Despite the modest rally that we’ve seen since late May, volatility still rules the markets. The overall trend for the year has been down – to the tune of 14% on the S&P 500 and 23% on the NASDAQ. It’s not exactly an environment that would encourage large-scale buying.
But Marko Kolanovic, global market strategist from JPMorgan, takes the contrarian view, explaining why, in his view, current low prices represent opportunities.
“As the market got into oversold conditions, it didn’t take much to completely reverse losses—there were measured comments from the Fed (Bostic), and management of financial institutions giving hope that a policy error and recession may be avoided. Corporate buybacks kicked in post earnings… We believe that this will be a template for the whole year, in the sense that the market sold off in the first half of the year and will be followed by a gradual recovery in the second half,” Kolanovic opined.
In the meantime, Kolanovic’s colleagues among the JPMorgan stock analysts are not shy about pointing out two stocks with potential for solid gains going forward – gains on the order of 50% or better. According to TipRanks’ database, both have received plenty of love from other analysts as well, earning a ‘Strong Buy’ consensus rating. Let’s take a closer look.
The first JPMorgan pick is Volaris, a discount airline and a major carrier in the Mexican air travel market. Prior to the pandemic, Volaris held a 28% market share in its home country’s domestic market, giving it a leading position. The airline offers ultra-low-cost fares to destinations across Mexico, the US, and Central and South America.
Volaris has, since the third quarter of 2021, shown a strong revenue rebound from the depressed results of the pandemic period. In the recently reported 1Q22, the company showed a top line of US$567 million, up 80% from the first quarter of 2021. Volaris’ total revenue per available seat mile (TRASM), a key industry metric, rose 18% to reach 7 cents. All of this led to quarterly cash generation of $9 million, and a total cash position – including other liquid assets – of $750 million. The total cash position represented 31% of the previous 12 months’ total operating revenue.
The company credited a combination of factors, including higher capacity and continued strong demand despite ongoing COVID cases, for these gains. Passengers transported increased by 64% year-over-year during the first quarter, with domestic travel gaining 58% and international gaining 95%. The company’s available seat miles (ASM, another key industry metric, measuring capacity), grew 50%.
Higher fuel costs, however, powered an increase in operating costs to $598 million in the quarter, resulting in a net loss of $31 million. Volaris reported a net loss per American Depositary Share of 42 cents.
Despite the losses, J.P. Morgan analyst Fernando Abdalla lays out an upbeat case for this discount airline, writing: “Within our LatAm airline universe, Volaris is our top pick, based on: i) a competitive CASM, given its low cost model; ii) well positioned in the Mexican market and appropriate fleet, supporting future growth; iii) solid financial discipline; and iv) strong potential for air travel expansion in Mexico. We find interesting upside potential on the name, as we believe it trades at an undeserved discount to its LatAm peers.”
Putting these comments into quantifiable numbers, Abdalla sets a $23 price target, suggesting a 55% gain for the stock by year’s end. Along with this, he rates the shares an Overweight (i.e. Buy). (To watch Abdalla’s track record, click here)
While JPM is bullish, it’s no outlier on this airline. Volaris has picked up 4 recent analyst reviews, and all agree that the stock is a buying proposition, for a unanimous Strong Buy consensus rating. The stock is currently priced at $14.81 and its $26.50 average price target implies a one-year upside potential of ~79%. (See Volaris stock forecast on TipRanks)
Marvell Technology (MRVL)
Now we’ll change direction, and focus on a semiconductor chip company. Marvell, a $50 billion giant, is known for its wide range of chipsets. The company’s products are used in automotive systems, data processors, ethernet network switchers, security processors, storage accelerators, and SSD controllers, to name just a few applications. Marvell’s versatile product line brought in $4.46 billion in revenue for the company’s fiscal year 2022.
In the current fiscal year, Marvell is continuing to see increasing sales and revenue. The company reported $1.45 billion at the top line in fiscal 1Q23, reported at the end of last month, and a non-GAAP diluted EPS of 52 cents. Marvell also reported cash flow from operations of $194.8 million. Revenues were up 8% year-over-year, while the EPS measure was up 79%, and the cash from ops was a massive turnaround form the 1Q22 loss of $13.7 million.
Looking forward, Marvell is guiding toward a fiscal 2Q23 top line of $1.51 billion at the midline, which will translate to non-GAAP diluted EPS of 56 cents. These results are supported by the company’s strong position in the data center and SSD markets.
In addition, Marvell offers investors a reliable, albeit low-yield, dividend payment. The company has paid out 6 cents per common share every quarter going back as far as 2012. Not many firms can match that level of reliability. Marvell also has an active share repurchase program to support the stock price.
In his most recent comments on Marvell shares, JPMorgan 5-star analyst Harlan Sur sees plenty of potential for the company.
“We believe that the enterprise/cloud SSD (eSSD) controller opportunity and future CXL memory/storage connectivity solutions represents a $1.5-$1.7B silicon/firmware opportunity in CY24/CY25 and drive an 18-20% growth CAGR. For Marvell, we estimate the team will grow its eSSD controller + CXL revenues to $650M+ in revenues in CY25 (from $275M in CY21) and drive a 23-25% revenue CAGR – capturing 40%+ share and a strong #1 leadership position in this segment of the market,” Sur noted.
“We believe the market continues to underestimate the strong growth outlook in Marvell’s networking, compute, and storage silicon franchises and the eSSD controller/CXL opportunity in cloud/enterprise storage is a great example of the team’s strong market leadership position and opportunity,” the analyst added.
Sur doesn’t stop there. He puts an Overweight (i.e. Buy) rating on MRVL stock, and backs it with a $100 price target – which at current levels implies a one-year upside of 68%. (To watch Sur’s track record, click here)
Tech firms like Marvell typically get plenty of attention from the Street, and this stock has 18 recent analyst reviews on file. These break down to an impressive 17 to 1 split in favor of Buys over Holds, for a Strong Buy consensus rating. MRVL shares are priced at $59.35 and their average target of $85.44 indicates potential gains of ~44% over the next year. (See MRVL 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.