The key to investment success in 2022 is likely to be diversity; that is, a broad range of portfolio allocations that spread investment money across multiple sectors. In short, don’t put all of your eggs into one basket. Last year saw tremendous gains – some 29% on the S&P 500 – fueled by better-than-expected earnings. The rebound from the short, sharp 2020 COVID recession was real, but may have also given investors a distorted picture of the markets.
For starters, the supply chain disruptions of the past year had the unanticipated effect of supporting earnings. With production facing bottlenecks, and distribution facing delays, retailers had less incentive to offer discounts – resulting in strong profits. That effect is not sustainable going forward.
We’re also in an inflationary environment. A modest rate of inflation, higher than the Fed’s 2% target and up to about 4%, tends to support stocks – but by the end of 2021, we were seeing inflation rates rising above 6%. At that level, it starts to sap everything, and if the Fed fights back with higher interest rates, expect stocks to slow down.
But there are also some larger trends. The COVID pandemic appears to be reaching its end stages. New variants may spread faster, but they are causing less illness. If these trends continue, we’ll reach a point where they cross – and that will represent a return to ‘normalcy.’
So it shouldn’t be a surprise that some of Wall Street’s great names are predicting a good year ahead. We can get a feel for just how good by checking in with investment firm Goldman Sachs, whose stock analysts are tagging the stocks they see as ripe for gains for 2022.
Specifically, the firm’s analysts have tagged three stocks that they see gaining upwards of 60% for the year ahead. Using TipRanks’ database, we learned that the rest of the Street is in agreement, as all three boast a Moderate or Strong Buy analyst consensus. Let’s take a closer look.
CI&T (CINT)
We’ll start in the tech sector, where CI&T, based in Brazil, offers scalable digital solutions in data science, design and engineer, research and strategy, all aimed toward improving the customer’s experience while boosting operating efficiency. The company has a global presence, with offices across South America, in the US, in Europe, and in Asia. CI&T counts a number of major enterprise names among its customer base, including Kohl’s, Johnson & Johnson, MetLife, and ABInBev.
Last year saw more than just broad market gains – it also saw a record number of IPOs. The number of companies going public jumped 64% yoy to 2,388, and CI&T jumped on that bandwagon. The company entered the US trading markets on November 10 with over 13 million shares offered at $15 each. The company had cut back on the pricing, from an expected range of $17 to $19 down to $15 o $17 – and by the end of the first day’s trading, CINT was selling for over $18. CI&T raised approximately $157 million in net proceeds from the IPO.
Less than a month after the IPO, CI&T reported its first quarterly financial results as a public company, for 3Q21. At the top line, revenue came in at 376 million Brazilian Reais, or $66.1 million in US currency at current exchange rates. This was up 55% year-over-year. According to management, Brazilian and US business makes up 95% of the total revenue, with remainder split between Japan and Europe.
Goldman Sachs analyst Diego Aragao covers this new stock, and takes a bullish stance. His price target, of $23, suggests a robust 102% upside for the next 12 months and supports his Buy rating. (To watch Aragao’s track record, click here)
Backing his stance, Aragao writes: “We believe CINT has (i) the capacity to deliver agile, scalable digital services, consolidate itself as a digital native specialist and lead the technological evolution of multiple companies; (ii) solid growth trends, with revenue growing at a 31% 2020-23E CAGR, backed by the competitive advantage of being a digital pure play that is well-prepared to compete with other tech-developing peers; (iii) a wide range of strategy, design, and software engineering services to support clients in their digital transformation process; and (iv) global scale, which allows CINT to leverage its nearshore delivery platform and qualified talent base.”
There’s a broad agreement on Wall Street about the quality of this Brazilian company. CI&T has 6 stock reviews on record since the IPO, and they all agree that it’s one to Buy, making the Strong Buy consensus view unanimous. Shares are priced at $12 and their $17.50 average price target implies an upside of ~54% for the year ahead. (See CINT stock analysis on TipRanks)
Roivant Sciences (ROIV)
Next up on Goldman’s radar, Roivant, is a healthcare company in the field of drug development. It’s a biopharma with a twist – that is, this company has taken a unique path to speed up the development of medications. It builds technologies and then spins off the drug candidate development to subsidiary companies, the ‘Vants.’ These subsidiaries are then able to focus on just one or a few drug development tracks, making them more nimble and focused than the parent.
That model has served Roivant well. The company’s subsidiaries, seven so far, have eleven pipeline projects under development, in a wide range of fields, from dermatology to immunology to oncology. The programs span the range of clinical development, from pre-clinical testing to human clinical trials to regulatory submission.
Like CI&T above, Roivant entered the public markets last fall. But where CI&T used an IPO, Roivant chose the SPAC route to go public, merging with a special purpose acquisition company to bring the healthcare researcher onto the public market. The merger, with Montes Archimedes Acquisition Corporation, closed on September 30 and the ROIV ticker started trading on October 1. Roivant had a cash position of $2.5 billion after the merger, and currently has a market cap of $6.27 billion. The company plans to use these funds to support its research programs.
Those programs have three important catalysts coming up. The first is the upcoming 2Q22 PDUFA date for tapinarof as a treatment for psoriasis. Also on the tapinarof track, the company will be releasing topline data from the Phase 3 clinical trial of the drug as a treatment for atopic dermatitis. The data release is expected during 1H23.
The other catalyst coming up, later this year, is the clinical update on ARU-1801, a potential gene therapy treatment for sickle cell disease. Interim data is expected from an ongoing Phase 1/2 clinical trial.
In his coverage of Roivant for Goldman Sachs, analyst Corinne Jenkins refers to these catalysts when she writes, “We see considerable discovery value embedded in the ROIV subsidiaries, which we anticipate will be unlocked by key clinical and regulatory catalysts in the near term. First up is the tapinarof PDUFA (2Q22) and launch in psoraisis, where we see the product profile driving significant market adoption, followed by Phase 3 data from the same asset in atopic dermatitis where we highlight physician awareness and enthusiasm following prior Phase 2 results. Several other agents currently in Phase 1/2 studies (e.g. ARU-1801,namilumab, batoclimab) will come to the forefront as they enter late-stage clinical development and underpin the next leg of growth for the stock.”
Ahead of the upcoming catalysts, Jenkins gives ROIV shares a Buy rating, along with a $15 price target indicating potential for 65% appreciation in the next 12 months. (To watch Jenkins’ track record, click here)
Overall, this stock gets another thumbs up from the Street, with 6 unanimous reviews supporting a Strong Buy consensus rating. The stock’s average price target of $12.50 points to ~38% upside from the current trading price of $9.51. (See ROIV stock analysis on TipRanks)
Coupa Software (COUP)
The last Goldman pick on our list is Coupa Software, a cloud software company in the Business Spend Management niche. Coupa’s product line allows customers to put their BSM data on the cloud, and track it through a set of tools on the platform. Customers, who include such major names as Nike, Caterpillar, Coca-Cola, and Sears, can handle everything from procurement to invoicing to payment to expenses through Coupa’s products.
Offering an essential product is generally a path toward success, and Coupa realized strong year-over-year growth in its most recently reported quarter, 3Q21. Revenues, at $186 million, were up 40% yoy, and a company record for a single quarter. They were driven by calculated billings, which grew 38% yoy to reach $193 million. The company’s adjusted EPS was solid, at 31 cents per share.
But – Coupa reported an expanding net loss in the quarter. Before adjustments, the net loss came in at $91.2 million, compared to $60.8 million in the year-ago quarter. This spooked investors, and the stock, which had been slipping all year, slipped further after the 3Q release.
Goldman Sach’s Gabriela Borges recognizes the bumps that Coupa has hit, but sees the story here as generally positive. The key point is that Coupa has a head start in the BSM niche, having arrived there first.
“Coupa has had a first mover advantage in cloud BSM, introducing its streamlined shopping cart-like experience to procurement in 2006. This unified design has enabled Coupa to achieve widespread customer and supplier adoption across direct and indirect spend processes in procurement, invoicing, payments and expenses. Customer adoption has grown from ~400 in 2016 to over 2K, cumulative spend under management has grown from $110 bn in 2015 to $2.8 tr today, and suppliers on the network have grown from 3 mn in 2018 to >7 mn today,” Borges noted.
In line with these comments, the analyst rates COUP shares a Buy, and sets a 12-month price target of $251 to suggest an upside of 67%. (To watch Borges’ track record, click here)
Overall, Coupa shares get a Moderate Buy rating from the analyst consensus on Wall Street. The stock has 20 recent reviews, breaking down to 12 Buys and 8 Holds. The average price target here is $222.22 and implies ~48% upside from current levels. (See COUP 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.
