Are the good times for stocks ending? Maybe so, and maybe not; the NASDAQ and the S&P are showing year-to-date gains between 14% and 17%, even after slipping from their all-time highs. The one thing that’s clear is, volatility is higher in the market.
But as always in the market, increased risk for some can equal increased opportunities for others. Raymond James stock analysts have been busy picking out the stocks they see as winners, able to swim in the stream of increasingly difficult economic currents.
Using the TipRanks database, we’ve pulled up the details on three of those calls. Each offers investors plenty of upside, starting at 40%. It also doesn’t hurt that each stock is admired by the rest of the analyst community, enough so to earn a “Strong Buy” consensus rating.
NGM Biopharmaceuticals (NGM)
First up is NGM Biopharma, a clinical stage drug research company developing new treatments for serious unmet medical needs. The company has research tracks in oncology, liver diseases, and retinal degeneration, with the last two being the most advanced of the programs.
The company’s liver disease track is focused on NASH, non-alcoholic steatohepatitis. This severe metabolic condition is also called fatty liver disease, and is a major cause of cirrhosis, liver cancer, and liver failure.
NGM has two medications in development as treatments for this condition, MK-3655 and aldafermin. Both are in Phase 2 clinical trials, and recent data from the Alpine 2/3 study of aldafermin showed it was well tolerated and demonstrated a safety profile similar to placebo. The Phase 2b Alpine 4 study of aldafermin is currently enrolling. On MK-3655, which NGM is studying on a license from Merck, a 52-week Phase 2 study is scheduled to end in November. NGM has an option, when Phase 3 trials are initiated, to either take milestone and royalty payments or to co-fund development and take a 50% revenue sharing agreement.
NGM’s trials for the retinal track, for which it is developing NGM621 as a treatment for geographic atrophy, are continuing. Patient enrollment for the Phase 2 CATALINA study has completed, and the trial is expected to last one year. NGM621 is another drug candidate being developed in conjunction with Merck.
Raymond James analyst Steven Seedhouse sees the potential in NGM’s multiple concurrent clinical trials. Yet, his positive investment thesis is largely based on NGM621.
“CATALINA could exhibit superior potency profile of NGM621... in our discussion with NGM management post the APLS readout, they indicated data in their hands suggest NGM621 has a higher potency (AUC and magnitude of inhibition) than other C3 inhibitors. If this bears out in the CATALINA readout, we think NGM could potentially achieve quarterly or less frequent dosing (our view; management isn’t guiding to this), which would certainly appeal to GA patients,” Seedhouse wrote.
In line with these comments, Seedhouse rates NGM a Strong Buy and his $39 price target implies ~88% upside in the year ahead. (To watch Seedhouse’s track record, click here)
It’s clear that Wall Street is generally impressed by NGM’s potential; the 6 recent reviews here are all positive, for a unanimous Strong Buy consensus rating. The shares are priced at $20.78 and have an average price target of $34.20, suggesting a one-year upside of ~65%. (See NGM stock analysis on TipRanks)
The next Raymond James pick we're looking at is ZipRecruiter, an online employment marketplace for both employers and job seekers. The company was founded in 2010, and now has offices in London, Tel Aviv, and Tempe, Arizona, in addition to its Santa Monica headquarters. ZipRecruiter’s service is based on using AI algorithms to match job seekers to jobs. The company boasts that it is the top-rated job hunt app on both iOS and Android, and has helped over 110 million job seekers over the years. To date, more than 2.8 million business have used the service.
Early in August, the company released its 2Q21 results, its second quarterly report as a public entity. The top line revenue, $183 million, was up 109% year-over-year, and up 455% sequentially. However, EPS was a net loss of 47 cents, while consensus estimate was -$0.20.
Despite the EPS miss, Raymond James analyst Aaron Kessler sees the current jobs market, with a record number of openings amid a labor squeeze, as beneficial for ZIP.
“On its 2Q earnings call, ZipRecruiter noted that its 3Q revenue guidance of $182-188M (vs. $183M in 2Q) reflects its expectation that macroeconomic conditions will begin to return to more normal conditions for the early stages of a post-recession recovery. Given the continued high number of job openings… we believe ZipRecruiter’s 3Q and 2021 guidance are likely to prove conservative. Our positive fundamental view is based on: a large recruitment TAM that is increasingly shifting online; a leadership position with strong brand recognition driving a high degree of organic traffic; unique AI-powered matching technology; our expectation for 15%-plus long-term revenue growth and 30%-plus long-term EBITDA margins,” Kessler opined.
Kessler’s Strong Buy rating here comes with a $40 price target suggestive of a 48% upside for the stock in the next 12 months (To watch Kessler’s track record, click here)
All in all, other analysts echo Kessler’s sentiment. 4 Buys and no Holds or Sells add up to a Strong Buy consensus rating. With an average price target of $39.33, the upside potential comes in at 45%. (See ZIP stock analysis on TipRanks)
Hewlett Packard Enterprise (HPE)
For the last stock on Raymond's list, we'll look at Houston-based Hewlett Packard Enterprise. This spin-off from Hewlett-Packard got started on its own in 2015 and now holds a spot as a multinational business information tech giant. With a market cap of $18 billion, HPE boasts deep pockets to support its server, storage, networking, and consulting operations. Products include cloud services and networking, as well as server and storage hardware.
Business IT is a major economic sector, and HPE’s recent fiscal 3Q21 report shows that. The report, for the quarter ending July 31, saw the company report demand up 11% year-over-year, while revenue came in at $6.9 billion. While revenue growth was modest, it was considered in-line with normal seasonal results. Earnings, at 29 cents per share, showed stronger growth; 45% sequentially and up from a 1-cent loss in the year-ago quarter. HPE’s cash flow was another bright point in the quarterly release. The company reported cash from operations at $2.9 billion, up from $1.4 billion in 3Q20. Free cash flow rose yoy from $1.1 billion to $1.5 billion.
Raymond James 5-star analyst Simon Leopold sees cash flow as a key point here, writing, “We value the stock based on cash flow, so the trends are encouraging... Timing issues can affect working capital, and HPE generated a lot of cash extending its accounts payable this quarter; our model shows overall improvement. We envision modest headwinds contributing to less than seasonal 4Q FCF, but the year can exceed $1.6B. We expect further improvement in FY22 that does not depend on generating cash from working capital.”
Leopold expects HPE to continue growing, and he rates the stock as Outperform (i.e. Buy). His $22 price target implies it has room for 51% share appreciation in the coming year. (To watch Leopold’s track record, click here)
Judging by the consensus breakdown, other analysts also like what they’re seeing. 6 Buy ratings and only 2 Holds add up to a Strong Buy consensus rating. The shares are priced at $14.57 and their $18.88 average target suggest upside of ~30% in the 12 months ahead. (See HPE 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.