Investors are facing a confusing environment, with long- and short-term signals sending different messages. Inflation remains stubbornly high, above an 8% annualized rate, and the Federal Reserve has made it clear that additional interest rate hikes are in the offing. Stocks are well off their highs, and despite last Friday’s gains, the S&P 500 and the Nasdaq posted their sixth consecutive weekly loss.
But there are positives, too. The 1Q22 earnings season gave an upbeat vibe, as more than three quarters of the S&P-listed companies reported positive earnings surprises. However, while corporate earnings are up for now, the purchasing managers index (PMI), a measure of inflation from the production side, is running at 11%, suggesting a higher rate of consumer inflation later in the year.
So how do you find the next hot stock to buy in this environment? One way might be to screen for stocks that have been endorsed by analysts at major investment banks in particular, such as Wall Street banking giant Morgan Stanley.
The firm’s stock analysts are showing their upbeat outlook by selecting the stocks they see as winners for the coming year – and winners with substantial upside, on the order of 60% or better. Using the TipRanks database, we’ve looked up three of these Morgan Stanley picks, to see what makes them stand out.
SI-Bone, Inc. (SIBN)
We’ll start in the healthcare industry, with SI-Bone, a medical tech and device company. SI-bone works in the field of sacroiliac joint pain and diagnosis, or the treatment of lower back problems where the spine connects to the pelvis. Musculoskeletal disorders of the sacropelvic region have a large impact on quality of life, an SI-Bone’s mission is to develop new surgical devices and procedures to solve these issues.
The company’s lead product is the iFuse surgical implant system. This orthopedic implant device is designed for surgical procedures featuring smaller incisions and faster recovery times, and its triangular shape is proven to produce a more effective result in the patient’s recovery. SI-Bone saw significant pressure early in the year, when medical procedure deferments generally peaked. SI-Bone’s total deferments in January and February reached approximately 140 – but there were fewer than 20 in the month of March, indicating an acceleration of business.
The company’s worldwide revenue grew 22% in Q1, to reach $20.4 million. This number included a gross profit of $18.2 million, for a gross margin of 89%. This compared favorably to the $16.8 million in revenue and $14.8 million profits from the same quarter last year. EPS, however, came in negative. The net loss of 37 cents per share was an improvement, however, over the 47-cent EPS loss in the year-ago quarter. SI-Bone finished Q1 with cash and short-term liquid assets, including inventory, of $208 million.
Morgan Stanley analyst Drew Ranieri has a positive outlook for SI-Bone’s immediate future, writing: “While 1Q was in line with our expectations, the recovery trends exiting the quarter remain promising for the balance of 2022, and we see a positive setup for upside through the balance of the year if pandemic procedure pressures continue to abate. Broadly, our commercial inflection point thesis remains intact, and we believe this should become more visible as procedure recovery takes further hold through 2022.”
To this end, Ranieri rates SIBN shares an Overweight (i.e. Buy), and his $22 price target implies a one-year upside of 76% for the year ahead. (To watch Ranieri’s track record, click here)
Overall, there are 5 additional analyst reviews on this medtech firm, and they all agree with Morgan Stanley’s bullish take – for a unanimous Strong Buy consensus rating. The shares are selling for $12.50, and their $27.50 average price target indicates room for a 120% one-year upside potential. (See SIBN stock forecast on TipRanks)
Palo Alto Networks (PANW)
The next stock under Morgan Stanley’s radar is Palo Alto Networks, a leader in the digital world’s security segment. The company offers its customers protection from malware attacks through state-of-the-art network firewall technology. Palo Alto’s product line allows customers to automate their online and network security operations, to secure cloud activities and applications, and even to home and small business networks with enterprise-grade security.
Given the increasing importance of online security – both generally, and specifically in today’s work environment of increased remote and home office activity – it should come as no surprise that Palo Alto’s revenues and earnings are both up. At the top line, the company has seen increasing revenue numbers for the last two years; the most recent report, for fiscal 2Q22, showed 30% year-over-year revenue growth to $1.3 billion. Non-GAAP diluted EPS was reported at $1.74 for the quarter, up 12% y/y.
Looking ahead to the full fiscal year 2022, the company expects its total billings to reach between $6.8 billion and $6.8.5 billion. This would represent a y/y gain of 25% to 26%, and would support revenues in the range of $5.425 billion to $5.475 billion. For comparison, the top line in fiscal 2021 came to $4.256 billion.
All of this adds up, in the view of Morgan Stanley’s Hamza Fodderwala, to a solid prospect for investors. Fodderwala writes of PANW, “Security remains a top priority due to rising cyber threats and is by far the most defensive area of spend within IT budgets), with Palo Alto Networks positioned as a top strategic vendor to capture more wallet share within a large installed base of nearly 60K customers. With durable topline growth plus a focus now on driving higher margins and capital return, we view PANW as one of the most attractive risk/reward opportunities in software.”
In line with these bullish comments, Fodderwala rates PANW an Overweight (i.e. Buy), and sets a price target of $823 to suggests an upside potential of ~68% going forward into next year. (To watch Fodderwala’s track record, click here)
This view is far from the only bullish take on Palo Alto Networks. The stock has no fewer than 23 Buy ratings on record, overwhelming the 2 Holds for a Strong Buy consensus view. The shares are selling for $491.01 and their average target of $656.88 implies an upside of ~34% from that level. (See PANW stock forecast on TipRanks)
ZoomInfo Technologies (ZI)
We’ll wrap up with another tech firm, ZoomInfo. This company offers a range of B2B services, through a cloud-based platform, that include sales and marketing, prospecting, demand generation, account management, data management, and custom data solutions. The company’s platform gives both marketers and sellers the tools they need for a comprehensive view of their business landscape, to shorten sales cycles and increase win rates.
ZoomInfo already holds a strong position in its niche, but that has not prevented it from taking steps to expand its footprint. Early this month, ZoomInfo announce that it had acquired the digital marketing and branding platform Comparably, combining that company’s platform with ZoomInfo’s existing TalentOS. ZoomInfo did not disclose financial terms of the acquisition, which is expected to show a positive impact on the firm’s full-year 2022 results.
On the same day as the Comparably announcement, ZoomInfo released its results for 1Q22. The company posted revenue of $241.7 million, up an impressive 58% year-over-year, and 18 cents per share in non-GAAP diluted earnings. That EPS result was flat sequentially, but up 38% from the year-ago quarter. The company had $125.9 million in unlevered free cash flow during the quarter.
ZoomInfo expects revenue for this calendar year to reach $1.06 billion to $1.07 billion, an increase from the previous guidance of $1.01 billion to $1.02 billion. Management expects this revenue to generate between $435 million and $445 million in unlevered free cash flow for the year.
5-star analyst Keith Weiss, covering this stock for Morgan Stanley, writes of the company’s outlook: “We believe a higher level of investment to build out the platform capabilities is warranted in light of sustained momentum and large market opportunity… We see ZI as one of our top ideas into 2022, as the company continues to deliver near 50% organic growth supplemented with best-in-class profitability.”
Acknowledging the company’s potential growth, Weiss rates ZI shares an Overweight (i.e. Buy), and his $81 price target suggests an upside of ~84% for the year ahead. (To watch Weiss’s track record, click here)
Wall Street’s tech firms typically pick up a lot of analyst attention, and ZoomInfo has 14 recent reviews. These include 13 Buys and a single Hold, for a Strong Buy consensus rating. The shares have an average price target of $71.08, suggesting ~61% upside from the current trading price of $44.03. (See ZI 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.