The markets rose sharply at the start of Wednesday’s session in an effort to finally get back to winning ways after the main indexes have posted sharp losses recently.
While we have been cautiously waving farewell to the pandemic, 2022 has lurched from one crisis to another with Russia’s invasion of Ukraine taking the biscuit. The West has now finally made the move to ban Russia’s energy exports in a further attempt to counter Putin’s aggression. That means that along with driving up energy prices, the volatility is unlikely to abate any time soon.
But there’s a silver lining. Amongst the carnage there are now countless stocks which look very tasty indeed. That is, the sharp pullbacks have presented investors with no end of opportunities, it’s just a case of looking in the right place to find them.
And the analysts at investment giant Morgan Stanley can point us in that direction. The firm’s experts have homed in on 3 names which have retreated by a large amount in recent times and for which they predict good times ahead. In fact, they believe that these equities could double or more in the next year. We ran the trio through TipRanks database to see what other Wall Street’s analysts have to say about them.
Domo (DOMO)
If it’s beaten-down names you’re after, then cloud software company Domo certainly fits the bill. The stock has pulled back 56% since last August’s peak.
Domo provides a comprehensive data analytics platform that combines data visualization, alerting, ETL, and machine learning in one solution giving workers the real-time data needed to make smarter decisions. In fact, via an array of real-time data visualization and management tools, the cloud-based platform allows CEOs to fully oversee their companies’ actions from their phones.
While Domo faces stiff competition from bigger players in the data visualization space, it has been growing the top-line steadily. The growth was on offer again in the latest quarterly report for FQ422, released earlier this month. Although the company exhibited a 1 cent miss on the bottom-line, dialing in adj. EPS of -$0.41, the revenue haul increased by 23.2% year-over-year to reach $69.99 million. That figure was $2.89 million higher than consensus expectations.
The good news is that the outlook beat the Street’s forecast too. Q1 revenue is anticipated to come in between $73.5 million and $74.5 million; Wall Street analysts were expecting $70.04 million.
That said, along with the earnings release, the company announced the surprise departure of founder and CEO Josh James. Former Chief Strategy Officer and ex VP at Adobe John Mellor is taking his place. While Morgan Stanley’s Sanjit Singh highlights the “potential for business disruption” that comes with a change in executive leadership, he believes that given Mellor’s credentials and comments on the earnings call the “risk of disruption is well contained.”
In any case, it is the growth profile which Singh finds appealing. He writes: “On the fundamentals of the business, the demand picture looks quite good as evidenced by 30% growth in billings and 25% growth in current RPO bookings. Guidance was even better as the high end of FY23 revenue guidance calls for 24% growth compared to 23% in FY22. Taken together, Domo looks well-positioned to sustain a mid 20% growth profile with multiple opportunities to take this higher over time – a prospect we do not think is fully reflected in the shares given a valuation of < 5x CY23sales.”
Based on the above, Singh rates Domo shares an Overweight (i.e. Buy), while his $90 price target suggests room for 110% growth over the coming year. (To watch Singh’s track record, click here)
2 other analysts have been tracking Domo’s progress and they both agree with Singh, providing this stock with a Strong Buy consensus rating. The $87.67 average target is only marginally lower than Singh’s objective and set to generate returns of 105% in the year ahead. (See Domo stock forecast on TipRanks)
Carvana (CVNA)
Next up, we have Carvana, a used-car dealer with a difference. The company has a unique approach to the experience of buying a used-car, making the whole process digital.
Buyers can browse through a list of used vehicles, purchase a car online, and a company driver will deliver it to their doorstep, a service available in most places across the US. But by using artificial intelligence and machine learning, the platform provides various other advantages, such as monitoring used car auctions, pinpointing the best-selling vehicles and making sure they are in supply.
The digital approach resulted in strong growth during the corona crisis as consumers’ buying habits changed and was on evidence again in the latest financial report.
Revenue increased by 104.9% year-over-year to reach $3.75 billion, in turn beating the Street’s call of $3.51 billion. That said, EPS of -$1.02 fell short of the consensus estimate of -$0.87.
The current environment, however, has been inhospitable for unprofitable growth stocks which blossomed during the pandemic, and there are concerns the growth will moderate, while there have also been some worries regarding liquidity. As a result, CVNA’s share price shed 67% off its value since peaking last August.
However, Morgan Stanley’s Adam Jonas is a big fan and thinks the pullback offers an excellent entry point, comparing the company to Tesla, which has proved the many doubters wrong.
“We pound the table on CVNA right now and see it as offering one of the strongest bull/bear skews of any stock under our coverage… Over the past 18 months, Carvana experienced unusually high growth, in part due to changing consumer behavior during the pandemic,” Jonas opined.
We think the market is too bearish on Carvana’s long term growth, liquidity and the rationale of the ADESA acquisition. In our view, CVNA is a best-in class auto retailer, strong management, sufficient liquidity and institutional ballast. The set-up reminds us of Tesla in 2019,” the analyst added.
Accordingly, Jonas has an Overweight (i.e. Buy) rating for CVNA stock, while his $360 price target suggests shares will climb by 200% over the one-year timeframe. (To watch Jonas’ track record, click here)
So, that’s Morgan Stanley’s view, let’s take a look now at what the rest of the Street has in mind for CVNA. Based on 12 Buys and 6 Holds, the analyst consensus rates the stock a Moderate Buy. With an average price target of $217.44, the analysts expect shares to appreciate ~83% over the next months. (See Carvana stock forecast on TipRanks)
American Axle & Manufacturing (AXL)
For the last stock, we’ll stay in the auto industry but shift to a different segment. American Axle & Manufacturing is an automobile components specialist. The company is a designer and manufacturer of driveline and metal forming technologies – its two segments are split into Driveline (the largest) and Metal Forming – targeting internal combustion (ICE) vehicles as well as electric and hybrid cars. The company offers an array of products, such as drive shafts, front and rear axles, clutch modules, universal joints and sealing and thermal-management offerings, amongst others. Services are available at 80 facilities, with locations in 17 different countries.
AXL stock has suffered at the hands of the market over the past year, falling by 34%. The latest earnings report did not help matters either. The company missed on both the top-and bottom-line. Revenue declined by 13.9% from the same period last year to land at $1.24 billion, $40 million shy of the consensus estimate. EPS of -$0.09 missed the analysts’ call of $0.03.
That said, Morgan Stanley’s Adam Jonas thinks the key with Axle is in the use of its “ICE cash machine,” and the analyst thinks the company won’t fall in to the trap of going all out on EVs.
“While many other legacy OEMs and suppliers would plough precious cash flow into EV projects that will likely not generate their cost of capital, we believe AXL is different… that it will likely use the majority of the cash flow to de-lever the balance sheet, ensuring a superior risk-adjusted allocation of capital rather than heavily investing into the high-risk/low return EV arena,” Jonas wrote.
Accordingly, Jonas gives Axle an Overweight (i.e. Buy) rating, accompanied by a price target of $16. The implication for investors? Potential upside of ~102%.
Not all on the Street are backing Jonas’ call; the stock’s Moderate Buy consensus rating is based on 3 Buys, 2 Holds and 1 Sell. That said, most think the stock is undervalued; going by the $11 price target, shares will appreciate ~39% over the next 12 months. (See AXL stock forecast on TipRanks)
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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.
