So far, 2022 has been a pretty rough year for investors, with the S&P index tumbling 10%. But as the famous contrarian investor Nathan Rothschild once said, the best time to buy is when there is “blood on the streets.”
However, with so many names on the backfoot, the question is which ones are poised to rebound? And here it could work in an investor’s favor to track the behavior of companies’ C-suite members.
To ensure a level playing field, company insiders are obliged to report their transactions, and if an insider is seen picking up shares after a continued decline, it’s often a sign that the stock offers good value at its current price.
With this in mind, using the TipRanks’ Insiders’ Hot Stocks tool, we noticed that insiders have been loading up on shares of two stocks which have taken a sound beating in recent times. Let’s find out why these people in the know are confident now is the time to make a move on these names.
Warner Bros. Discovery (WBD)
Disney might be the category leader in entertainment but second only to the House of Mouse is heavyweight media company Warner Bros. Discovery. The giant is the result of a merger between Discovery and WarnerMedia, after it was spun off by AT&T last month.
With over 200,000 hours of programming, some of the most iconic franchises in the entertainment world – DC Comics, Harry Potter, Lord of the Rings, Friends – the company is a global powerhouse boasting a foothold in more than 200 countries.
The company’s networks include CNN, Animal Planet, Discovery Channel, Cartoon Network, Food Network, TNT and Travel Channel, to name a few.
This new media company will bring together HBO Max and Discovery+, which together serve nearly 100 million paid subscribers.
Armed with its troves of content, the new media giant is banking on the streaming opportunity as consumers move away from linear TV to CTV.
Even so, the big story in the steaming universe over the past month has been Netflix’ earnings disaster which also managed to drag down all other streaming names while WBD’s messy showing hasn’t helped either; the shares have shed 21% of their value since the merger – and it appears like the insiders have been taking note.
The past week or so has seen no less than 7 different insiders buying. CEO David Zaslav picked up 50,200 shares for $1,000,398, director Robert Bennett bought 50,300 shares for $1,000,490, while CFO Wiedenfels Gunnar spent 572,590 buying up 29,00 shares in the company, to name a few.
It’s not only the insiders who believe the stock is cheap. Evercore analyst Vijay Jayant says the shares are “undervalued” and notes that WBD is the “cheapest media company on levered free cash flow yield (14%) and the second cheapest on EV/EBITDA (7.9x).” Furthermore, it is its positioning in the streaming segment which offers much promise.
“We believe the combination of HBO Max and discovery+ into a single service will be highly synergistic. HBO Max will bring the expensive, flashy originals needed to acquire customers, while discovery+’s unscripted content provides the large library of content needed to retain those customers. We expect the company to grow its streaming revenues at a 21% CAGR from ’21-‘26, in line with our expectations for Disney. Revenue growth will moderate in ‘22 before reaccelerating in ‘23 with the launch of a consolidated DTC product in Q1 ‘23 followed by a ramp up of international launches,” Jayant opined.
To this end, Jayant rates WBD an Outperform (i.e. Buy), while his $40 price target suggests shares will add 120% over the one-year timeframe. (To watch Jayant’s track record, click here)
Looking at the consensus breakdown, the ratings are mixed but tilting in the bulls’ favor; the stock’s Moderate Buy consensus rating is based on 6 Buys, 4 Holds and 1 Sell. Meanwhile, according to the $35.67 average price target, the Street expects shares to climb ~81% from current levels. (See WBD stock forecast on TipRanks)
Lam Research (LRCX)
Semiconductors are an essential component in much of today’s tech and many chip companies make their products using Lam Research’s wafer fabrication equipment (WFE). The company takes pride in its ubiquity, claiming that today, “nearly every advanced chip is built with Lam technology.”
Maybe so, but in a macro climate where supply chain and Covid-related issues have persisted, Lam has suffered too.
In the latest quarterly report, for F3Q22, revenue increased by 5.5% year-over-year to reach $4.06 billion, falling short of the consensus estimate by $180 million. Adj. EPS of $7.40 also missed the Street’s call – by $0.11. Making matters worse, for FQ4 the company is expecting revenue of $4.2 billion and adjusted EPS of $7.25, while Wall Street was hoping for $4.45 billion and $8.23, respectively.
Sliding 30% since January’s peak, one board member sees better days ahead for LRCX. Director Catherine Lego has decided to take advantage of the depressed price and last week picked up 1,736 shares for a total of $799,168.
While Stifel analyst Patrick Ho notes the above issues are expected to remain a “significant headwind in the near term,” they do little to dissuade him Lam is a company worth getting behind.
“Management was firm in noting demand trends had not changed one bit and reiterated its 2022 WFE of approximately $100B. We strongly support this sentiment and believe these trends will carry into 2023 as well. With that in mind, we are not making many changes to our forecasts for CY22, FY23 (June) or CY23. With this fundamental stance, we believe valuations are very attractive,” Ho explained.
It’s a Buy, then, from Ho who has an $837 price target for the shares. The implication for investors? Potential upside of ~65%. (To watch Ho’s track record, click here)
So, that’s Stifel’s view, how does the rest of the Street see the next 12 months panning out for LRCX? Based on 12 Buys and 7 Holds, the analyst consensus rates the stock a Moderate Buy. With a return potential of ~25%, the stock’s consensus target price stands at $632.94. (See LRCX stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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.