The big question on investors’ minds right now is, where will inflation go? And the related follow-up question, for everyone, is, how far will the Fed hike rates in response? The potential answers cover the full range of possibilities, from President Biden’s happy talk about ‘zero percent inflation,’ to the market bears predicting a full-blown economic depression.
Count Stifel’s market strategist Barry Bannister among the bulls. He’s not convinced by the doomsayers, and sees the recent drop in inflation as a sign that the worst is getting behind us.
“We see much lower back-half 2022 inflation and no U.S. recession until 3Q-2023, which we believe supports 4,400 for the S&P 500 at year-end 2022, led by ‘Big Tech.’ Investors fear recession as the Fed focuses on inflation. That and seasonality raise risk, but we forecast no U.S. recession until 3Q-2023, which is beyond the historical horizon of investors,” Bannister opined.
Given Stifel’s upbeat view for the short term, it’s no surprise that Bannister’s colleagues among the firm’s stock analysts are picking out equities that will run with that bullish sentiment. We’ve used the TipRanks platform to call up the details on two Stifel picks that show ‘Buy’ ratings and potential for 90% or better upside in the coming year.
Morphic Holding (MORF)
We’ll start by looking at Morphic Holding, a clinical-stage biopharma researcher working with integrin proteins to create novel small-molecule therapeutic agents for a variety of conditions. The company uses its proprietary development platform, MInT, in the investigation of integrin proteins, a class of proteins involved in multiple biological functions. Morphic is following this research path to develop treatments for autoimmune disorders, cardiovascular and metabolic diseases, various cancers, and fibrosis.
The company’s research pipeline is mainly at preclinical stages, with four tracks currently in preclinical development. The leading drug candidate, however, MORF-057, is much more advanced, and is undergoing Phase 2 human clinical trials. This new drug is being tested in the treatment of ulcerative colitis, and represents an important potential advance. Current approved treatments are administered intravenously, but MORF-057 is orally dosed; this would be much appreciated by patients.
The company is currently conducting enrollment in the EMERALD-1 trial, a Phase 2a study of MORF-057. This trial is a follow-up to the previous, successful, Phase 1 studies. This trial is scheduled to enroll up to 35 patients. In addition, the company reports it is on track to initiate the Phase 2b EMERALD-2 trial, a placebo-controlled double blind study planned for an additional 35 patients, during 4Q22. Top line data is expected in 1H25.
Morphic approaches these clinical trials with two major advantages: a revenue stream and a strong cash runway. The company has worked in partnership with big-name pharmaceutical companies, and has collected collaboration payments from them. In the recent 2Q22, Morphic received a $57.7 million payment from AbbVie, on the upcoming conclusion of such a partnership, bringing quarterly revenue to a total of $60.2 million, and giving the company its first quarter of positive earnings (EPS of 68 cents per share). On the cash holdings, Morphic had $397.6 million available as of June 30 this year, giving the company enough funds to support operations through the next 11 quarters, well into 2025.
On another positive note, the company has announced an advancement of its current collaborative agreement with Janssen Pharmaceuticals, including a focus on an ‘antibody activator of a high potential integrin target.’
Stifel analyst Alex Thompson points out the chief advantage of Morphic’s leading candidate is that it shows potential as an orally administered dose to replicate the action of an approved IV-dosed drug in the treatment of ulcerative colitis and Crohn’s disease. Patients with these conditions, familiar with the discomfort of repeated IV treatments, will be watching this development carefully. Thompson goes on to say, noting the progress of the Phase 2 testing, “For the stock, we acknowledge that we're in somewhat of a catalyst vacuum until we gain more clarity on Ph2a timing, though with $398MM at the end of 2Q, MORF is well-capitalized and expects to have runway into 2H25-- likely well past the Ph2b data, in our view.”
Thompson’s comments support his Buy rating, while his price target, set at $44, suggests an upside potential of ~51% for the next 12 months. (To watch Thompson’s track record, click here)
Like Thompson, Wall Street’s analysts are bullish on this stock, giving it 6 unanimous reviews in recent weeks, along with a robust average price target of $63.83. The shares are trading for $29.21 and have an upside potential of ~119%. (See MORF stock forecast on TipRanks)
Terran Orbital Corporation (LLAP)
Now let’s shift gears, and go from bio tech to space tech. Terran Orbital is a leader in the manufacture of small satellites for the US aerospace and defense industries. The company’s solutions are end-to-end, including design, production, launch planning, mission ops, and orbital support. Terran Orbital works to meet the needs of military, civil, and commercial customers. Terran is based in Florida, and operates a 660,000 square-foot facility near Cape Canaveral, and a 60,000 square-foot facility in Irvine, California.
Terran Orbital has 23 successful satellite missions behind it, with the most recent being the deployment of the CAPSTONE mission, a lunar pathfinding mission under NASA auspices, to support the space agency’s Artemis program. In July, the CAPSTONE spacecraft successfully shifted into a lunar transfer orbit.
This is just one example of Terran’s satellite business. The company reported $25 million in bookings for 2020, expanding that to $40 million in 2021. Terran currently has multiple contracts in the offing for commercial and governmental customers, including NASA and the Pentagon. The company’s revenue backlog has expanded from last year’s $68 million to more than $200 million so far this year.
This stock is new to the public trading markets, having gone public in March of this year through a SPAC transaction with Tailwind Two Acquisition. The merger closed on March 25, and the LLAP ticker started trading on March 28. The SPAC merger netted Terran Orbital a total of $255 million in gross proceeds. Like many SPACs, the stock has suffered badly this year and is down by 68% since the debut.
Nevertheless, 5-star analyst Erik Rasmussen, in his coverage of this space stock for Stifel, is impressed by Terran’s potential and lays out a bullish path forward for the company.
“We view Terran’s leadership in the design and manufacture of smallsats and its technical capabilities around its Earth Observation constellation as key differentiators and see their strong backlog (up 3x since year-end) as support for our estimates. As Terran scales their revenues, gains traction with their synthetic aperture radar (SAR) satellite business and as the company makes progress towards achieving profitability, we believe the stock offers an attractive entry point as market conditions ease and should re-rate to a higher multiple over time,” Rasmussen wrote.
Rasmussen puts a Buy rating on the shares, and his $8 price target implies a 90% gain over the next 12 months. (To watch Rasmussen’s track record, click here)
While there are only 2 analyst reviews on record for LLAP, both are positive, making the Moderate Buy consensus rating unanimous. Shares in LLAP are selling for $4.21, but the $8.50 average price target suggests ~102% one-year upside potential. (See LLAP stock forecast 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.