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Inflation worries seem to be at the forefront of investors’ concerns right now. However, Mark Smith, senior vice president and portfolio manager at Wells Fargo Advisors, has a solution to put investors at ease: “One of the best ways to combat inflation is through buying equities.”
The reopening is “on strong,” people have more money than they ever had, and the banks have kicked off the latest earnings season in style - all are reasons to be “extremely bullish," according to Smith.
With this in mind, Smith’s colleagues at Wells Fargo have been searching out the stocks that are destined for success in the current environment; they have pinpointed 3 which they believe are ready to deliver returns of 40% or more over the coming months. We ran the tickers through the TipRanks database to see what makes them stand out.
We’ll start in the world of online video, where Vimeo offers customers and subscribers an all-in-one package for video creation, collaboration, and communication. The company is well known for allowing users to post online video content; the company also allows professionals and business clients to integrate video into an online social presence. Vimeo boasts over 350,000 videos added daily, more 1.6 million paid subscriptions and 230 million online users in more than 190 countries.
Last month, Vimeo made public its August monthly numbers. The company showed a 33% year-over-year increase in total monthly revenue, 15% yoy increases in total subscribers and average revenue per user.
These gains continue the company’s trend of growth. The recent 2Q21 report, the most recent quarterly available, gave greater detail which investors may find of interest. Top line revenue, at $96 million, was up 43% yoy, while the company’s net loss for the quarter deepened year-over-year, from $12.3 million to $20.3 million. Vimeo saw its free cash flow rise in Q2, from $10.2 million the year before to $18.1 million. The company finished the first half of 2021 with $331 million in cash and cash equivalents.
Vimeo works consistently to expand its footprint, and in September the company announced a partnership with Dolby to improve the video experience for Apple device users. The partnership will allow video creators to offer a higher level of color and clarity to their audience on Apple’s devices.
Despite solid revenues and success in expanding the company footprint, Vimeo shares are down 40% since going public in May. While they have been moving upwards recently, Wells Fargo’s Brian Fitzgerald thinks there’s more room to run.
“Despite a partial recovery, we believe current valuation still presents an attractive entry point,” said the 5-star analyst. “Vimeo addresses a large and attractive opportunity in SMB and enterprise video software tools ($70B TAM in 2024, per mgmt) and currently occupies pole position among paid solution providers.”
The analyst added, "We expect market growth to be driven by ramping consumer use of digital video (particularly across mobile and CTV/OTT platforms), proliferation of social media and marketplace video distribution touchpoints, and the short lifespan of digital video content assets, particularly on social channels, necessitating more efficient and/or automated creation tools."
In line with these comments, Fitzgerald gives VMEO shares an Overweight (i.e., Buy) rating, with a $47 price target that implies a one-year upside of ~40%. (To watch Fitzgerald’s track record, click here)
Vimeo currently holds a Moderate Buy rating from the Wall Street consensus. The stock has 7 recent reviews, including 5 to Buy and 2 to Hold. Shares are priced at $28.16 and have an average target of $49.14, giving the stock a 46% upside for the year ahead. (See VMEO stock analysis on TipRanks)
Boyd Gaming (BYD)
Next up is Boyd Gaming, a major operator of casino gaming properties. The company got its start in 1975, in Las Vegas, and has since spread out of its hometown. Boyd is now active in 10 states (Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nevada, Ohio, and Pennsylvania), and boasts 28 casino facilities.
Like much of the leisure and entertainment industry, Boyd was badly hurt by the corona crisis in 2020. The company was forced to announce mass layoffs – 25% of its workforce – in July of last year, and saw its 2Q20 revenues fall to just $209 million, approximately one-quarter normal levels. The company is experiencing better times this year, however, as the economy reopens and consumers begin spending on much-needed leisure.
In its 2Q21 report, Boyd showed $893.6 million in revenue, some 14% above the analyst expectations and a whopping 325% up from the dreadful 2Q20. The 2Q21 revenue was the best in more than two years. EPS also turned around dramatically, from a 92-cent per share loss in the year-ago quarter to a $1 per share profit in this year’s second quarter.
Along with these financial gains, BYD shares are also up. The stock has far outpaced the S&P 500’s 32% one-year gain, increasing 99% over the same period.
Nevertheless, Wells Fargo’s Daniel Politzer sees more gains on the horizon. The analyst rates BYD an Overweight (i.e. Buy) and has a $92 price target to suggest ~40% upside. (To watch Politzer’s track record, click here)
Backing his stance, Politzer says, “Our Overweight rating on BYD reflects our view that (1) at least 1,000 bps of BYD’s recent margin expansion will prove sustainable; (2) it offers exposure to the highly attractive Las Vegas Locals market, which is ~30% of its EBITDAR and offers a low-/ mid-single-digit growth rate and 50%+ margins; (3) BYD’s 5% stake in FanDuel is worth an estimated $1.3B, or $12 per share; and (4) BYD’s 7x 2022E EV/EBITDA and current implied 11% free cash flow yield are attractive on both an historical and relative basis, and with a primed balance sheet at less than 3x net leverage forecast by year-end 2021, could set up for capital return to shareholders.”
Wall Street is unanimous on this one; The stock has a Strong Buy consensus rating, based on Buys only – 6, in total. Shares in BYD are selling for $66.61 and their $86.67 average price target indicates room for ~30% growth over the next 12 months. (See BYD stock analysis on TipRanks)
Let’s wrap with Zymeworks, a clinical stage biotech firm based in Vancouver, Canada. Zymeworks is developing new medications for the treatment of cancer but also for autoimmune disorders and inflammatory diseases. The company’s drug candidates are precision engineered biotherapeutics, based on protein modeling.
Zymeworks’ leading drug candidate, zanidatamab, is currently undergoing multiple clinical trials. The drug is an HER2 specific antibody, and targets HER2-expressing cancers. Ongoing clinical trials include a Phase 1b/2 trial, testing zanidatamab and evorpacept in tandem against HER2-expressing breast cancer as well as other solid tumors. The first patient in this study was dosed earlier this month.
A Phase 2 clinical trial of zanidatamab for the first-line treatment of HER2+ gastroesophageal adenocarcinoma (GEA) has shown promising early results, including a confirmed objective response rate of 75% overall. The results justify further testing, and Phase 3 study is planned to kick off during the current quarter.
Other recent activity includes the dosing of the first patient in a new cohort of the Phase 1 trial of zanidatamab used in conjunction with tucatinib and traditional chemotherapy for the treatment of HER2-positive breast cancer patients with locally advanced (unresectable) and/or metastatic disease.
Wells Fargo’s Nick Abbott is impressed with the data available so far, writing: “We believe that the recent 1st line gastroesophageal cancer data presented at ESMO demonstrates that zani is superior to HERCEPTIN and the combination of HERCEPTIN and PERJETA (HP) in patients with HER2+ve disease. Whilst HER2 expression in GEA is more heterogeneous than in breast cancer, and this may benefit zani's mechanism of action, we expect zani to be at least as effective as HP in1st line breast cancer. In our view, we believe that the totality of zani breast cancer data and the potential opportunity to expand into the HER2 low disease which for breast cancer is a market estimated to be 4-fold larger than the HER2+ve market, will enable ZYME to secure a high-value global partnership.”
To this end, Abbott rates ZYME an Overweight (i.e. Buy) and gives it a $56 price target, suggesting a huge 133% one-year upside potential. (To watch Abbott’s track record, click here)
With 6 reviews on record, including 4 Buys and 2 Holds, ZYME shares have a Moderate Buy consensus rating. The Street sees plenty of gains on the horizon here; the stock’s average price target is $49.65, pointing to a 107% upside from the $24.01 trading price. (See ZYME stock analysis 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.