The US stock market is poised to end the week on a positive note, fueling optimism as the long holiday weekend approaches. This positive sentiment stems from the news that the White House and congressional Republicans are nearing the final stages of reaching an agreement to raise the government’s debt ceiling, which currently stands at $31.4 trillion.
A successful debt ceiling bill would lay to rest fears that the US could default on debt obligations and avoid the risks such an event would bring with it. In the meantime, investors still have to deal with a confused market environment: stubborn inflation, high interest rates, a tight labor market, and increased fears of recession.
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 Wells Fargo.
The firm’s stock analysts are showing their upbeat outlook by selecting the stocks they see as winners for the coming year – winners with solid upside of up to 70%. Using the TipRanks database, we have looked up two of these Wells Fargo picks to see what makes them stand out.
Stagwell, Inc. (STGW)
The first stock Wells Fargo is betting on is Stagwell, a company founded by the well-known marketing bigwig Mark Penn. Stagwell’s marketing strategies focus on bringing human creativity and data analytics together to offer a more complete understanding of today’s digital world. The company backs its strategy with teamwork and talent, providing exceptional service to its clients.
Penn originally founded Stagwell in 2015, and in 2021, the company entered its current incarnation through the completion of a merger with MDC Partners. Today, Stagwell works to transform marketing through a digital-first approach. The firm operates through a network of 70 agencies in over 34 countries and serves more than 4,000 business clients worldwide.
The measure of Stagwell’s success can be seen in its total revenues. In 2022, the firm’s first full year of ops since the MDC merger, the top line came to $1.995 billion, and revenues increased through the second half of the year. The first quarter of this year, however, brought a different result.
In 1Q23, Stagwell saw both revenues and earnings fall. The quarterly revenue figure, of $622 million, was down 3.3% year-over-year and came in more than $24 million below forecasts. At the bottom line, the company reported a non-GAAP earnings figure of 13 cents per share; this missed the expectations by 7 cents.
On the positive side, Stagwell reported $53 million in ‘new net business wins’ for the quarter, and $212 million for the trailing 12 month period. The company finished 1Q23 with $138.5 million in cash on hand.
During Q1, Stagwell announced a share repurchase program, a move to both return capital to shareholders and increase the value of the stock by reducing the number of outstanding shares. The program will total 23.3 million shares; during 1Q23, the first 2.6 million were bought back for a total of $18 million.
All of this has caught the attention of Well Fargo analyst Steven Cahall, who writes of Stagwell: “STGW is carving out a name for itself as the digital-first agency network with a foundation in Digital Transformation. We est. a 3-year organic growth stack (’21+’22+’23E) of +41%, or nearly 2x the bigger Agency holdcos. STGW also has political Advocacy, and we think 2024 political spending should be in the $10-$11bn range vs $9bn in ’20. On the cost/margin side, STGW is early in developing AI tools, focused on cost reduction ($35mm cost out for ’23-’24) and the Stagwell Marketing Cloud offers high margin SaaS revenue.
“We see the catalyst to a higher stock price as executing on strong organic growth, reducing leverage and continuing to deploy capital to M&A and share repurchases,” the analyst summed up.
Cahall uses these comments to back up his Overweight (i.e. Buy) rating on this stock, and sets a $9 price target that implies a one-year upside potential of 47%. (To watch Cahall’s track record, click here)
Like Cahall, the rest of the Street is optimistic. With 4 Buys and no Holds or Sells, STGW scores a Strong Buy consensus rating. The stock’s $6.10 trading price and $9.75 average price target together suggest ~60% upside potential for the next 12 months. (See STGW stock forecast)
Zentalis Pharmaceuticals (ZNTL)
Now we’ll turn our attention to Zentalis Pharma, a clinical-stage biotech firm working on new treatments for a variety of cancers. The company uses its proprietary integrated discovery engine to develop novel small-molecule compounds as the base for new and more effective treatments. The company creates its drug candidate compounds based on a careful analysis of the cancer pathways, to ensure that potential therapeutics are on target.
The company’s approach – a careful discovery process, with drug candidates that have multiple potential applications – allows it to operate in a capital efficient manner. Zentalis’ leading candidate is azenosertib, or ZN-c3, a WEE1 inhibitor that is the subject of 8 separate clinical trials.
These trials are testing azenosertib as both a monotherapy and a combination therapy. The target cancers include uterine serous carcinoma, several ovarian cancers, osteosarcoma, and pancreatic cancer.
Upcoming catalysts from the company’s array of clinical trials include the scheduled release of positive clinical data of azenosertib as a combo treatment with chemotherapy against ovarian cancer. The data release is set for June 5, at the American Society of Clinical Oncology meeting.
Other upcoming catalysts include the planned release of data on azenosertib as a monotherapy dose during 1H23. This study will give data on maximum exposure and tolerability, as well as the clinical benefits of the drug candidate for a broad range of patients. In 2H23, the company expects to release data on azenosertib in combination with drug candidate ZN-d5. This data is being gathered in a Phase 1/2 study in the treatment of acute myeloid leukemia. Additional data on the company’s drug candidate ZN-d5, from a Phase 1/2 study against relapsed or refractory light chain amyloidosis, is also expected in 2H23.
Covering this biotech stock for Well Fargo, analyst Derek Archila sees the rash of upcoming data releases as the key point for investors to watch.
“This has been a sleepy stock, as there haven’t been a ton of clinical catalysts of late. Therefore, we like the setup, as the upcoming updates seem under the radar and the stock remains heavily shorted—could see a big squeeze… We like the risk/reward ahead of the dose optimization/RP2D data and subsequent ASCO presentations… In our base case for both updates, we think shares move to mid $40s (+100%), implying at ~$2.5B mkt cap, which we think is reasonable,” Archila opined.
All of the above prompted Archila to rate ZNTL an Overweight (i.e. Buy). On top of this, the analyst gives the stock a $46 price target, suggesting ~70% share appreciation in the coming year. (To watch Archila’s track record, click here)
This is another stock that gets a unanimous Strong Buy rating from the Wall Street analysts, this one based on 8 recent positive reviews. ZNTL is trading for $26.98 and its $48.25 average price target implies a 12-month gain of ~79%. (See ZNTL 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.
