Editorial StaffRising Treasury bond yields around the world fueled a sell-off on Wall Street this week, as investors start to worry that stocks may be priced too high.
The shift in the market comes as the Federal Reserve gives hints that it may switch from its current ultra-low rate policy to gradual rate increases as early as next year. Such a move will boost bond yields, a development that typically comes at the expense of stocks.
In addition to worries about the Fed’s rate policy, markets are also dealing with increased headwinds from COVID, a labor squeeze, continued supply chain difficulties, and rising inflation. It makes for a confusing picture. It also has pushed some stocks down to bargain prices.
Using TipRanks database, we pinpointed three Strong Buy stocks whose price has fallen low – but in these cases, the analysts see the low price as a gateway. Let’s take a closer look.
Vivint Smart Home (VVNT)
The first stock we’re looking at is Vivint Smart Home, a tech company using the advent of digital technology and smart devices to deliver a range of home automation services, from security systems to lighting and climate control. The company offers a range of hardware products to actuate these services, including indoor and outdoor cameras, doorbell cameras, security lights and sirens, motion detectors, thermostats, and touch pads to control the system.
By the numbers, Vivint finished 2Q21 in line with expectations. Top-line revenue hit $355.2 million, the customer retention rate came in at 88.4%, and the total subscriber number reached 1.78 million. The revenue number was up 17% year-over-year, while the subscriber total gained 121,000, or 7.2%, yoy. The company finished the second half of 2021 with total liquidity of $660.7 million, including $345.2 million in cash on hand.
Like many emerging tech companies, Vivint typically runs a net loss. In Q2, the EPS loss came to 38 cents, an improvement of 22% from the year-ago quarter. On the negative side of the ledger, Vivint’ stock has been falling this year, and is down 56% year-to-date.
Covering this stock for JPMorgan, Paul Chung reiterated an Overweight (i.e. Buy) rating, saying, “Margins were in line given increased reinvestments in marketing, innovation and IT, while FCF was in line… [We] remain OW, given the attractive top-line, potential to de-lever further funded by solid FCF, and expanded product offerings to include solar, and insurance monetization.”
The analyst added, “We think the stock looks attractively valued here and ready for discovery for a broader range of investors as the company transitions into sustainable positive cash flow, enabling the paying down of debt, and a potential positive re-rating. Overall, we expect VVNT to outperform the mean of our coverage in the next 12-18 months.”
In line with these comments, Chung gives VVNT stock a $20 price target, suggestive of a 118% one-year upside potential.
Overall, Vivint features a 3 to 1 advantage of Buy ratings over Holds, supporting the Strong Buy consensus view. The shares are currently priced at $9.18 and the $16.50 average target implies an upside of 80% in the next 12 months.
Covetrus, Inc. (CVET)
Next up is a medical and health tech company, with a twist. Covetrus focuses on animal health and services, and works to bring products, services, and technology to veterinary practices worldwide through a single platform that connects client vets with the solutions they need. Covetrus, based in Portland, Maine, has over 100,000 business clients in 19 countries globally, using the service to improve animal health and the delivery of veterinary medicine.
The company’s services are delivered in three segments. The Supply Chain offers a wide range of supplies and hardware, for everything from the veterinary surgical suite to the clinic waiting room. Supplies are available for companion animals, equines, and other large livestock. Business and financial services, as well as inventory management fall under this category. Covetrus’ software offering comes in several modes, including practice management and marketing communications solutions, while the final service category, prescription management, includes prescription writing packages and an updated formulary of veterinary medications.
The company reported $1.19 billion in total revenue for 2Q21, which was up 16% from 2Q20. Over the same 12 months, the company’s net loss moderated from $54 million to $31 million, an improvement of 42%. The company credited the strong quarter to increased patient vet visits. Nevertheless, the stock has been falling this year, and is down 37% year-to-date.
Analyst Elliot Wilbur, of Raymond James, notes that Covetrus holds a strong position after the second quarter, typical of the veterinary industry recently.
“CVET 2Q21 financials came in above expectations as the company rode the wave of strong veterinary visit and revenue trends in the quarter, benefiting from momentum within the overall animal health sector. Outside of an occasional outlier, the industry as a whole has been reporting robust results throughout 2Q21 as companion animal segments continue to capitalize on high y/ y vet visit growth and robust revenue per visit dynamics,” Wilbur wrote.
Wilbur gives CVET shares an Outperform (i.e. Buy) rating, with a $37 price target to indicate a potential for 103% growth in the year ahead.
The analyst summed up, “We maintain a positive outlook on future growth prospects and additional upside potential coming from recently acquired businesses. Shares have recently experienced some downward pressure heading into 3Q21, but we feel that current levels do not accurately represent the value of the underlying business, overall leading to a favorable risk/reward profile for the name.”
Overall, this stock has 5 recent analyst reviews, and they break down to 4 Buys against a single Hold – and support a Strong Buy analyst consensus rating. The current trading price is $18.22 and the $33.20 average target suggests an 82% one-year upside.
Passage Bio (PASG)
Last up is Passage Bio, a genetic medicines company with a focus on monogenic diseases of the central nervous system. The Philadelphia-based company is working on new therapeutics for the treatment of severe conditions, including GMI gangliosidosis, Krabbe disease, and frontotemporal dementia. The new treatments are based on adreno-associated virus (AAV) gene therapies, a path that aims to deliver functioning copies of affected genes directly to targeted cells in the patient’s body.
The company has a varied and active pipeline, with six drug candidates in the discovery and pre-clinical stages, and three more in Phase 1/2 human clinical trials. The leading candidates include PBGM01, a treatment for GM1 gangliosidosis; PBFT02, for frontotemporal dementia; and PBKR03, for Krabbe disease.
During the second half of this year, Passage Bio is advancing the trials on those three drug candidates. Both PBFT02 and PBKR03 are having the first patients dosed in their clinical trials, with the company is expected to release initial safety and biomarker data from the Imagine-1 study, a Phase 1/2 trial of PBGM01 in 4Q21.
Even with that, however, PASG stock dropped sharply this year, losing 62% of its value. Yet, Wedbush analyst Laura Chico sees the current low share price as a chance to buy in.
“PASG shares have come under pressure like the rest of the CNS gene therapy space, as investors attempt to make sense of the path to market for development programs and interpret biomarker updates. For our part, if safety profiles remain uneventful, we see good potential for success and with multiple readouts on track for 4Q21/1H22,” Chico said.
Along with these comments, Chico gives the stock an Outperform (i.e. Buy) rating, and her $25 target indicates her confidence in a robust 155% one-year upside.
All in all, Passage Bio has achieved a unanimous Strong Buy rating, based on 4 recent positive reviews. The stock’s average price target of $26.33 is even more bullish than the Wedbush view, and suggests ~169% upside from the current trading price of $9.8.
Source: Yahoo Finance
