heading into next year, 2seventy has two programs that are scheduled to initiate Phase 1 studies. DARIC33 is a drug candidate for the treatment of acute myeloid leukemia. The proposed Phase 1 study will evaluate the drug on pediatric and young adult patients, and will be conducted in collaboration with Seattle Children’s Therapeutics. This will be a first-in-human study of the Dimerizing Agent Regulated Immunoreceptor Complex T cell platform. DARIC is a proprietary technology of 2seventy Bio.
The other upcoming Phase 1 study involves bbT369, a proposed treatment for B-cell non-Hodgkins Lymphoma (bNHL). This study will be a dose escalation study of relapsed and refractory bNHL patients, and is also intended to show proof-of-concept for the company’s proprietary gene editing platform.
From Morgan Stanley, 5-star analyst Matthew Harrison sees Abecma as the key point to this stock going forward. He writes, “Abecma sales in myeloma drives a favorable risk/reward with unvalued pipeline candidates providing upside. While Abecma will face competition from J&J/Legend's cilta-cel, we believe it can still achieve $1B in annual sales.” In shorter terms, Harrison says, “Abecma provides base value above the current stock price.”
To this end, Harrison rates TSVT an Overweight (i.e. Buy) along with a $72 price target. If everything goes as planned, TSVT will soar 105% over the next 12 months. (To watch Harrison’s track record, click here)
This newly public stock has a unanimous Strong Buy consensus rating, based on 3 positive analyst reviews. The shares are priced at $35.05 and their $51.33 average price target suggests a one-year upside of 46%. (See TSVT stock analysis on TipRanks)
Insmed, Inc. (INSM)
Next up is Insmed, a clinical-stage biopharmaceutical company with a global reach and a focus on rare and/or serious diseases. The company’s pipeline include research tracks on treatments for neutrophil-driven inflammatory conditions, including cystic fibrosis and Non-Cystic Fibrosis Bronchiectasis, and for rare pulmonary conditions such as pulmonary arterial hypertension. Insmed also has an approved drug on the market, Arikayce, a treatment for nontuberculosis mycobacterial (NTM) lung disease.
Arikayce has been on the US markets for several years, and in the second half of this year, Insmed has launched Arikayce in the Netherlands, Germany, and Wales, as well as Japan, where management is encouraged by the drug’s prospects. Looking ahead, the company has plans to expand the drug’s footprint in Europe, by seeking approval in Italy, Belgium, and France, along with the other countries of the UK. Arikayce was the main driver behind Insmed’s Q3 revenues, which reached $46.8 million. This was up 7.2% year-over-year, and the highest quarterly figure reported so far.
On the development pipeline, two Phase 3 studies are ongoing. The first is a set of related studies of Arikayce, investigating the drug’s potential for label expansion. The second is a global randomized double-blind study of brensocatib as a treatment for bronchiecstasis. Brensocatib is also the subject of two Phase 2 studies, one with patients suffering from cystic fibrosis and the other, in Europe, for patients with bronchiecstasis. The CF study remains on track for data release next year.
In coverage of this stock, Morgan Stanley’s Jeffrey Hung believes that the company is well-positioned for a post-COVID future, mainly due to the potential of Arikayce.
“Despite weaker growth in 3Q due to Delta variant, management maintains confidence growth will return as we are past the peak of Delta variant. The company also discussed early positive signs of the Arikayce launch in Japan and reiterated that pipeline programs remain on track. We continue to believe INSM shares will be driven by US sales of Arikayce in the near-term, but Europe and Japan will provide meaningful growth over time,” Hung opined.
In line with these comments, Hung rates INSM an Overweight (i.e. Buy) and his $52 price target indicates room for ~67% share growth in the year ahead. (To watch Hung’s track record, click here)
Wall Street’s analysts can be a contentious lot – but when they agree on a stock, it’s a positive sign for investors to take note. That’s the case here, as all of the recent reviews on INSM are Buys, making the consensus rating a unanimous Strong Buy. The analysts have given an average price target of $54, slightly more bullish than Hung's above, which indicates ~73% upside from the current share price of $26.88. (See INSM stock analysis on TipRanks)
New Fortress Energy (NFE)
For the last stock on Morgan Stanley's list, we'll switch gears and move over to the energy sector. New Fortress Energy is a natural gas company, with operations in the provision and transport of liquified natural gas (LNG) on a global scale. The company boasts 15 ships, more than 650 completed ship transfer operations, over 8,000 completed truck and rail loading operations, and a throughput capacity exceeding 15 million GPD (gallons/day). Most of New Fortress’ operations are in the Caribbean and Latin America, but it also has a presence in Europe, Asia, and the US.
In recent months, New Fortress has been moving to expand its footprint. The company announced, in September, an agreement with the government of Sri Lanka for investments in an LNG terminal and a 310 megawatt power plant, along with other investments in the country’s power supply network. Also in September, the company announced agreements for natural gas supply at the Alumina Refinery in Brazil. This arrangement is to run for 15 years.
New Fortress reported $304 million at the top line in 3Q21, a record for the company and up an impressive 123% year-over-year. The company’s EPS runs at a loss, which in Q3 was 5 cents per share. This loss was worse than the Q2 figure of 3 cents, but a year-over-year improvement from the 21-cent EPS loss recorded in 3Q20. Even though New Fortress' revenues have been growing steadily for two years, the company's share price is down 53% year-to-date.
The company is looking to power its growth going forward through expansion of its terminal operations, both in existing facilities and in opening new facilities. The Sri Lanka agreement above is one example. Other can be found in Barcarena and La Paz. New Fortress is also evaluating pilot projects in hydrogen energy. To fund this, the company reported liquid assets of $224 million at the end of Q3.
As seen from the stock’s performance (down ~50% year-to-date), investors are pessimistic about the company's prospects. However, Morgan Stanley’s Devin McDermott sees things differently.
"We continue to believe NFE offers an attractive free cash flow and growth outlook, along with a "free option" on growth in clean fuels and hydrogen... We see NFE as a differentiated opportunity to play decarbonization: the company is leading the charge in opening up new markets to natural gas while simultaneously earning attractive margins, cutting end-user energy costs, and reducing emissions." McDermott noted.
“With 3Q earnings, NFE highlighted its continued progress on key growth initiatives including its downstream terminals, blue hydrogen, and Fast LNG. Despite YTD weakness in the stock, the long-term thesis of attractive free cash flow and growth remains intact,” the analyst added.
Overall, McDermott rates NFE an Overweight (i.e. Buy), with a $49 price target suggesting ~82% upside by the end of next year. (To watch McDermott’s track record, click here)
Like McDermott, other Wall Street analysts are staying on board. 6 Buys and a single Hold issued in the last three months add up to a Strong Buy analyst consensus. In addition, the $49.86 average price target implies ~86% upside potential. (See NFE stock analysis on TipRanks)
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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.