The first quarter is behind us and it has not lacked drama. Most recently, it has all been about the banking sector and fears that in the wake of multiple bank collapses, contagion could spread and spill over to impact the global financial system. However, it appears that, at least for the time being, these concerns have been addressed.
But there’s still plenty of uncertainty about with inflation still high and the prospect of a recession looming. Against this shaky backdrop, how’s an investor to find the stocks primed to deliver?
This is where the stock pros make their entrance; investors can keep an eye on the recommendations made by top banking firms, such as J.P. Morgan.
The firm’s stock experts have homed in on a pair of equities they see fit for gains – with one anticipated to generate returns of more than 130% in the coming months. Are other Wall Street analysts in agreement here? We dived into the TipRanks database to pull up the details and find out. Let’s check the results.
Mersana Therapeutics (MRSN)
The first JPM pick we’re looking at, Mersana Therapeutics, is a clinical-stage biopharmaceutical firm. This biotech is working with antibody drug conjugates (ADCs) to develop new cancer treatments featuring both increased tolerability and highly selective targeting, with the goal of increasingly meaningful clinical benefits. The company’s research tracks are based on novel drug candidates combining both monoclonal antibodies with existing anti-cancer drugs.
The biggest recent news from Mersana came last month – and it was not good news. On March 13, the company announced a clinical hold on its recently initiated Phase 1 trial of XMT-2056. The drug candidate, Mersana’s first Immunosynthen STING-agonist ADC product to enter human clinical trials, is under investigation as a potential treatment for solid tumors. The company had to report a fatal serious adverse event, however, that was deemed connected to the treatment. Mersana has voluntarily placed the trial on hold pending further investigation. This development will ripple outwards, as this programs was recently licensed to GSK for $100 million.
On a positive note, the XMT-2056 track was only one of Mersana’s clinical trials, and not the most advanced. The company’s leading clinical program focuses on upifitamab rilsodotin, also called UpRi. This advanced drug candidate is currently the subject of several clinical trials, including: the UPLIFT Phase 2 pivotal registrational trial against platinum resistant ovarian cancer, which has completed enrollment of 270 patients; the UP-NEXT Phase 3 trial, against NaPi2b-postive platinum-sensitive ovarian cancer; and the UPGRADE-A Phase 1, recently initiated at the dose expansion stage. Mersana expects data readouts on the UPLIFT and UPGRADE-A trials by the end of this year.
Covering this stock for JPMorgan, analyst Brian Cheng sees the UpRi tracks as the key point for investors’ consideration. He notes the failure and hold in the -2056 program, but believes that it is overshadowed by the potentialities of UpRi.
“While we recognize bear pushback on UpRi’s safety overhang, particularly around lung toxicities (ILD), we believe UPLIFT’s design has mitigated much of the high grade pneumonitis risks. At the current valuation, we believe the set-up going into the binary catalyst skews favorably toward upside despite weakness driven by the clinical hold for an unrelated early-stage program,” Cheng opined.
“Additionally,” the analyst continued, “we view the opportunities to expand beyond the initial UPLIFT indication for UpRi, together with a robust set of pharma partnerships that are already in place, as attractive call options… we see risk/reward ratio as skewing favorably toward upside heading into the mid-year readout…”
Putting this stance into numbers, Cheng rates MRSN an Overweight (i.e. Buy) with a $10 price target to indicate confidence in a 140% upside potential for the next 12 months. (To watch Cheng’s track record, click here)
Cheng is definitely bullish here – but the Street overall is even more so. Mersana has 5 recent analyst reviews, all positive, giving a unanimous Strong Buy consensus rating. And, the $14.50 average price target implies a robust 249% upside on the one-year time frame. (See MRSN stock forecast)
Chubb Limited (CB)
For the second JPMorgan pick, we’ll switch over to the insurance industry, where Chubb is the ‘world’s largest publicly traded property and casualty insurance company.’ The firm operates in 54 countries globally, offering P&C policies in both personal and commercial markets, as well as accident insurance, healthcare policies, and life insurance.
Most of us have some need to protect our personal, family, or business finances, and so insurance companies typically have a ready market – and Chubb is no exception. The company has the resources to provide and underwrite its huge range of products – although the 4Q22 earnings results were mixed, compared to expectations.
The $10.2 billion in consolidated net premiums for 4Q22 were up almost 12% year-over-year – and handily beat the $9.28 billion consensus. Net income for the quarter fell year-over-year, however; at $1.31 billion, it was down 38% from 4Q21. Moreover, the adj. EPS of $4.05 missed the consensus expectation of $4.25.
During Q4, Chubb paid out a total of $345 million in dividends. The last declaration was made in February, for an 83-cent per common share payout on April 10. The annualized rate, at $3.32 per common share, gives a modest yield of 1.7%, but the company has a history of reliable payments going back more than 25 years.
JPMorgan’s Jimmy Bhullar has recently upgraded Chubb’s shares from Neutral to Overweight (i.e. Buy). To support his bullish stance, the analyst wrote: “Our long-term fundamental outlook for CB has been positive, but we have been reluctant to recommend the stock due to concerns about slowing price hikes in the commercial lines market and the stock’s valuation. Although we continue to expect commercial lines pricing to slow, this is less of a concern at the stock’s current valuation.”
“Moreover,” the analyst added, “while not immune, we feel that the P&C sector is less exposed to concerns such as client withdrawals, credit deterioration, and declines in rates that are weighing on other financials sectors (banks, life insurers, asset managers). Also, we consider CB to be more defensive than its peers in a downturn.”
In addition to the Overweight rating, Bhullar gives CB a price target of $239, implying a gain of 23% out to the one-year horizon. (To watch Bhullar’s track record, click here)
Looking at the ratings breakdown, the stock’s 14 recent analyst reviews show 9 Buys, 4 Holds, and 1 Sell, for a Moderate Buy consensus view. The shares are trading for $196.56, and their $243.40 average price target suggests ~24% one-year upside from that level. (See CB stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.
