These 2 Stocks Are Worth Buying Despite Recent Market Headwinds, Says Wedbush

Have stocks reached an impasse? For the last six months, the market has bounced back in a V-shape despite the havoc COVID-19 has wreaked, spurring an unprecedented economic and financial backdrop. Standing at the front of the pack has been the tech sector, with the space holding up strong. That is, until a few days ago.  

Thursday, September 3, marked the Nasdaq’s largest one-day drop from a record high in its history. The following session also saw the index land in the red.  

Weighing in on the decline is five-star analyst Daniel Ives, of Wedbush, who notes the “sell-off is a speed bump on a path still higher for tech stocks.” He commented, “While today’s massive sell-off will cause some white knuckles on the Street as fears of a tech bubble and stretched valuations become the talk of the town, we continue to believe the secular growth themes around the tech sector are unprecedented with the COVID backdrop accelerating growth stories by 1-2 years in some cases… we view pullbacks like today as opportunities to own the secular growth stories.”  

With Ives estimating tech stocks could climb 20-25% higher going forward, we wanted to check out two names he is especially bullish on. Using TipRanks’ database, we learned that the tech tickers have received overwhelming support from the rest of the Street, as both sport a “Strong Buy” consensus rating.  

SailPoint Technologies (SAIL) 

Offering both on-premises and cloud-based solutions, SailPoint’s Predictive Identity technology allows organizations to implement digital transformations faster and reduce risk. With the company standing on solid ground amid the next phase of cloud growth, the tech name gets a thumbs up from Wedbush. 

Ives tells clients that his recent checks have been “incrementally bullish during Q3 as the company’s execution and deal momentum are seeing tailwinds in this current backdrop with cloud workloads accelerating among enterprises.” Expanding on this, the analyst points out the proliferation of bots as well as other issues threaten enterprises and governments all over the world, with the work from home environment not helping the situation.  

That’s where SAIL comes in. Ives notes “SAIL’s leading identify-based solution provides secure access to data that resides outside the corporate network and remains a major pain point for CIOs today.” 

The analyst added, “With more unstructured data and a focus among enterprises moving to the cloud we believe SAIL and identity security are in the sweet spot of IT and cyber security spending for the next few years. While the company has seen some speed bumps in the field over the past year from an execution perspective, we believe SAIL is still in the early innings of capitalizing on a high priority identity $10 billion-plus security TAM which is being driven by the move to the cloud.” 

To support this claim, Ives cites the company’s Q2 beat as well as the improving demand witnessed during the current quarter. “Management has made a number of process improvements in the field over the last year which are paying major dividends in the field we believe with: improved account qualification programs, refining the message of digital assets, and better market segment targeting the trifecta of success. The company has seen deal flow and pipeline generation success around mid-market account penetration with incremental uptake for targeting customer pain points such as ERP migrations and overall moves to the cloud,” he explained.  

Having said that, while Ives sees the move to the cloud as a demand catalyst, he argues the “growth in unstructured data and regulation such as GDPR in Europe as well as California (and other states) driven initiatives create a TAM that is only 5%-7% penetrated for SAIL.” As he estimates that 33% of workloads are currently on the cloud, with the figure increasing to 55% by 2022, there’s a “golden opportunity” for SAIL to take market share from legacy vendors and further penetrate IT budgets.  

“In a nutshell, we believe the market is ripe for replacements with penetration in the mid-single digits and SAIL has the potential to accelerate revenue growth the next three years in a more normalized backdrop while expanding margins (a unique combination of growth and profitability vs. many other unprofitable software players) and FCF generation,” Ives commented. 

In line with his optimistic approach, Ives reiterated his Outperform rating. He also gave the price target a boost, with it moving from $42 to $55. Should his thesis play out, a twelve-month gain of 43% could potentially be in the cards. (To watch Ives’ track record, click here) 

For the most part, other analysts also like what they’re seeing. 10 Buys and 3 Holds add up to a Strong Buy consensus rating. Given the stock’s 62% year-to-date rise, the average price target of $38.82 suggests 1% upside potential. (See SailPoint Technologies stock analysis on TipRanks) 

Tenable Holdings Inc. (TENB) 

Tenable is of the opinion that cybersecurity is one of the existential threats of our time, and therefore, it has pioneered a new approach to detecting vulnerabilities. As deals in the space continue to ramp up and possible tailwinds emerge, Wedbush thinks that now is the time to get in on the action.  

Following discussions with customers and partners, Ives believes “TENB is morphing from a vulnerability play into a broader analytics platform that can better help enterprises manage their cyber risk profile which remains the linchpin of the company’s value proposition over the coming years.”  

Even though the company has delivered a consistent performance in the last year, Ives argues that its product efforts are only now starting to result in a stronger pipeline of deal flow as more enterprise customers deploy cloud-based tenable.io. Expounding on this, he stated, “As companies look to evolve past a purely preventive and proactive mindset, the concept of risk management has become more and more important in this COVID backdrop and significantly increased the strategic importance of solutions such as Tenable that provide real-time visibility across the array of enterprise assets.” 

Historically, TENB has demonstrated its ability to spot an opportunity and capitalize on it, according to Ives. What’s more, the analyst sees the company as positioned “in the driver’s seat in this growing cyber risk exposure market opportunity based on what we are seeing in the field.” He added, “To this point, TENB continues to find success in up-selling its installed base to broader deployments (additional assets across the digital spectrum) and new solutions, which we believe is key to the company’s enhanced revenue and billings growth prospects over the next 12 to 18 months.” 

It should be noted that TENB has expanded into enterprise assets such as containers, IoT devices and public cloud workloads, with the continuous addition of new asset-types playing a key role in maintaining the rate of expansion in a growing installed base, in Ives’ opinion. Adding to the good news, the analyst points out the sales force is getting stronger, and the larger number of representatives at maturity could help it reach its goal of being cash flow positive for FY20. 

Summing it all up, Ives commented, “In our opinion TENB at current levels is still an undervalued asset given the value of the company’s core product franchise on cloud which remains a key area of technology spending going forward.” 

Everything TENB has going for it keeps Ives with the bulls. In addition to maintaining an Outperform rating, the analyst bumped up the price target from $40 to $50. This target suggests shares could surge 34% in the next year.  

The bulls have it on this one. 6 Buys and 1 Hold have been published in the last three months. Therefore, TENB gets a Strong Buy consensus rating. As it has also posted a major year-to-date rise, the $38.43 average price target indicates 3% upside potential. (See Tenable Holdings stock analysis on TipRanks) 

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.