Editorial StaffSimple physics tells us that what goes up must come down – but sometimes, market forces take what’s gone down and pushes it back up. And that fact helps to outline the basic opportunities investors should look for.
In short, what’s needed are stocks that have hit a hard time – but remain fundamentally sound. Prices can rise and fall for a wide range of reasons, and while many times those reasons bode ill for the stock, they don’t always. A bad sales month coinciding with a quarterly report; a seasonal downturn before the customer base returns; a one-time R&D expense pushing down the bottom line – all of these can negatively impact the share price, without harming the overall outlook.
We’ve used TipRanks’ database to locate three stocks which fit that profile. These are companies which have seen some bad fortune, and seen their share prices fall in recent months. But their prospects remain high; all three are Buy-rated, and feature substantial upside potential for the year ahead. Let’s take a closer look.
We’ll start with CommScope, a network infrastructure that produces and distributes hardware for cellular tower and building installations, transmitter base stations, and outdoor wireless power supplies. The company is well-sited to take advantage of the ongoing 5G buildout, and it has seen recent year-over-year revenue gains.
A look at the 2Q21 report may give some insight. CommScope reported $2.19 billion in top-line revenue for the quarter, the best result since 4Q19 – but on EPS the company ran a loss of 82 cents per share. The EPS loss marked the second quarter in a row that losses deepened sequentially, and that was the deepest loss in the past four quarters. At the same time, the company’s shares are down 35% from they peak they hit in July of this year.
The stock has slipped 35% since its recent peak in July, but Evercore’s 5-star analyst Amit Daryanani says to ‘buy this dip.’
“The stock reaction looks over done as the June-qtr numbers were solid and there was no real change to management’s forward looking commentary. We continue to see an investor day (planning December) and the full unveiling of CommScope NEXT as the next major positive catalyst for the stock.” Daryanani noted.
Daryanani also points out that company insiders have been buying up the stock, and says, “The buying supports our view that nothing has changed with the long-term outlook for CommScope and we continue to see an upside path…”
In line with these comments, Daryanani rates COMM an Outperform (i.e. Buy), and his $25 price target implies an upside of 75% for the coming year. (To watch Daryanani’s track record, click here)
As for the rest of the Street, COMM has been assigned 5 Buys and 1 Hold. This translates to a Strong Buy consensus rating. The average price target lands at $24.40, and represents upside potential of ~75%.
Sierra Wireless (SWIR)
Next up, Sierra Wireless, is another inhabitant of the wireless networking equipment field. The company both designs and manufactures machine-to-machine communications equipment and mobile computing devices for wireless network use. Sierra is also heavily involved in the broadband modem market, offering 2G, 3G, 4G, and 5G products, including modems, routers, and gateways, along with the software, tools, and services needed to maintain them.
Sierra’s product line, with its focus on machine-to-machine communications, has been especially relevant to Internet of Things (IoT) applications. The company’s 5G capable products offer solutions for increased IoT connectivity, and Sierra has put on the market the first 5G-capable vehicle router, an important step in the development of autonomous cars.
With all of that, however, Sierra’s shares have fallen 20% in the last month.
The share price losses came even as Sierra reported solid metrics for the second quarter of 2021. The company showed $132.8 million at the top line, up more than 18% year-over-year, while the EPS loss moderated from 36 cents per share in the year-ago quarter to 3 cents in the recent report. Sierra showed gains in both of its business segments, with IoT Solutions revenue gaining 16% yoy, and Enterprise Solutions rising 24% in the past year.
In an important development, the company has appointed a new CEO, raising Phil Brace, former EVP of Veritas Technologies, to the post of President and CEO on July 26 of this year.
In a possible speedbump blocking the path forward, the company reported in the quarterly release that a contract manufacturing facility in Vietnam is experiencing COVID-related disruptions, with concomitant interruptions to Sierra’s production lines. The company expects to see slower production in Q3 of this year, but hopes the issues will resolve by year’s end.
Scott Searle, 5-star analyst from Roth Capital, notes the supply chain problems and the share price drop, but says that he ‘would by the dip.’
Searle bases his forecast on the sound second quarter, of which he writes: “The upside was achieved despite ongoing global supply chain headwinds. Connectivity, Software and Services sales were inline with expectations at $35.2M (27% of sales and up 31% y/y), with MRR (monthly recurring revenue) of $11.4M posting a 25% y/y increase. In new segments, this translated to IoT Solutions sales (Modules and recurring IoT Services) of $90.3M, up 16% y/y, and Enterprise Solutions (noted above). Scale and mix (more Enterprise and recurring sales) translated to slight GM upside (34.9%, 40bp upside).”
Getting into the nitty-gritty, Searle adds, “…a quick 4Q sales recovery combined with accelerated cost efficiency plans should drive a more profitable 2H22/2023.”
Based on these comments, Searle rates SWIR a Buy, and his $25 price target shows his confidence – predicting ~62% upside for the next 12 months.
Turning to the TipRanks data, we’ve found that Wall Street’s analysts hold a range of views on SWIR. The stock has a Moderate Buy analyst consensus rating, based on 7 reviews, including 4 Buys, 2 Holds, and 1 Sell. Shares are currently priced at $15.39, and the $21.21 average price target implies a one-year upside of ~38%.
iCAD, Inc. (ICAD)
Last but not least is iCAD, an AI-technology company, using artificial intelligence to improve both detection and treatment of various cancers. The company is developing a series of new imaging and radiation application devices to conduct more targeted treatment of breast, colorectal, and prostate cancers. The VeraLook platform, the flagship device, improves the detection of colon polyps – an early stage in colon cancer – through AI-enhanced advanced imaging technology. The company is also bringing to market the ProFound AI Risk tool, which will bring the approach to the early detection of breast cancer.
In July, iCAD reported that the ProFound tool received CE Mark approval, based on its 10% improvement in cancer detection, along with a 40% increase in speed of use for the new platform. More recently, iCAD revealed results from a study of the Xoft Brain IORT, a new treatment for patients suffering from glioblastoma. In the study, patients receiving the new treatment survived for 4 to 54 months afterward. The control group showed cancer recurrence within 2 to 10 months, and survival of 2 to 22.5 months.
In addition to positive treatment study results, iCAD reported increasing revenues for the second quarter and first half of 2021. The Q2 top line came in at $7.8 million, up from $5.6 million in the year-ago quarter, but missed consensus expectations by $1.3 million.
iCAD shares are down 47% from the peak they reached in July of this year. However, Guggenheim analyst Chris Pasquale sees the slip as a positive for new investors, and heads his recent note on the stock, “Pullback Creates Buying Opportunity.”
Pasquale notes that the Xoft device is entering another trial for the treatment of glioblastoma, writing: “…we continue to see neurology as the most intriguing long-term opportunity for Xoft. Enrollment in the GLIOX trial evaluating IORT for the treatment of recurrent glioblastoma is now underway, with first patient treatments anticipated in 3Q. This would put the study on track to begin reporting preliminary outcomes data as soon as 1Q22.”
The analyst added, “With ICAD shares now trading at just 5.8x our NTM revenue estimate, we see this as an attractive place for investors to revisit the stock ahead of what we believe could be some significant value creating events within iCAD’s Therapy business over the next 6-12 months as data from its GLIOX trial in recurrent glioblastoma patients reads out.”
To this end, the analyst puts a Buy rating in ICAD, along with a $24 price target that indicates a potential 134% upside in the year ahead.
Overall, it appears that Wall Street agrees with the bulls here. The Strong Buy consensus rating is unanimous, based on 3 recent reviews, and the $23.67 average price target implies a robust 12-month upside potential of 126% from the $10.44 trading price.
Source: Yahoo Finance
