After several months of building up a crisis, Russia launched a full-dress invasion of Ukraine on February 24. Markets have been see-sawing through the crisis, as investors have been unsure how to respond to a notably tougher – and less predictable – financial environment. The market confusion has been heightened by several factors, notably the surprisingly stout resistance of the Ukrainian forces and the unexpectedly weak performance of the Russian Army.
In the background, we have the US Federal Reserve on the verge of tightening monetary policy and raising interest rates – which will undoubtedly slow growth. As a result, the stock market has stuttered this year, and the NASDAQ, down 13%, is in a correction.
Mike Wilson, chief U.S. equity strategist at Morgan Stanley believes the domestic factors will play in for greater influence in the US markets, writing, “While the Russia/Ukraine situation obviously can make this slowdown even worse, ultimately, we think that preexisting fundamental risks we’ve been focused on for months will be the primary drivers.”
So, where to now? Wilson believes the stock market is oversold but caution is warranted now. He writes, “[We] appreciate that equity markets are very oversold and sentiment is bearish even if positioning is not. With the Russia Ukraine situation now weighing heavily on equity markets, relief would likely lead to a tactical rally, but we acknowledge that uncertainty remains extremely high.”
Against this backdrop, Morgan Stanley’s stock analysts have been picking out the equities that they see ready to gain in a tough environment – in fact, they see more than 60% upside in store for these stocks. We’ve looked up three of their choices on the TipRanks platform, to pick up the latest details.
ironSource (IS)
The digital economy places premium on apps, and ironSource, a global software company, has moved to capitalize on that fact. ironSource offers app owners and developers a platform for monetization, boasting that its customer can focus on creating new apps ‘while we take care of the rest.’ ironSource’s platform has functions to monitor a full range backstage features for apps, including promoting user growth, monetizing the app, analyzing app data, creative management, and publishing.
ironSource has a global reach, with 9 offices around the world, a platform that is used by 87% of the top 100 online games, and over 2.3 billion active users. In the fourth quarter of 2021, ironSource showed $158.2 million at the top line, up 46% from the year-ago quarter. EPS was listed at 2 cents, flat from the previous quarter and year-over-year, but lower than the 3 cents predicted. Full-year data showed even higher growth, with $553 million at the top line, up 67% yoy. The company is forecasting $820 million in sales for 2022, which will translate to 48% yoy growth if achieved.
This company jumped on the SPAC bandwagon last year, going public on Wall Street through a business combination with Thoma Bravo Advantage. The IS ticker started trading on June 29, and the transaction brought ironSource $2.15 billion gross cash proceeds. Shares in IS started trading at $11 each, and they have since fallen by 47%.
Covering the stock for Morgan Stanley, analyst Matthew Cost writes that he remains bullish on ironSource, including among his reasons: “(1) Sonic’s 4Q performance and contribution to ’22 guidance speak to a product that is still only beginning to reap the benefits of a diversified contextual data set, derived from sources across the advertising, telco, and publishing solutions… (2) We remain bullish on Aura’s two new (as yet undisclosed) telco customer signups, which we expect to become important contributors over the course of ’22.” (3) We continue to view IS as well positioned to benefit from incremental privacy changes in the mobile ecosystem.”
In line with these comments, Cost rates the stock an Overweight (i.e. Buy), with a $10.50 price target that implies an upside of 79% for the year ahead. (To watch Cost’s track record, click here)
The Morgan Stanley view is bullish, but it’s hardly an outlier, as Wall Street gives ironSource shares 10 Buy reviews against 1 Hold for a Strong Buy consensus rating. The shares have a 93% upside potential, based on an average target of $11.32 and a current trading price of $5.87. (See ironSource stock forecast on TipRanks)
Werner Enterprises (WERN)
Next up in a Nebraska-based logistics company, Werner Enterprises. The company operates across the US, Mexico, and Canada, with other 13,500 employees and contractors. Werner is a trucking company, offering a full range of shipping services, including one-way trucking, dedicated shipments, intermodal shipments, temperature-controlled trailers, expedited transport, cross border trucking, and ‘final mile’ transport.
The supply disruptions of the past few 6 to 8 months have not been kind to the company, putting up serious headwinds and forcing its Q2 and Q3 results last year below the forecasts. However, Werner has been able to weather that storm, and reported $765.2 million at the top line for 4Q21, and $2.73 billion in revenues for the full-year 2021. EPS in Q4, after coming in blow estimates in the previous two quarters, rose to $1.13 per share, well above the 96-cents expected.
Among the bulls is Morgan Stanley analyst Ravi Shanker, who lays out a bullish case for long-term investors: “Short-term investors may fret the near-term cost head winds and whether the cycle will be alive and well when WERN overcomes these cost challenges but it is clear that management is building a LT earnings machine. The LT targets, if achieved, point to $6.50-7.00 EPS…. The near-term story may not be as spicy as some peers but we believe WERN can be a strong compounder over time.”
To this end, Shanker rates WERN an Overweight (i.e. Buy), along with a $73 price target that indicates potential for ~68% upside over the next 12 months. (To watch Shanker’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 6 Buys, 2 Holds and 1 Sell add up to a Moderate Buy consensus. In addition, the $53.78 average price target indicates ~24% upside potential. (See WERN stock forecast on TipRanks)
Allbirds, Inc. (BIRD)
We’ll wrap up today’s list of Morgan Stanley picks with Allbirds, a New Zealand-based selling footwear on a sustainable basis, offering products with a lower carbon footprint – up to 30% lower – than standard sneakers. Allbirds has committed itself to making its manufacturing process environmentally friendly, using sustainably-sourced, all-natural materials in its product line. Source materials in the shoes include sugarcane, eucalyptus wood, and merino wool.
Since its founding in 2015, Allbirds boasts that it has sold more than 8 million pairs of shoes, a remarkable total for a company that has skipped going wholesale and relied solely on direct-to-consumer marketing. Of the company’s 4 million customer, some 3.3 million, or 82%, are in the US.
The company moved to build on this sales success by going public last year, holding an IPO in November. Allbirds sold 23.22 million shares in the event, of which 16.85 million were put on the market directly by the company and raised some $303 million in new capital. This followed a $1.7 billion funding round in 2020, and gave Allbirds a solid base to continue operations.
In its 4Q21 earnings report, Allbirds reported two trends that should reassure investors. First, revenues were up sequentially, from $62 million to $97 million, a company record. And second, the quarterly EPS loss moderated from 25 cents to 9 cents. For the full year 2021, Allbirds showed $277 million in net revenue, up 27% from 2020.
Analyst Kimberly Greenberger covers Allbirds for Morgan Stanley, and she likes what she sees.
“The compelling product offering has allowed management to take prices without experiencing price resistance, all while acquiring new customers (+1M new customers for the third year in a row) and growing AOVs (+11% y/y in 2021). In our view, this demonstrates brand momentum has not slowed down and likely carries into 2022and beyond. Additionally, management’s 2022 revenue guidance of +30% y/y at the mid-point implies an acceleration in top-line growth y/y, driven by 1-3% pts of benefit from additional price increases, which we view as achievable,” Greenberger opined.
Based on the above, Greenberger sets a price target of $17, suggesting a robust 126% upside to go along with her Overweight (i.e. Buy) rating on the stock. (To watch Greenberger’s track record, click here)
Overall, this unique footwear company has picked up 12 reviews since its IPO, and they include 10 Buy against just 2 Holds for a Strong Buy consensus rating. The average price target of $18.82 implies a powerful 150% upside potential from the current share price of $7.52. (See BIRD 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.
