Are we at the start of a boom or a bust? That’s the question on investors’ minds these days, as the world gets back on its feet following the COVID crisis. The recent April jobs report, with its mix of good and bad news, puts the question into sharp relief.
First, the good news. April saw 266,000 new jobs created. On the negative side, economists had predicted as many as 1 million. The expectation has been that this economic recovery will be heavily front-loaded regarding job recreation – the theory is, the jobs are there; they are just waiting for workers to go back to them. That’s not quite happening.
Looking at the situation for Goldman Sachs, chief economist Jan Hatzius notes of the jobs numbers that “…reopening effects likely overlapped with normal seasonal hiring patterns, resulting in less-impressive job gains on a seasonally-adjusted basis. Second, labor supply appears to be tighter than the unemployment rate suggests, likely reflecting the impact of unusually generous unemployment benefits and lingering virus-related impediments to working. It is hard to know how exactly much of the miss these factors account for…”
The generous unemployment benefits that Hatzius points out are contained in President Biden’s recent spending packages, as well as the COVID relief bill passed by Congress earlier this year. They include, among other benefits, an extra $300 weekly, with the added benefit to last until the first week of September. Hatzius believes that expansion of benefits is slowing down people’s return to the workforce – but he also believes that if the jobs are there, they will be filled, and expects the monthly jobs number to reach 800,000 by September.
In short, Hatzius sees the labor force returning to work in a smoother, more spread-out fashion, rather than all at once, and placed at least part of the explanation on the extra unemployment benefits. In any case, one thing is clear to Goldman Sachs: we’re in a boom cycle, and that presents opportunities.
The stock analysts at Goldman have been quick to locate investment options that will bring returns in the current environment. They tagged three that they see climbing over 70% in the year ahead. Let’s take a closer look.
Dicerna Pharma (DRNA)
We’ll start in the biotech industry, where Dicerna Pharma is developing new medications for a variety of ailments, based on its RNAi (RNA interference) tech platform. The RNAi technology aims to turn off, or at least silence, the disease-causing genes. It is a novel approach, and Dicerna has 10 programs investigating its applications, in house and in combination with larger drug companies.
Dicerna’s flagship product, Nedosiran, is a treatment for primary hyperoxaluria, or PH, and is currently in Phase 3 trial. Nedosiran inhibits the enzyme that causes overproduction of oxalate, the key feature of this life-threatening disease. The company expects to release top-line data from the PHYOX2 trial in Q2 of this year, and from the PHYOX4 trial in Q3.
The second-farthest along drug candidate in Dicerna’s pipeline is RG6346, a potential treatment for chronic Hep B infection which is being developed in partnership with Roche. Roche has initiated a Phase II trial of the drug, a milestone that included a $25 million payment to Dicerna.
That was not the only large financial boon to Dicerna in recent weeks. The company acquired, last year, an interest in royalty rights to Alnylam’s PH drug lumasiran. This past April, Dicerna sold off those royalty rights to Royalty Pharma in a transaction worth up to $240 million.
In the first quarter of 2021, Dicerna saw $47.6 million in revenue, up 40% year-over-year. The revenues were primarily attributable to services rendered under collaboration agreements with Alexion, Novo, and Roche.
Covering the stock for Goldman Sachs, 5-star analyst Madhu Kumar believes DRNA presents a compelling risk reward. Kumar rates DRNA a Buy along with a $48 price target that implies an 85% one-year upside. (To watch Kumar’s track record, click here)
“We view DRNA as an undervalued platform story based on RNAi therapeutics technology. When we compare DRNA’s RNAi therapeutics platform to pre-commercial RNAi peers, such as ARWR, we see a considerable valuation disconnect… Taken as a whole, DRNA has built an emerging clinical RNAi franchise which likely warrants re-rating into mid-21 Phase 3 data,” Kumar noted.
The analyst added, “We believe the existing data for nedosiran in PH from the Phase 1/2 PHYOX3 open-label extension (OLE) trial are reasonably compelling and give us confidence PHYOX2 will show a significant decrease in UOx vs placebo across PH patients. As such, we do believe DRNA will be able to have a market product in this space, with a specific opportunity to lead the non-PH type 1 (PH1) market of PH types 2 (PH2) and 3 (PH3).”
Wall Street clearly agrees with Kumar on DRNA. The Street’s analysts have given the stock 7 recent Buy reviews, for a Strong Buy consensus rating. Shares are priced at $26.32 and the $40.86 average price target suggests room for 55% growth ahead. (See DRNA stock analysis on TipRanks)
View, Inc. (VIEW)
Shifting our gears, we’ll take a look at a unique company, one that combines smart tech with green energy. View, Inc. produces smart glass, which uses AI to respond to natural light levels and adjust window opacity accordingly. The technology promises to improve efficiency of building power and HVAC systems, and is applicable across a wide range of construction. In a neat twist, the AI platform that controls the system can be upgraded over-the-air.
View’s products include smart glass that can reduce glare or optimize daylight, or provide different tints to various zones within a building. The energy benefits to smart glass windows include an 18% annual energy cost savings, and up to a 23% reduction in the peak cooling load on the AC system.
This stock is new to the public markets, having entered the NASDAQ just this past March. View went public through a SPAC (special acquisition company) merger agreement with CF Finance Acquisition Corporation II, or CF II, in a transaction that saw VIEW shares make their NASDAQ debut on March 9. The SPAC merger transaction was worth $1.6 billion, and brought View about $800 million in net proceeds on completion.
While smart glass windows may seem like something out of Star Trek, the technology is real, and real companies are moving to install it. This past March, View scored a deal to install its window technology at Chicago’s O’Hare International Airport Terminal 5 expansion, and more recently, in April, View inked a $26 million deal with Walmart, to install the windows at the retailer’s new home office campus.
In his coverage of VIEW for Goldman Sachs, analyst Mark Delaney sees the company with a clear path forward. Delaney rates VIEW a Buy, and his $12 price target suggests it has a 79% upside potential. (To watch Delaney’s track record, click here)
“We believe View is well positioned as the market leader in smart glass (>80% market share in dynamic glass, per the company), an industry we expect to grow over time. While electrochromic glass is currently only a very small portion of the total exterior building glass market, we believe that smart glass is a promising technology that offers several performance benefits over traditional window glass, namely energy efficiency,” Delaney opined.
The analyst continued, “View has the opportunity to monetize add-on features to create alternative revenue streams. The company is developing new smart building applications, which we believe could represent a longer-term revenue opportunity for the company…”
So far, View has only picked up 2 analyst reviews – but both are to Buy, and together support a Moderate Buy consensus rating. The stock has an average price target of $14, implying ~109% upside from the $6.70 current trading price. (See VIEW stock analysis on TipRanks)
GSX Techedu, Inc. (GOTU)
The last Goldman pick we’re looking at is GSX Techedu, a Chinese software company, specializing in education packages for after-school tutoring. The company offers distance learning packages for the K-12, large class, and after school markets in China, effectively reaching some of the most sought after for-profit education business niches in this culture that puts a premium on education. The company also offers courses in particular interests, foreign languages, and professional enrichment.
GSX saw its business get a boost during the corona crisis, for obvious reasons, even though most Chinese schools did not shut down as fully, or for as long, as Western counterparts.
In March, GSX released its 4Q20 results, showing 2.211 billion in Chinese yuan at the top line, for 136.5% year-over-year revenue growth. This comes out to $343 million in US currency. The revenue was driven by a 155% yoy increase in K-12 course sales, to 1.975 billion yuan, or US$308 million.
The company has caught the eye of Goldman analyst Christine Cho, who wrote: “While we acknowledge that the ongoing regulatory uncertainties may continue to impact investor sentiment on the sector, we believe the current share price provides compelling risk-reward relative to peers… We continue to project better-than-industry revenue growth at a 41% CAGR in 2020-25E for GSX, and a path to breakeven by 2023E, and non-GAAP OPM reaching 9% by 2025E, with rising online AST penetration, good scalability of the online large-class AST format, and the company’s strong execution on sales and marketing to acquire students.”
In line with her bullish comments, Cho rates GOTU a Buy, and her $60 price target implies an upside of 143% for the next 12 months. (To watch Cho’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 3 Buys, 3 Holds and 2 Sells add up to a Hold consensus rating. However, the $57.06 average price target indicates ~131% upside potential from current levels. (See GOTU stock analysis at 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.
