While the overall stock market direction so far this year remains up, the path ahead still presents plenty of potential headwinds. Inflation has yet to be properly tamed, the geopolitical map remains uncertain with Russia’s invasion of Ukraine still ongoing and Covid variants could reappear at any time. Add in the prospect for a fiery battle in Congress around raising the debt ceiling, and Oppenheimer’s Chief Investment Strategist John Stoltzfus thinks market volatility is “unlikely to leave the landscape.”
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However, these should not act as deterrents for stock investing, with Stoltzfus noting “there never is ‘an all clear signal’ sounded over the markets.”
“Experience tells us that with opportunity comes risk and with risk comes opportunity whether in everyday life, businesses on Main Street, or in the Canyons of Wall Street,” he went to say, before championing “diversification.”
With that idea in mind, let’s take a look at two stocks that Stoltzfus’ analyst colleagues at the banking firm believe make sound investment choices right now. In fact, one of them, according to the analysts, could surge as much as 170% over the next 12 months. Let’s take a closer look.
Icosavax, Inc. (ICVX)
The first name we’ll look at is Icosavax, a research-oriented biotech company working on new classes of vaccines using virus-like particles, with the aim of protecting older adults from respiratory viruses. The company is now at the clinical trial stage, with four research tracks in progress, two at the Phase 1 stage and two more in pre-clinical stages.
Icosavax’s most advanced pipeline candidate, IVX-121, is under investigation as a vaccine for the treatment of respiratory syncytial virus (RSV). It is currently at the Phase 1b stage, and the data released so far has been encouraging.
The second advanced program is the Phase 1 clinical trial of IVX-A12, a combination bivalent RSV and hMPV VLP vaccine candidate developed through the fusion of IVX-121 with the company’s older drug candidate, IVX-241. The Phase 1 trial should have a topline data readout in the middle of the year. A Phase 2 trial of this candidate is planned for initiation in 2H23.
Icosavax is pre-revenue, as it does not yet have a product on the market or partnership agreements with other drug companies. On the financial side, however, the company does have resources to lean on – in its last financial report, for 3Q22, the company had $222.5 million in cash on hand, enough to fund operations into 2024.
Oppenheimer’s 5-star analyst Hartaj Singh follows this stock, and he takes an upbeat stance on this vax developer’s path. Singh writes: “We believe that the company has a differentiated vaccine platform, utilizing virus-line particles (VLPs) to manufacture and test vaccines against respiratory pathogens in humans. This scalable platform can help produce differentiated vaccines with a robust risk/benefit profile and durable immunogenicity… The company exits 2022 with robust Phase 1 data in RSV, and with 6-month durability. In 2023, we expect proof-of-concept (PoC) in bivalent RSV/hMPV and 12-month RSV data. We are bullish.”
Bullish, indeed. Going forward from this position, Singh rates Icosavax shares an Outperform (i.e. Buy), with a price target of $27 to suggest a robust 170% upside potential in the coming year. (To watch Singh’s track record, click here)
Overall, this small-cap biotech has picked up 5 recent analyst reviews – and they are unanimously positive, for a Strong Buy consensus rating. (See ICVX stock forecast)
Toll Brothers, Inc. (TOL)
Next up is Toll Brothers, a Fortune 500 company in the construction industry. Toll Brothers designs, builds, markets, and finances residential and commercial properties in the US. The company is one of the largest such firms operating in the US real estate and construction industry, and is one of the top-five home builders in the US.
Persistently high inflation, and the Fed’s increased interest rates in response, have put heavy pressure on the real estate and construction sector, and TOL shares finished a rocky 2022 with a 30% annual loss.
However, the shares have been on the up in recent months boosted by strong FQ4 (October quarter) results, in which the company beat expectations. Toll reported a bottom-line EPS of $5.63, beating the analyst forecast of $3.94 by a wide margin – and growing 86% year-over-year. At the top line, the company had revenues of $3.71 billion, a solid $500 million above the consensus estimate, and up 22% from fiscal 4Q21.
Two conflicting metrics will show how the current environment remains difficult to navigate. The company’s backlog of homes had, as of the end of fiscal 2022, an average price of $1.095 million, up from $922,100 at the end of the prior fiscal year. Higher prices can help to offset lower demand – but demand is dropping quickly, as evidenced by a Q4 y/y spike in cancellations as a percentage of signed contracts, from 4.6% to 20.8%. It remains to be seen which metric – higher prices or falling demand – will predominate going forward.
Putting these metrics aside, according to Oppenheimer analyst Tyler Batory, Toll shares are trading at ‘compelling valuation levels.’
“We see less downside risk to gross margin than with other builders given its to-be-built business model and backlog. These factors should also allow the company to be patient in terms of managing its pace and price in FY23. We also think the company should get credit for having the best balance sheet and leverage profile in its history. With shares trading at 0.92x consensus FY23E BVPS (book value per share), we think the risk/reward is attractive,” Batory opined.
In Batory’s view, TOL deserves an Outperform (i.e. Buy) rating, and his price target of $71 implies a one-year upside potential of 24%. (To watch Batory’s track record, click here)
With 9 recent analyst reviews on file, breaking down to 6 Buys, 2 Holds, and 1 Sell, this stock holds a Moderate Buy consensus rating. (See TOL stock forecast)
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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.
