In a time of uncertain market futures, when increased volatility is the rule of the day, it’s only natural to seek out expert advice. The only question is, who to turn to? There are over 7,000 professional stock analysts working on the Street, and their published notes number in the hundreds of thousands. There’s just too much raw data out there for the retail investor to parse.
So don’t try to tackle it all. Start by paring down the dataset and focus on the best analysts. Wall Street’s top analysts have built their reputations on a combination of accurate calls and high rates of returns, making their reports gems in the mine of information.
The investment firm Jefferies has the good fortune to employ several of the Street’s best analysts, from multiple sectors. So let’s find out what three of them have to say, about three different stocks. These are Buy-rated equities, with considerable upside potential – and recent thumbs up from one of Jefferies’ top market analysts.
SMART Global Holdings (SGH)
We’ll start with a company in the semiconductor chip sector, a vital manufacturing niche in our digital economy. SMART is a holding company, working through subsidiaries that design and produce memory systems for computing devices – desktops, laptops, tablets, and smartphones. The company’s products include DRAM modules, Flash storage, and solid state memory.
While the chip industry is facing headwinds – its supply and distribution chains were badly disrupted during the height of the pandemic crisis – that are not yet fully resolved, the reopening of economic activity in recent months has boosted demand. SGH shares have reflected that demand, and the stock is up an impressive 80% in the past 12 months.
In early July, SMART reported results for its third quarter of fiscal year 2021, and the top line result was notable. At $437.7 million, the total revenue was a company record, and 43% from the fiscal second quarter and an even more robust 55% from the year-ago quarter.
This stock is covered by Jefferies analyst Mark Lipacis, rated #7 overall by TipRanks, who notes that shifting the company’s operations away from the Brazilian market is a net positive for SMART, as it focuses on areas of greater profitability.
“Our sense is that most investors still view SGH as a Brazil memory company; we model Brazil memory declines to 25% of revs in CY22 from 60% in CY18. We expect its Intelligent Platform Solutions (IPS) segment to grow at a 20%+ CAGR driven by demand for HPC platforms, and both the IPS and LED segments to post 30%+ gross margins. We view the diversification away from Brazil as particularly positive given that 1) the other businesses have a longer lifecycle and are thus more profitable; and 2) the shift makes SGH less dependent on an emerging market,” Lipacis explained.
The analyst is bullish on SMART’s ability to make this shift, and to capitalize on increased demand for memory chips globally. He rates SGH a Buy, along with a $72 price target. This figure suggests ~66% upside potential for the year ahead. (To watch Lipacis’s track record, click here)
Overall, SMART has a unanimous Strong Buy consensus rating from the Wall Street analysts, with 5 recent positive reviews. At a trading price of $43.38 and an average price target of $69.75, the stock’s one-year upside potential ~61%. (See SGH stock analysis on TipRanks)
Nautilus Biotechnology (NAUT)
Now let’s shift gears and enter the world of healthcare. Nautilus Biotech is addressing the application of proteomics – the study of the complete protein set of an organism – to therapeutics. Proteins are vital for the chemical processes of life, and are frequently implicated in disease processes; a greater understanding of proteins, their functions, and their interrelations will open up a new vista in personalized medicine. Nautilus’ proteome research platform is still in development, and the company foresees a commercial launch in the second half of 2023.
Nautilus has seen two major news events in recent weeks. The first was the company’s debut on the public markets. Nautilus entered the NASDAQ index through a SPAC transaction, with Arya Sciences Acquisition Corporation III. The business combination was completed on June 9, and the NAUT ticker started trading the next day. Nautilus received approximately $345 million in gross proceeds from the SPAC combination, which it can apply to its platform development.
The second major event came earlier this month, when Amazon, the e-commerce giant, make a large purchase of NAUT shares. Amazon disclosed in a regulatory filing that it owns 1.46 million shares of the biotech firm, worth over $10.8 million at current prices. The disclosure prompted a surge of interest in the shares, which showed a gain as high as 50% during trading immediately after the revelation.
Brandon Couillard covers Nautilus for Jefferies. The analyst, who is an expert in the healthcare sector, is rated #26 overall by TipRanks. More impressively, Couillard holds the top spot among healthcare industry specialists.
“We believe the emerging field of next-gen proteomics tools is today akin to where the field of genomics & DNA sequencing was in early-2000s. While DNA contains the blueprint of biology, proteins are responsible for controlling & determining the behavior of cells – both healthy & diseased cells. However, unlike the human genome, researchers have generally lacked tools capable of elucidating much of the human proteome. New protein profiling technologies, like that being developed by NAUT, hold significant promise to enable new biologic insights that could open a new era of personalized & predictive medicine. Over time, we believe the TAM could exceed $25B,” Couillard opined.
In line with these bullish comments, Couillard rates NAUT shares a Buy, and his $13 price target indicates confidence in ~75% share growth over the next 12 months. (To watch Couillard’s track record, click here)
NAUT has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent ratings; Buy and Hold. With shares trading at $7.42, the $11.50 average price target suggests room for ~55% upside. (See NAUT stock analysis on TipRanks)
Timken Company (TKR)
Last up on our list of Jefferies’ picks is Timken, an industrial play. Timken is a manufacturer of precision engineered bearings and power transmission products, with a global reach and operations in 42 countries. The company’s products include roller bearings, couplings and universal joints, clutches and brakes, worm gear drives – the list is as long as industrial needs are varied. Timken saw total revenues of $3.5 billion in 2020 despite the pandemic crisis, underlying the necessary nature of its product line.
At the beginning of August, Timken released its 2Q21 results, which management described as ‘strong.’ The company reported $1.06 billion in quarterly revenue, a company record – and up 36% from the year-ago quarter. EPS came in at $1.36, down 7% from Q1, but up an impressive 65% year-over-year. Net cash flow for the quarter reached $147 million, of which $116 million was free cash flow. All-in-all, it was a solid performance by an industrial player in an essential niche.
The extent of management’s confidence could be seen in the dividend. The common share payment was increased 3%, to 30 cents. While the annualized payment gives a yield of just 1.6%, less than the roughly 2% market average, the company’s dividend is considered rock-solid reliable. Timken’s June dividend marked its 369th consecutive payout.
Timken is covered by Jefferies’ 5-star analyst Stephen Volkmann, the top analyst among industrial specialists. Volkmann’s rates the stock a Buy and his $110 price target implies an upside of 49% in the months ahead. (To watch Volkmann’s track record, click here)
“TKR’s near-term outlook is tempered by supplier issues rather than demand,” Volkmann wrote. “The company’s unchanged organic revenue outlook calls 15% growth plus 1% in acquisitions and 3% from FX which is up from 2% previously. Volume momentum does point favorably for the Mobile side of the business with encouraging longer-term trends supporting growth beyond 2022…”
The analyst added, “We see scenarios that could drive significant upside to our above-consensus 2022E. Delayed revenue from 2021 could easily drive growth into the double digits, in our view, while better price/cost, more normal productivity, distributor restock and mix should all be positive.”
Traditional industrial stocks can sometimes slip under the radar, and Timken has only 2 recent reviews. They are split between Buy and Hold, giving the stock its Moderate Buy rating. The shares are selling for $74.87 and have an average target of $97, suggesting ~30% one-year upside potential. (See TKR stock analysis 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.
