Increased volatility and uncertainty has investors locked in a series of arguments. Last year saw steep losses, this year started with a strong rally, and the last few months have seen a correction. The big question now is whether the recent market turbulence is a temporary blip or the beginning of a more significant downturn.
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John Stoltzfus, chief investment strategist from Oppenheimer, has set out the bullish case, as befits a man who’s predicting the S&P 500 will hit 4,900 by year’s end – or a gain of 18% in just the next two months.
In part, Stoltzfus sees the Federal Reserve’s current policy of monetary tightening as a key supportive factor for the economy and the markets. In recent comments with CNBC, the Oppenheimer strategist said, “We were expecting that the Fed would continue to be vigilant against inflation but would remain sensitive to effects of its policy on the economy. We said it would depend on the resilience of the economy, and today’s GDP print says ‘resilience’ all over it, and the current third quarter earnings season is showing resilience…”
Stoltzfus isn’t the only bull at Oppenheimer; the firm’s stock analysts are picking out the stocks that can lead the way forward. We’ve used the database at TipRanks to pull up the details on 2 of these stock picks; here they are, presented along with comments from some of Oppenheimer’s top stock analysts.
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Adobe, Inc. (ADBE)
We’ll start with Adobe, the software company that leads the field in publishing and content creation tools, as well as design and editing tools. Adobe is well-known as the distributor of the Creative Cloud, the content creation package that includes Photoshop, Illustrator, and InDesign, among others, serving as a one-stop shop for digital creation professionals.
The company has a global footprint and more than 29,000 employees – and it brought in more than $17.6 billion in total revenue last year. The company has solid prospects going forward as it embraces emerging AI technology to enhance its product lines. Adobe’s Firefly product, a generative AI system capable of adding features across Adobe’s full product line, is designed to streamline the content creation process in all forms. From the product user’s perspective, Adobe’s addition of AI into its software offers the promise of significant improvements in efficiency and production times.
In short, Adobe effectively meets the challenges of today’s digital world, as reflected in the company’s financial results. Adobe has witnessed both revenues and earnings on an upward trajectory for the past several years, and the recently reported Q3 of fiscal year 2023 continues this trend.
The company’s top-line performance in the quarter, which concluded this past September 1, reached $4.89 billion, a 10% year-over-year increase and $20 million better than expected. At the bottom line, the non-GAAP EPS amounted to $4.09, surpassing estimates by 11 cents. Year-over-year EPS growth exceeded 20%, and the company generated $1.87 billion in cash from operations.
Oppenheimer’s 5-star analyst, Brian Schwartz, is impressed by Adobe’s forward prospects, and writes, “We see a strengthening business momentum, a favorable outlook for FY2024, and durable growth based on positive fundamental trends and a top position in software for the generative AI opportunity gleaned from our customer and industry surveys…”
The analyst, who is ranked in the top 1% off all Wall Street analysts, goes on to add, “In our view, Adobe investors will be rewarded through year-end and next fiscal year as concerns on penetration, pricing tolerance, and generative AI weakening the competitive moat dissipates. Additionally, investors will increasingly appreciate that its internal R&D and Firefly product strategy has successfully reenergized its product portfolio and places the company in a better position for durable growth from adding users and monetizing on its large install-base.”
Schwartz uses these comments to back up his rating on the stock, which he upgrades from Neutral to Outperform (i.e. Buy), and his price target of $660 implies a one-year upside potential of 26%. (Watch Schwartz’s track record)
Leading tech firms usually get plenty of Wall Street attention, and Adobe has 28 recent analyst reviews on file. These break down to 20 Buys, 7 Holds, and 1 Sell – for a Moderate Buy consensus rating. ADBE shares are priced at $522.84 and the average target price, $609.85, suggests a gain of ~17% lies on the horizon. (See ADBE stock forecast)
Xylem, Inc. (XYL)
For our second Oppenheimer pick, we’re staying within the technology sector, but this time, we’re focusing on water technology. Xylem is a leading provider of high-end water transport and treatment technology. The company claims a diverse customer base that includes residential, commercial, and agricultural water suppliers, as well as industrial firms and public utilities. Xylem has business around the world, in 150 countries, and boasts a $21 billion market cap.
In May of this year, the company announced a merger with Evoqua Water Technologies, a move that created the most advanced platform for meeting water challenges in the world today. The merger was an all-stock transaction valued at $7.5 billion. The combined company continues under the Xylem name, and its product line includes pumps, valves, heat exchangers, dispensing equipment, and treatment and testing equipment, designed in-house and distributed worldwide to meet modern challenges of water scarcity, which affect at least 1.8 billion people.
The last set of quarterly results, released in August for 2Q23, included results after the Evoqua merger. The company’s top line for Q2 came to $1.7 billion, up 26% y/y and some $60 million ahead of expectations. The firm’s bottom line, reported as a non-GAAP EPS of 98 cents for the six months ended on June 30, was 17 cents better than had been forecast. Xylem finished Q2 with $708 million in cash and liquid assets on hand, down from $944 million at the end of 2022. The company’s total assets were up, however, from $7.9 billion on December 31 to $16.1 billion on June 30; this reflected gains from the Evoqua acquisition.
Along with the Q2 results, Xylem raised its full-year revenue guidance for 2023 by 30% to $7.2 billion. This compared favorably to the consensus estimate of $7.14 billion.
This stock caught the attention of Bryan Blair, another of Oppenheimer’s 5-star analysts. Blair is upbeat on Xylem’s post-merger expansion and prospects, and writes, “We rate XYL shares Outperform given confidence in New Xylem’s structurally improved portfolio, continued beat & raise prospects, compelling medium term growth upside, and increasingly supportive valuation following YTD share pressure. Near-term dilution appears inevitable (albeit firmly baked into expectations) and deal execution is an understandable concern given the scale of Xylem’s richly-valued Evoqua acquisition. That said, we view other trading headwinds as largely transitory (in turn driving the current buying opportunity) and strongly believe that combined Xylem–Evoqua operations are positioned for transformational and increasingly profitable growth over the coming years.”
Blair’s Outperform (i.e. Buy) rating is complemented by his $118 price target, which points toward a 33% upside on the one -year horizon. (Watch Blair’s track record)
Once again, we’re looking at a stock with a Moderate Buy consensus rating from the Street, this one based on 9 reviews that include 6 Buys and 3 Holds. The stock’s $88.96 selling price and $123.38 average price target together imply a potential 12-month upside of ~39%. (See Xylem 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.
