A strong downward trend characterized the markets in the first half of the year; Since then, the key issue has been volatility. Stocks hit a bottom in June as the S&P 500 fell to the 3,600 mark. This has proved to be a support level for the past three months and at least one strategist believes the market won’t go much further down from here.
JPMorgan’s global market strategist Marko Kolanovic is cautiously optimistic about the year ahead, noting, “We believe any downside from here would be limited given: 1) better-than-expected earnings growth and signs that the revisions could bottom out, 2) very low positioning from retail and institutional investors and 3) decline in longer-term inflation expectations from both survey and market-based measures.”
The equity analysts at JPMorgan are investigating this thesis and have selected three stocks that they believe have solid upside potential in the coming year. We ran them through TipRanks’ database to see what other Wall Street analysts had to say about them. Let’s take a closer look.
BioAtla, Inc. (BCAB)
We begin in California, where San Diego-based BioAtla is a clinical-stage biopharmaceutical company focused on the development of novel monoclonal antibodies and cell-based therapeutics for use in the treatment of various types of cancer. The company develops its drug candidates through a proprietary platform, Conditionally Active Biologics (CAB), and is looking for ways to selectively target cancer cells and tissues, even when embedded in normal tissue.
BioAtla’s pipeline includes tracks in both pre-clinical and clinical stages. The two lead programs are both in Phase II testing. Mecbotamab vedotin, or BA3011, is being studied for the treatment of non-small cell lung cancer, with preliminary data awaiting 4Q22. The drug is also being tested in the treatment of undifferentiated pleomorphic sarcoma (UPS) and osteosarcoma; Part 2 of a Phase II study is being prepared and recruitment is expected to begin later this year.
The company’s second lead drug candidate is ouriftamab vedotin, BA3021. This drug is currently in Phase II trials for the treatment of squamous cell carcinoma of the head and neck and non-small cell lung cancer – for which a preliminary update is expected in 2H22. The company also expects to begin enrolling patients in a melanoma study in the fourth quarter of this year.
JPMorgan’s Brian Cheng has covered this biopharmaceutical company and sees the flood of forthcoming updates as the main focus. He writes, “Sentiment regarding its pipeline has shifted drastically as investors begin to appreciate its prospects for an attractive slice of the NSCLC market for AXL-focused lead asset BA3011… We believe the current valuation Separate from their terms remains active biological (CAB)-based technology and the rest of the pipeline could provide. The catalysts for the remainder of 2022, particularly the preliminary readings of BA3011 and BA3021 in AXL+ NSCLC and ROR2+ NSCLC, respectively, will continue to engage investors and offer significant upside.”
To that end, Cheng places an Overweight (i.e., Buy) position on BioAtla stock with a price target of $23, suggesting robust 1-year upside potential of ~172%. (To see Cheng’s track record, click here)
Small-cap biotechs don’t always get much attention from Wall Street, but four analysts have polled BCAB — and their ratings include 3 buy versus 1 hold, for a strong buy consensus rating. Shares are trading at $8.46 and the $16 average target implies an 89% gain over the next 12 months. (See BCAB Stock Prediction on TipRanks)
sterling check (STER)
Sterling Check has been in business for almost 50 years and is a leader in the global market for background checks – not the financial tools, but the day-to-day routine of conducting background research on job applicants. The company serves a wide range of industries including construction, technology, government, financial services, recruitment, with services ranging from driver documentation checks and general background checks to criminal records and credit reports. Sterling also conducts social media checks.
Sterling uses cloud-based technology that allows it to scale its services to any scale. The company has over 50,000 global customers, including more than half of the Fortune 100 companies. Sterling processes over 95 million checks each year and is based in New York City.
Last month, Sterling released its Q2 22 financial results, showing $205.6 million at the top. That was up 29% year over year. Adjusted earnings grew even faster, rising 43% year over year to $32.5 million for adjusted earnings per share of 33 cents per diluted share. Earnings per share rose 32% from the year-ago quarter.
Also in the Q2 report, Sterling updated its full-year revenue guidance and increased midline guidance by $15 million to between $785 million and $795 million. Achieving that goal will result in revenue growth of 22% to 24% year over year.
In his coverage of Sterling for JPMorgan, analyst Andrew Steinerman writes about the company and its positioning within the industry: “A key differentiator driving this still rapid revenue growth is the contribution of new customer acquisitions (ie ‘new logos’). of +12% in 2021 and +10% in H1 2022… We believe investors have viewed the strong recent growth in background screeners as mainly cyclical and that the onus lies on companies to prove they can in addition to strong recent growth can increase. Nonetheless, we recognize that Sterling has increasingly demonstrated strong execution of factors under its control and continues to gain market share…”
“We expect larger providers like Sterling to continue to gain market share based on technology-enabled customer fulfillment, improved execution and accuracy through automation, excellent customer service and the ability to conduct audits globally,” the analyst summarized.
In Steinerman’s view, the above level warrants an Overweight (ie, Buy) rating and he has a $27 price target on the stock, suggesting a 32% one-year gain. (To see Steinerman’s track record, click here)
Once again we consider a stock with a strong buy rating from Wall Street. This rating is based on 6 recent analyst ratings, including 5 to buy versus 1 to hold. The average price target of $26.75 indicates a 31% upside potential from the current share price of $20.39. (See STER Stock Prediction on TipRanks)
Funko, Inc. (FNKO)
No matter where you go or what you do, there’s no escaping pop culture — and Funko is one of the reasons why. This company makes and distributes collectibles, the kind of fun pop culture stuff that’s sold under license. We’re talking bobbleheads and vinyl figures, action figures and retro throwbacks, all branded by icons like Marvel and DC Comics, Harry Potter, the NBA and Disney. Funko products can be found worldwide or ordered online, making the company a leader in pop culture lifestyle branding.
Going by the numbers, Funko has some interesting and impressive stats to share. The company boasts over 1,000 licensed properties with more than 200 content providers and has sold over 750 million products since 1998. The company can get a new item into production just 70 days from concept and raked in well over $1 billion in sales last year.
Funko is on track to surpass that annual sales figure this year. The company had revenue of $315.7 million in the second quarter of ’22; Add to that the $308 million from Q1, and 1H22 has generated well over half of last year’s total. Despite strong earnings, Funko’s earnings per share have fallen. Adjusted EPS was reported at 26 cents in 2Q22 compared to 40 cents in the same quarter last year. At the same time, EPS exceeded the 23-cent forecast by 13%.
In a move important to investors, Funko acquired Texas-based collectors company Mondo earlier this year. The move gives Funko a higher presence in the industry; Mondo is best known for limited edition records and screen printed posters. The companies have not disclosed details of the agreement, but Funko does not expect any impact on financial results in 2022.
So overall, Funko is in a solid position – and that solidity has caught the eye of JPM analyst Megan Alexander, who says, “The stock…remains attractively valued (10x P/E and 6x EV/EBITDA on our 2023 guidance),” while we still see upside for the consensus estimates for 2022 and 2023. Additionally, the company has effectively de-risked guidance into 2023, while we are conservative on the topline outlook given the M&A potential (which is not included in the current targets).”
“While we believe investors remain skeptical of the hockey stick margin recovery in 2H22 (and the roll into 2023), we continue to expect gross margin to turn positive in 3Q after 4 quarters of declines, which is a Catalyst for rising profits should be revisions,” added the analyst.
Alexander continues to give FNKO an Overweight rating (ie Buy) and a price target of $32 to show the potential for a ~42% upside move over a 1-year horizon. (To see Alexander’s track record, click here)
Overall, this funky toy maker has received 7 recent analyst ratings, including 5 buy and 2 hold for a consensus rating from Moderate Buy. Shares are trading at $22.49 and the median target of $31.93 suggests ~42% upside potential over the next year. (See FNKO Stock Prediction on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important that you do your own analysis before making any investment.