Will Silicon Valley Bank’s collapse influence the policy makers to take a more forgiving stance regarding its interest rate hiking endeavors?
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Word on the Street is that it is a possibility, but David Rubenstein is not so sure – the billionaire investor thinks the Fed will find the middle ground in its continued efforts to rein in inflation.
“I suspect 25 basis points is the split-the-baby decision that’s most likely,” Rubenstein said ahead of the Federal Reserve’s meeting next week.
Whether Rubenstein is right or not, the effect of rising interest rates amidst soaring inflation over the past year has resulted in scores of stocks losing big chunks of their value. And it looks like Rubenstein – co-founder of the Carlyle Group, a private equity firm with nearly $400 billion in assets under management – has been taking advantage of some market discounts.
During 4Q22, Rubenstein loaded up on two names that have been subjected to a sound beating over the past year. Do the Street’s cadre of stock experts think these are also worth picking up right now? It looks like it; both are rated as Strong Buys by the analyst consensus. Let’s check the details.
Getty Images Holdings (GETY)
There’s a good chance you scroll pass the work of the first Rubenstein-backed stock we’ll look at on most days.
Getty Images is a visual content provider and since the mid-90s has built up a library of nearly 500 million assets spanning across stock images, videos, photography and music. Via its platform, the content is distributed across the globe with over 516,000 contributors and more than 310 content partners working with the company. Every year, over 160,000 news, sport and entertainment events are covered by Getty while the company has amassed a huge archive of images dating back to the early days of photography.
Getty Images, however, is relatively new to the public markets, having IPOd last July via a SPAC merger. It’s been a tough debut year, with the shares down by 48% since going public on July 25.
The performance hasn’t been helped by a disappointing recently released Q4 report. Revenue fell by 3.2% year-over-year to $231.47 million, while also falling short of the consensus estimate by $10.2 million. EPS of -$0.06 missed the $0.03 forecast. The company said it was affected by foreign exchange rates in the quarter and sees further currency headwinds continuing in the first half of 2023.
Nevertheless, Rubenstein must evidently feel the business has plenty to offer; during Q4, he opened a new position with the purchase of 11,902,817 shares. At the current price, these are now worth over $58 million.
That bullish sentiment is mirrored by Wedbush analyst Michael Pachter, who thinks the company has a “unique product offering with giant barriers to entry.”
“Getty has only begun to scratch the surface of its ultimate addressable market. As the Internet evolves, we expect a massive increase in user generated content, which is highly likely to be benefited by Getty’s unique access to high quality professional content… We see opportunities for Getty Images to gain market share within agency, corporate, and media budgets given the comprehensive nature of the content library and the customization inherent in its subscriptions,” Pachter wrote.
To this end, Pachter rates GETY shares an Outperform (i.e., Buy), while his $6 price target suggests the stock will climb 23% higher in the months ahead. (To watch Pachter’s track record, click here)
Most other analysts echo Pachter’s sentiment. 3 Buys and 1 Hold add up to a Strong Buy consensus rating. With an average price target of $6.75, the upside potential comes in at ~39%. (See GETY stock forecast)
GDS Holdings (GDS)
The next stock Rubenstein has taken a shine to is that of GDS Holdings, a developer and operator of Chinese high-performance data centers.
GDS’ facilities are strategically positioned in China’s major economic centers, where there is a concentration of demand for high-performance data center services. The company also runs data centers at lower-tier locations chosen by their clients. Large domestic private sector and global organizations, financial institutions, big internet firms, telecommunications carriers, IT service providers, and hyperscale cloud service providers make up most of the customer base.
Given the combined effects of China’s “zero-COVID” and the government’s crackdown on the tech sector, the shares have seriously underperformed over the past year and are down ~57% over the past 12 months.
That said, those headwinds have been abating and the company put in a solid performance in the just released Q4 report. Net revenue increased by 9.9% from the same period a year ago to $348.6 million, coming in ahead of the Street’s call by $4.62 million. Adjusted EBITDA rose by 4.3% to $155.3 million and the company delivered a loss per ADS of $(0.15) – nicely beating the consensus estimate of $(0.35). Looking ahead, for the full year of 2023, GDS anticipates revenue will grow in the range between roughly 6.6% to 10.7%.
As for Rubenstein’s involvement, he opened a new position during the quarter by purchasing 3,777,424 GDS shares. These are now worth about $60 million.
Mirroring Rubenstein’s confidence, Truist analyst Greg Miller expects the reversal of restrictive policies in China will provide a boost for this beaten-down stock.
“We continue to believe GDS is well positioned to benefit from secular tailwinds in China and its strategic expansion in southeast Asian markets,” the analyst explained. “Now with the reopening in China, we expect the company to witness customer deployments at an accelerated pace as the year progresses in 2023 and a rebound in stock performance should be inevitable.”
Based on these comments, Miller rates GDS shares a Buy, and backs it up with a $50 price target. The figure makes room for one-year growth of a hefty 219%. (To watch Miller’s track record, click here)
The rest of the Street’s expectations might not be quite as high although the $34.09 average target still implies 12-month share appreciation of a robust 117%. With a unanimous 5 Buys, the stock naturally receives a Strong Buy consensus rating. (See GDS stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
