After three months of highly volatile trading, which have seen the S&P 500 drop down toward 3,600, rally up to 4,300, and fall back down to 3,900, investors can be forgiven for feeling some whiplash. The question that needs answering, however, is where will the markets go from here?
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Morgan Stanley strategist Andrew Slimmon believes that investors shouldn’t worry too much about the bear case. Worse-than-expected inflation numbers for August may have pushed the markets into a tumble this week, but in Slimmon’s view, the S&P should show a recovery by year’s end, and finish up close to where it started, near 4,700. That would represent an increase of 17% from current levels.
“Positioning is uniformly bearish. And I suspect that will flip at some point in Q4 pushing the [S&P 500] higher into year-end, not lower,” Slimmon noted.
Slimmon bases his conviction on evidence that inflation is starting to slip back down, after peaking in July. “It’s not coming down very fast, but it is coming down,” Slimmon said.
With this in mind, we wanted to take a closer look at two stocks that received Morgan Stanley’s stamp of approval, with the firm projecting upside potential of more than 30% for each. Using TipRanks’ database, we found out that the rest of the Street is also on board as both have earned a “Strong Buy” consensus rating.
Alphatec Holdings (ATEC)
We’ll start with medical technology. Alphatec Holdings owns three subsidiary companies which, between them, are bringing dramatic changes to field of spinal surgery. The company markets a series of medical devices that bring a new approach to spine surgery, from the neck down to the pelvic vertebrae. The company’s goal is to create a surgical approach with a clinical distinction, one that will make Alphatec the ‘Standard Bearer in Spine.’
New surgical methods can open up expanding vistas for a well-positioned med-tech company, and Alphatec’s recent financial results support that. In the second quarter of this year, Alphatec saw a top line of $84 million. That was up 35% from the year-ago quarter.
On earnings, Alphatec has been running consistent losses, which deepened from 2020 to 2021. The 2Q22 net loss of $36 million, however, represented a moderation from recent quarters. And, the company reported a cash holding of $107 million against operating expenses of $91 million.
Looking forward, Alphatec is expecting full-year revenue of $325 million for 2022. That figure would represent 34% year-over-year growth.
Strong growth would appear to be the story here, as Morgan Stanley analyst Drew Ranieri points out.
“Over the past 10 quarters, the company has averaged nearly 40% quarterly organic revenue growth, vs. the 9% median for pure-play spine peers. Unlike larger competitors, Alphatec’s commercial growth is not tethered to market growth in our view. With roughly 2.5% share today, Alphatec has significant runway ahead to drive sustainable double-digit revenue growth. We assume Alphatec doubles its market share to nearly 6% by ’26, with total company revenue reaching $673mn implying an approximate 20% CAGR over 2022-2026e,” Ranieri opined.
“Alphatec shares and peers has narrowed significantly as the turnaround narrative has been de-risked and investors have better appreciated the multi-faceted growth story; however, Alphatec shares currently look underappreciated vs. peers in our view,” the analyst summed up.
To this end, Ranieri sets an Overweight (i.e. Buy) rating on ATEC shares, along with a $13 price target that shows potential for a 47% upside in the year ahead. (To watch Ranieri’s track record, click here)
Overall, it’s safe to say that the Street agrees with this bullish view of Alphatec. The stock has 5 recent analyst reviews, which break down to 4 Buys and 1 Hold for a Strong Buy consensus rating. The average price target on ATEC shares, $12.90, is practically the same as Ranieri’s. (See ATEC stock forecast on TipRanks)
Bill.com Holdings (BILL)
Let’s stick with tech, but move over to fintech. Bill.com Holdings is a software provider, offering cloud-based solutions for small businesses to deal with accounting and paperwork issues. The company’s software lets users simplify, digitize, and automate back-office financial processes, for great overall efficiency of day-to-day operations. BILL’s products can be used for billing, invoicing, making and receiving payments, and other time-consuming bookkeeping tasks.
The company’s target customers are small- and mid-sized businesses, and BILL is popular among small entrepreneurs. The company finished its fiscal year 2022 on June 30, and a look at its Q4 and full year results shows the extent of its popularity and growth. The fiscal fourth quarter saw the company boast some 400,000 business customers, and surpass $200 million in quarterly revenues. Year-over-year, the top line was up an impressive 156%, from $78.3 million in the year-ago period.
Like many tech and/or software firms, BILL tends to run a net loss – but the net loss in fiscal Q4 came in at just $3.3 million, compared to $5.8 million on year earlier. On an EPS basis, the loss was 3 cents per diluted share, less than half the 7 cents reported in fiscal 4Q21.
Even though BILL’s revenues are rising sharply, the stock has underperformed this year. Shares in BILL are down 36% year-to-date, compared to the 18% year-to-date loss on the S&P 500.
The falling stock price strikes Morgan Stanley’s Keith Weiss, a 5-star analyst, as an opportunity. He initiated his coverage of BILL with some laudatory comments, writing: “A compelling value proposition, differentiated go-to-market strategy through direct sales, accounting partnerships, and financial institution partners, supporting a +65% revenue CAGR (CY21–CY23E), the second fastest in our coverage, and a solid track record of execution create a favorable risk/reward for BILL.”
Weiss puts an Overweight (i.e. Buy) rating here, and sets the price target at $220, implying a one-year gain potential of ~38%. (To watch Weiss’s track record, click here)
Tech and software typically get more than their share of Wall Street interest, and BILL is no exception. The stock has 21 recent analyst reviews on file, and these include 19 Buys against just 2 Holds, for a Strong Buy consensus view. The shares are selling for $158.84 and the $208.35 average price target suggests an upside of 31% for the year ahead. (See BILL 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.
