Markets are down significantly from record highs; in fact, the NASDAQ has entered correction territory, with a decline of 15% while the S&P 500’s decline is still at ~9%. These price declines come as the Federal Reserve signaled it will be raising rates this year. While higher interest rates will knock down inflation, stock markets are likely to take a tumble when the hikes come – and analysts are predicting anywhere from 2 to 4 rate hikes this year. The end of the central bank’s supportive policy will make for a rocky ride ahead.
The immediate short-term effect, as investors prepare the change in policy, is the correction we’re seeing. This means that investors will likely find solid buying opportunities coming up -- at least according to Nadia Lovell, senior U.S. equity strategist at UBS Global Wealth Management.
“The market has had a choppy start to the year, but it does feel like most of the selling might be behind us.. We’ll use the opportunity of indiscriminate selling to build a position over the long term... There’s an opportunity to build in high-quality names with sustainable business models,” Lovell noted.
Against this backdrop, we used TipRanks database to find 3 cheap stocks. Essentially, we looked for 1) stocks with a ‘Strong Buy’ analyst consensus; 2) serious upside potential (i.e. over 50%). And on top of this, each one of these stocks is trading at 52-week low valuations. Let's take a closer look.
The first stock on our radar is Alteryx, a California-based software company with a range of products to power data analytics and machine learning, making it possible for enterprise clients to make decisions, fine-tune end-user products, and streamline operations based on real-time information. The company dates back to the 1990s tech boom, and currently boasts over 7,000 customer companies worldwide.
Alteryx will release its 4Q21 numbers next month, but a look back at the third quarter results may be informative. Specifically, the top line of $124 million and the EPS loss of 18 cents per share were both slightly ahead of Street expectation. Furthermore, annual recurring revenue (ARR), an important forward-looking metric, grew 29% year-over-year, to reach $578.6 million.
The company finished Q3 with solid assets – cash and cash equivalents of $1 billion, and a nine-month cash from operations total of $24.3 million, up 49% from the prior year. Alteryx felt confident enough earlier this month to announce its acquisition of the data analytics company Trifacta for $400 million in cash.
Despite these positive signs for the company, Alteryx shares tumbled 59% over the past 12 months.
Covering the stock for JMP, 5-star analyst Patrick Walravens writes that he remains bullish on Alteryx, including among his reasons: “1) the company offers a strong solution set that competes very well in a massive TAM, estimated to be ~$49B; 2) the acquisition of Trifacta should help Alteryx expand its TAM by providing additional opportunities to target new data and cloud transformation initiatives, particularly in the Global 2000, of which ~39% are Alteryx customers; 3) Alteryx is investing more in its cloud capabilities with Designer Cloud, and we expect the company to benefit over time as its cloud capabilities mature and as its product portfolio gradually becomes available in the cloud…”
To this end, Walravens rates AYX an Outperform (i.e. Buy) along with a $159 price target. Possible gains of 211% could be heading investors’ way should the target be met over the next 12 months. (To watch Walravens’ track record, click here)
Overall, there are 7 recent analyst reviews here, breaking down 6 to 1 in favor of Buy over Hold and supporting the Strong Buy consensus rating. The stock is selling for $50.44 and its $101 average price target implies a one-year upside of ~100%. (See AYX stock forecast on TipRanks)
Duck Creek Technologies (DCT)
With the next stock, we’ll switch over to the East Coast, where Boston-based software company Duck Creek Technologies has made its mark in the insurance industry. Duck Creek produces cloud-based software industry-specific to the insurance sector, a large market with specific needs in accounting, underwriting, and other financial activities. The company’s software has found users among the industry’s biggest names, including AIG, Geico, and Liberty Mutual, and is also popular among smaller, regional players.
The company went public in August of 2020, and its stock generally held between $40 and $50 per share, before it collapsed in October 2021. The collapse came after Duck Creek released earnings for fiscal 4Q 2021 – and showed a serious GAAP loss of 13 cents per share for the year. Shares haven’t really recovered, and DCT is down 55% since one year ago.
In its fiscal 1Q22 report, however, released this month, Duck Creek showed a definite turnaround. GAAP income switched year-over-year from a 4-cent loss to a 1 cent profit; by non-GAAP measures, the profit was 4 cents per share. At the top line, revenue came in at $73.4 million, for a yoy gain of 25%, and the company finished its fiscal Q1 with $347.6 million in liquid assets and no debt.
All of this bodes well for the future, and writing from Raymond James, analyst Alexander Sklar sets out a similarly upbeat view: “DCT continues to execute on its land and expand strategy with 3 new core system logos, and SaaS net dollar retention of 122% that increased q/q and y/y. While the timing of Tier 1 core modernization activity remains difficult to predict, DCT appears to have several at bats in its late stage pipeline that could be additive to our near term outlook. With a long term (albeit lumpy) secular growth opportunity at its back, we remain positive on DCT’s positioning to capture an outsized share of incremental deal activity over the next several years.”
Unsurprisingly, Sklar gives DCT shares an Outperform (i.e. Buy) rating, and his $36 target price indicates an upside of ~54% in the next 12 months. (To watch Sklar’s track record, click here)
Wall Street is in broad agreement about this stock’s positive outlook; the 8 recent reviews include 7 Buys against just 1 Hold, for a Strong Buy consensus rating. The shares are priced at $23.56 and the $38.25 average price target suggests ~63% upside from that level. (See DCT stock forecast on TipRanks)
Last but not least is Elastic, an American-Dutch company offering SaaS software solutions for searching, security, access logs, observability, and analytics. The company’s software has found its place among some of the business world’s biggest names, names as diverse as Adobe, Audi, T-Mobile, and Walmart. Elastic gives customers – from major corporations to small-time bloggers – the ability to explore, parse, and analyze their data through customizable search functions.
Elastic has shown a classic ‘growth stock’ profile, with rising revenues and regular quarterly EPS losses as the company channels funds into development and marketing initiatives. A quick look at the most recent quarterly release, for fiscal 2Q22, shows the story. The company reported $206 million at the top line, up 42% year-over-year, a total that included an 84% gain in Elastic Cloud Revenue, to $69 million. At the same time, sales and marketing spending grew from $64.4 million one year ago to $94.9 million in the current quarter, an increase of 47%. Elastic’s GAAP operating loss came to $37.2 million, or 51 cents per share. The non-GAAP loss was 9 cents per share.
Investors would appear to be growing cautious here, possibly due to the recurring losses and possibly also as an artifact of a larger market shift from growth to value stocks. Also weighing on investors, the company has been reshuffling its upper management this month. CEO Shay Banon stepped aside to resume his old CTO position, while Ashutosh Kulkarni has been promoted to the CEO position. Overall, ESTC shares are down 58% from their November 2021 peak price.
Matthew Hedberg, 5-star analyst from RBC, covers Elastic, and he notes both the management shuffle and the solid revenue performance. His bottom line is, the shuffle may be positive, while the company is poised to keep delivering increasing sales. He writes: “Timing-wise, a transition like this is never easy as management noted the logical time was the start of a new calendar year as they continue to feel good about their products and go-to-market momentum... Overall, we continue to believe the combination of an expanding product stack including a mix-shift to Elastic Cloud that seems to be accelerating customer additions and potentially additional growth disclosures (we'd like to see ARR) could push shares higher.”
These comments support Hedberg’s Outperform (i.e. Buy) rating, while his $165 price target implies a one-year upside potential of ~110%. (To watch Hedberg’s track record, click here)
All in all, this company has attracted plenty of analyst attention, with a total of 13 recent reviews. These include 10 Buy and 3 Holds to back a Strong Buy consensus. The average price target of $168.55 suggests an upside of ~114% form the current share price of $79. (See ESTC stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched 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.