The US stock market is poised to end the week on a positive note, fueling optimism as the holiday long weekend approaches. The positive sentiment stems from news that the White House and congressional Republicans are nearing the final stages of reaching an agreement to raise the government’s debt ceiling, which currently stands at $31.4 trillion.
A successful debt ceiling bill would allay fears that the United States might default on its obligations and avoid the risks that such an event would bring. In the meantime, investors still have to contend with a confused market environment: stubborn inflation, high interest rates, a tight labor market and heightened fears of recession.
So how do you find the next hot stock to buy in this environment? One way might be to filter out stocks that have been endorsed by analysts at the big investment banks in particular, like Wall Street banking giant Wells Fargo.
The company’s stock analysts display their bullish outlook by picking stocks they see as winners for the year ahead – winners with a solid upside of up to 70%. Using the TipRanks database, we researched two of these Wells Fargo picks to see what sets them apart.
Stagwell, Inc. (STGW)
The first stock Wells Fargo is betting on is Stagwell, a company founded by famed marketing bigwig Mark Penn. Stagwell’s marketing strategies focus on bringing together human creativity and data analytics to deliver a more comprehensive understanding of today’s digital world. The company bases its strategy on teamwork and talent, providing exceptional service to its customers.
Penn originally founded Stagwell in 2015, and in 2021 the company entered its current incarnation through the completion of a merger with MDC Partners. Today, Stagwell is working to transform marketing through a digital approach. The company operates through a network of 70 offices in more than 34 countries and serves more than 4,000 corporate clients worldwide.
The measure of Stagwell’s success can be seen in his total earnings. In 2022, the company’s first full year of operation since the MDC merger, revenue was $1.995 billion and revenue grew in the second half. The first quarter of this year, however, brought a different result.
In 1Q23, Stagwell saw its revenue and earnings plummet. Quarterly revenue of $622 million was down 3.3% year-over-year and more than $24 million lower than forecast. Ultimately, the company reported non-GAAP earnings of 13 cents per share; this missed expectations by 7 cents.
On the positive side, Stagwell reported $53 million in “net new business gains” for the quarter and $212 million for the 12-month period. The company ended 1Q23 with $138.5 million in cash.
During the first quarter, Stagwell announced a share buyback program, a move designed to both return capital to shareholders and increase share value by reducing the number of shares outstanding. The program will total 23.3 million shares; during 1Q23, the first 2.6 million were redeemed for a total of $18 million.
All of this caught the attention of Well Fargo analyst Steven Cahall, who writes of Stagwell: “STGW is carving out a name for itself as the premier digital agency network with a foundation in digital transformation. We estimate a 3-year organic growth stack (’21+’22+’23E) of +41%, nearly 2x the largest agency holdings. STGW also has political advocacy, and we expect 2024 political spending to be in the range of $10-11 billion versus $9 billion in 2020. On the cost/margin side, STGW is early in the development of tools cost-cutting ($35M cost for ’23-’24) and the Stagwell Marketing Cloud delivers high-margin SaaS revenue.
“We see the catalyst for higher stock prices as executing strong organic growth, reducing leverage and continuing to deploy capital for M&A and share buybacks,” he said. summarized the analyst.
Cahall uses this feedback to support his overweight (i.e. buy) rating on this stock and sets a price target of $9 which implies a one-year upside potential of 47%. (To see Cahall’s track record, click here)
Like Cahall, the rest of the street is optimistic. With 4 buys and no holds or sells, STGW gets a strong buy consensus rating. The stock’s trading price of $6.10 and the average price target of $9.75 together suggest around 60% upside potential for the next 12 months. (See STGW inventory forecast)
Zentalis Pharmaceuticals (ZNTL)
We will now turn our attention to Zentalis Pharma, a clinical-stage biotechnology company working on new treatments for a variety of cancers. The company uses its proprietary integrated discovery engine to develop new small molecule compounds as the basis for new and more effective treatments. The company creates its compound drug candidates based on careful analysis of cancer pathways, to ensure that potential therapeutics are targeted.
The company’s approach – a thorough discovery process, with drug candidates that have multiple potential applications – allows it to operate in a capital-efficient manner. Zentalis’ lead candidate is azenosertib, or ZN-c3, a WEE1 inhibitor that is the subject of 8 separate clinical trials.
These trials are testing azenosertib both as monotherapy and in combination. Target cancers include uterine serous carcinoma, several ovarian cancers, osteosarcoma and pancreatic cancer.
Upcoming catalysts for the company’s suite of clinical trials include the expected publication of positive clinical data for azenosertib as a combination treatment with chemotherapy for ovarian cancer. Data release is scheduled for June 5 at the American Society of Clinical Oncology meeting.
Other catalysts ahead include the expected release of azenosertib monotherapy data in 1H23. This study will provide data on the maximum exposure and tolerance, as well as the clinical benefits of the drug candidate for a wide range of patients. In 2H23, the company expects to release data on azenosertib in combination with drug candidate ZN-d5. These data are collected as part of a phase 1/2 study in the treatment of acute myeloid leukemia. Additional data on the company’s ZN-d5 drug candidate, from a phase 1/2 study against relapsed or refractory light chain amyloidosis, are also expected in 2H23.
Covering this biotech stock for Well Fargo, analyst Derek Archila sees the flurry of upcoming data releases as the key point for investors to watch.
“This has been a sleepy stock, as there haven’t been a ton of clinical catalysts lately. Therefore, we like the setup, as upcoming updates seem under the radar and the stock remains heavily shorted. – could see a big squeeze… We like the risk/reward ahead of dose optimization/RP2D data and later ASCO presentations… In our base case for both updates, we think stocks are moving at around $40 (+100%), implying a mkt cap of around $2.5 billion, which we think is reasonable,” Archila said.
All of the above prompted Archila to rate ZNTL overweight (i.e. buy). On top of that, the analyst gives the stock a price target of $46, suggesting a stock appreciation of around 70% over the coming year. (To see Archila’s prize list, click here)
This is another title that gets a unanimous strong buy rating from Wall Street analysts, this one being based on 8 recent positive reviews. ZNTL is trading at $26.98 and its average price target of $48.25 implies a 12-month gain of around 79%. (See ZNTL Stock Forecast)
To find great stock ideas trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.