After three months of highly volatile trading, in which the S&P 500 fell to 3,600, rose to 4,300 and fell back to 3,900, investors can be forgiven for feeling whiplash. However, the question to be answered is how the markets will develop from here.
Morgan Stanley strategist Andrew Slimmon believes investors shouldn’t worry too much about the bear fall. Worse-than-expected August inflation numbers may have sent markets into a slump this week, but Slimmon believes the S&P should show a recovery by year-end, finishing near its starting point of 4,700. That would represent a 17% increase from current levels.
“The positioning is uniformly bearish. And I suspect that will reverse sometime in the fourth quarter [S&P 500] higher by the end of the year, not lower,” noted Slimmon.
Slimmon bases his belief on evidence that inflation is beginning to recede after peaking in July. “It’s not coming down very quickly, but it’s coming down,” Slimmon said.
With that in mind, we wanted to take a closer look at two stocks that have received Morgan Stanley’s seal of approval, with the company forecasting upside potential of more than 30% for each. Using the TipRanks database, we found the rest of the street to be on board as well, as both received a Strong Buy consensus rating.
Alphatec stocks (ATEC)
Let’s start with medical technology. Alphatec Holdings owns three subsidiaries working together to bring about dramatic change in the field of spine surgery. The company markets a range of medical devices that offer a new approach to spinal surgery, from the neck to the pelvic vertebrae. The company’s goal is to develop a surgical approach with clinical distinction that will make Alphatec the “Standard Bearer in Spine”.
New surgical methods can open up new perspectives for a well-positioned medical device company and Alphatec’s recent financial results bear this out. In the second quarter of this year, Alphatec posted sales of $84 million. That was a 35% increase from the prior-year quarter.
In terms of earnings, Alphatec is posting consistent losses that deepened from 2020-2021. However, the net loss of $36 million in Q2 22 represented a slowdown from recent quarters. And the company reported cash on hand of $107 million versus operating expenses of $91 million.
Looking ahead, Alphatec expects full-year sales of $325 million in 2022. That number would represent year-over-year growth of 34%.
Strong growth seems to be the story here, as Morgan Stanley analyst Drew Ranieri points out.
“Over the past 10 quarters, the company has averaged nearly 40% quarterly organic revenue growth, compared to the median of 9% for pure-play Spine peers. Unlike larger competitors, Alphatec’s commercial growth is not tied to market growth in our view. With a share of around 2.5% today, Alphatec has a respectable runway ahead of it to drive sustained double-digit revenue growth. We expect Alphatec to double its market share to nearly 6% by 26, with the company’s total revenue reaching US$673 million, representing a CAGR of approximately 20% over the period 2022-2026e,” said Ranieri.
“Alphatec stock and peers have narrowed significantly as the turnaround narrative has been de-risked and investors better appreciated the multi-faceted growth story; however, Alphatec shares currently appear undervalued relative to peers in our view,” concluded the analyst.
To that end, Ranieri places an Overweight (ie, Buy) rating on ATEC stock, along with a $13 price target, which shows potential for a 47% upside move in the coming year. (To see Ranieri’s track record, click here)
Overall, it’s safe to say that the Street agrees with Alphatec’s optimistic view. The stock has 5 recent analyst ratings spread across 4 Buy and 1 Hold for a Strong Buy Consensus rating. The average price target for ATEC shares of $12.90 is virtually the same as Ranieri’s. (See ATEC Stock Prediction on TipRanks)
Bill.com Holdings (BILL)
Let’s stay with technology, but let’s move on to fintech. Bill.com Holdings is a software provider that offers cloud-based solutions for small businesses to manage accounting and paperwork problems. The company’s software enables users to simplify, digitize, and automate back-office financial processes for great overall day-to-day efficiencies. BILL’s products can be used for billing, invoicing, making and receiving payments and other time-consuming accounting tasks.
The company’s target customers are small and medium-sized businesses, and BILL is popular with small business owners. The company ended its 2022 fiscal year on June 30, and a look at its fourth-quarter and full-year results shows the extent of its popularity and growth. In the fourth fiscal quarter, the company had approximately 400,000 business customers and quarterly revenue in excess of $200 million. Year-over-year, revenue increased an impressive 156% from $78.3 million in the prior-year period.
Like many tech and/or software companies, BILL tends to run a net loss — but its net loss for the fiscal fourth quarter was just $3.3 million, compared to $5.8 million a year ago. On an EPS basis, the loss was 3 cents per diluted share, less than half the 7 cents reported in fiscal 4Q21.
Although BILL’s sales are rising sharply, the stock has underperformed this year. Shares of BILL are down 36% year-to-date compared to the S&P 500’s 18% year-to-date loss.
The falling stock price offers an opportunity for Keith Weiss of Morgan Stanley, a 5-star analyst. He began his coverage of BILL with some complimentary comments, writing, “A compelling value proposition, differentiated go-to-market strategy through direct sales, accounting partnerships and financial institution partners supporting a +65% revenue CAGR (CY21-CY23E). , the second fastest in our coverage, and a solid track record of execution create a favorable risk/reward ratio for BILL.”
Weiss rates this as Overweight (ie, Buy) and sets the price target at $220, implying ~38% 1-year upside potential. (To see Weiss’ track record, click here)
Technology and software typically get more than their share of Wall Street interest, and BILL is no exception. The stock has had 21 recent analyst ratings including 19 buys versus just 2 holds for a Strong Buy consensus view. Shares are selling for $158.84 and the average price target of $208.35 suggests a 31% upside potential for the year ahead. (See BILL 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.