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After January’s sell-off, February’s first week of trading saw the stock market firmly back in bull mode. All 3 major indexes closed off the week at or at touching distance from all-time highs, as the market reacted favorably to the latest job data and the Democrats’ decision to move forward with a $1.9 trillion stimulus package.
So, where is the market heading next?
Investment firm Wells Fargo sees long-term appreciation ahead for the stock markets. Attempting to peer into the future, Wells Fargo’s senior global equity strategist Scott Wren says, “Playing into our expectation for a meaningful bounce back from the pandemic-induced contraction of last year are factors we have discussed in the past and we believe will continue to be the drivers this year. Positive vaccine news, easy money policies being pursued by the Federal Reserve, and additional anticipated government stimulus have all helped the stock market...”
Against this backdrop, Wells Fargo analysts are pounding the table on two stocks, noting that each could surge at least 30% in the year ahead. After running the two through TipRanks’ database, we found out that the rest of the Street is also standing squarely in the bull camp.
Guild Holdings (GHLD)
The stock market may get more headlines, but real estate is where most Americans hold their wealth. The two markets intersect when real estate companies go public. Guild Holdings is a mortgage company, originating, selling, and servicing home loans in the US residential mortgage sector. The company has a footprint across most of the States, and operates through retail and word-of-mouth channels.
The San Diego-based company held its IPO last year, in the latter half of October. The opening was only moderately successful, with the stock holding at or near $15, below the $17 planned. Guild Holdings sold 6.5 million shares, which was below the 8.5 million anticipated. The IPO raised $97.5 million, and the company boasts a current market cap ofreiterate our Overweight rating on GHLD. $972.6 million.
Looking ahead, Wells Fargo analyst Donald Fandetti thinks the company is well-positioned to benefit in the current climate.
"Despite rising interest rates, we believe management struck a confident posture that their business model should hold up relatively well given their purchase/retail orientation. There is also opportunity to fill in their branch footprint in areas such as the Northeast. The rising 10-year yield has shifted investor sentiment further negative for originators," the analyst opined.
In this environment, Fandetti continues to "favor value and purchase mkt exposure," hence his bullish take on the stock.
In line with these comments, Fandetti rates GHLD an Overweight (i.e. Buy), and his $22 price target indicates a potential for 36% upside growth in the year ahead. (To watch Fandetti’s track record, click here)
Similarly, the rest of the Street is getting onboard. 4 Buys and 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. The stock is selling for $16.21, and its $19.30 average price target implies a 19% one-year upside. (See GHLD stock analysis on TipRanks)
PDC Energy (PDCE)
Next up, PDC Energy, is a hydrocarbon producer based in Denver, Colorado. The company has operations in the Wattenberg Field of its home state, as well as the Delaware Basin of the Texas Permian oil formation. PDC produces oil, natural gas, and natural gas liquids through an aggressive horizontal drilling program.
PDC saw revenues slip in 1Q20, and slip farther in the second quarter – but the top-line moved in the right direction in Q3. The company brought in $303 million that quarter, and on an adjusted basis showed a profit of $1.04 per share. Looking ahead to the fourth quarter report, due out at the end of February, the company is expected to show 92 cents per share in earnings.
In some additional positive metrics, PDC produced a total of 192,000 barrels of oil equivalent per day in the third quarter, for a total of 17.7 million Boe. The company generated net cash from operations of $280 million, and saw a free cash flow of $225 million. During Q3, PDC was able to pay down $215 million worth of debt.
Analyst Thomas Hughes, in his note on the stock for Wells Fargo, is impressed by the company’s free cash flow and potential for future production.
“FCF generation will drive absolute debt below $1.5bn by the end of 1Q21 per our model, an important figure as shareholder returns (buybacks first) are predicated on this achievement… As debt falls below $1.5bn, the company will likely take a formulaic approach to distributing FCF… While heightened CO regulatory risk exists, PDCE has been successful building a backlog of permits and DUCs for forward development,” Hughes wrote.
To this end, Hughes rates the stock an Overweight (i.e. Buy), and his $33 price target shows his confidence in a 30% upside for the next 12 months. (To watch Hughes’ track record, click here)
It’s not often that the analysts all agree on a stock, so when it does happen, take note. PDCE’s Strong Buy consensus rating is based on a unanimous 10 Buys. The stock’s $27.90 average price target suggests a 10% and a change from the current share price of $25.35. (See PDCE stock analysis 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.