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J.P. Morgan: 3 Stocks That Could Climb Over 60%
We’re well into earnings season, and the aggregate corporate earnings are beating expectations once again. In a way, this is not a surprise; earnings are coming out in the midst of a massive economic reopening, which began back in the first quarter. With lockdowns and forced closures receding into the background, it shouldn’t be surprising that overall EPS is up. But we are seeing some surprises – and some contradictions. From JPMorgan, John Normand writes, “Despite already elevated estimates entering the season, earnings delivery has surprised to the upside in both the US and Europe and S&P 500 blended EPS continues to be revised higher. However, stock price reaction has been disappointing despite the strong beats. Misses are being penalized as per usual, and the beats are not translating into positive stock price reaction.” So against a background of rising equities, there are individual stocks that simply aren’t reacting the way we’d expect. Normand isn’t the only one to notice this, or to comment on it. Weighing in from CNBC, Jim Cramer said recently, “Unless your company’s a huge beneficiary from the great reopening, nobody cares. Even then, you’ve gotta deliver a massive upside surprise — not just a regular upside surprise — to get this market’s attention.” It may be fairer to say that, with the overall trend of rising markets and the increasingly positive sentiment related to simply getting back to business, solid earnings were expected. And the market indexes are reflecting this. The S&P 500 is up 5.3% over the past month, and the NASDAQ has gained 7.5%. The key for investors will be, as always, to find the stocks that are fueling overall gains. Using the TipRanks platform, we’ve pinpointed 3 stocks that feature a Strong Buy analyst consensus rating with double-digit upside potential. And better yet, according to Normand’s analyst colleagues from JPMorgan, that double-digit upside starts at 60%. Here are the details. Bilibili, Inc. (BILI) Some trends are international in scope, and Japan’s anime and comic universes have shown a clear ability to traverse cultures. So much so, in fact, that the Chinese video sharing site Bilibili has grown to be a $45 billion company by originally focusing on this market. Bilibili’s shares have seen strong growth recently, and for the past 12 months are up an impressive 347%, far outpacing the overall markets. While the anime niche gave Bilibili a solid foundation to start from, the company has been expanding its offerings. It now offers users access to a ‘full-spectrum video community,’ with content in lifestyle, games, entertainment, and tech & knowledge. The platform enables both professional and occupational user-generated content, and Bilibili describes its value proposition as ‘All the Videos You Like.’ The company’s content expansion has fueled financial growth. Total revenues in the last quarterly report – for 4Q20 – reached $588.5 million, for a gain of 104% year-over-year. The user base expanded dramatically, too; the average monthly active user count (MAU) increased by 55%, to 202 million, while on the mobile app MAUs hit 186.5 million, for a 61% yoy gain. The year-over-year increase in average monthly paying users (MPU) was even more impressive, at 103%. MPU at the end of Q4 was 17.9 million. All of this has JPM’s Alex Yao bullish on Bilibili, and he writes, “We believe BILI mgmt’s 2023 MAU guidance of 400m is a positive surprise to the market and it makes our 2025 MAU estimate of 600m more plausible. In addition, ads revenue growth accelerated for seven quarters consecutively to 150% YoY in 4Q20, while mgmt remains optimistic on the ads growth outlook in 2020. As the stock mostly trades on long-term user base expectations, we expect the stronger-than-expected three-year user guidance to propel the share price further in the near term.” Yao puts his money where his mouth is here, with a $200 price target on BILI stock backing his Overweight (i.e., Buy) rating, and suggesting 75% share appreciation by year’s end. (To watch Yao’s track record, click here.) As for Wall Street, the analysts are unanimous here, giving Bilibili 9 recent positive reviews, for a Strong Buy consensus rating. The stock’s average price target of $162.89 implies a one-year upside of 42% from the current trading price of $114.44. (See Bilibili’s stock analysis at TipRanks.) Daqo New Energy (DQ) Sticking with China, we’ll shift our focus to the renewable energy sector. China is the world’s largest producer of solar power, with more than 250 gigawatts installed. This is due in large part to a governmental push toward renewable energy in the state-owned energy sector. Daqo energy is a US$6.3 billion producer of monocrystalline silicone and polysilicon (mono-Si and poly-Si), which are used in the production of solar panels. The company’s production is based in Xinjiang province. Daqo, in March of this year, announced a major supply agreement with Gaojing, a newcomer to China’s solar sector that produces advanced solar wafers for power systems. Daqo will supply high-purity polysilicon to be used in Gaojing’s expansion to a 50 gigawatt production capacity. Gaojing will make a partial payment up front, with further payments negotiated according to market conditions. That agreement comes after Daqo announced a gross profit of $109.5 million in the fourth quarter of 2020, up 141% from Q3’s $45.3 million. Gross margins also rose, from 36% to 44%. Per share, earnings hit $1.01, compared to 29 cents in both Q3 and the prior year’s Q4. At the top line, revenues grew 107% year-over-year, from $119.5 million to $248.5 million. Production volume expanded from 4Q19 to 4Q20 from 18,406 MT to 21,008 MT. This is the background to DQ’s share appreciation over the past six months. Despite slipping from its February peak, the stock shows a six-month gain of 139%, compared to the S&P 500’s 28% rise over the same period. JPM Analyst Alan Hon anticipates further growth and recently wrote, “We expect strong 1Q21 earnings to trigger upward consensus revisions, a positive catalyst. We lift our earnings estimates by ~18%, factoring in the strong poly px trend observed… We estimate that DQ will register earnings growth of ~170% in its 1Q21 results, due to be released in May. We think the event will trigger upward consensus earnings revisions.” Accordingly, Hon rates Daqo as Overweight (a Buy), with a $133 price target indicating potential for 62% upside in the year ahead. (To watch Hon’s track record, click here.) Daqo has attracted some interest from Wall Street’s stock watchers, with 3 out of 4 recent reviews coming in positive – and giving the stock a Strong Buy rating from the analyst consensus. Shares are priced at $85.72 and their $117.68 average price target suggests a one-year upside of 41%. (See Daqo’s stock analysis at TipRanks.) Peloton Interactive (PTON) For the last stock on our list today, we’ll come back to the US and take a look at a trendsetter. Peloton has brought online interaction to the world of stationary bikes – and other exercise equipment, successfully marketing to upscale customers. The online connectivity is the company’s big sell, offering users the ability to take part in interactive exercise classes online in real time. Looking back at the most recent quarterly report, for 2Q fiscal 2021, Peloton showed revenues of $1.06 billion, the first time the company’s top line breached the $1 billion figure. EPS in 2Q21 was 18 cents per share, up from the 19-cent loss posted in the prior year’s second quarter. Peloton’s overall success has been marred in recent weeks by a serious setback – the Consumer Product Safety Commission has been investigating the company regarding safety issues. Specifically, the CPSC has issued warnings about Peloton’s Tread+ treadmill, which has been involved in 39 reported accidents – involving children, and including one death. Peloton has argued for the safety of its products, but some damage has been done – from the stock’s peak in January of this year, PTON shares are down by 38%. We’ll get an idea on May 6 how the fallout from this may be impacting sales and earnings; that is when the company reports its results for Q3 fiscal 2021. Writing from JPM, 5-star analyst Doug Anmuth takes an even keel on the safety concerns. Anmuth notes that the company is taking steps to enhance users’ safety, and goes on to say, “We like PTON shares at current levels & would be buyers of any pullback related to the CPSC warning & related headlines. We continue to believe that consensus estimates for CF Sub net adds are low in 2HFY21 & FY22. In coming months we expect PTON to benefit from: 1) significant ramp in manufacturing capacity, up 6x from a year ago; 2) easing of LA port delays; 3) resumption of normalized marketing & advertising activity; 4) still strong Bike/Bike+ demand, against manageable comps; & 5) launch of the new lower-priced Tread in the US, with initial deliveries in the June qtr/4QFY21 & bigger impact in September/1QFY22 & through FY22.” The analyst rates PTON as Overweight (Buy), and his $200 price target indicates confidence in a 102% upside in the year ahead. (To watch Anmuth’s track record, click here.) Peloton’s popularity – or at least, its trendiness – can be seen by the sheer number of reviews on record for the stock. No fewer than 24 Wall Street analysts have chimed in here, and the recommendations break down to 19 Buys, 4 Holds, and 1 Sell, for a Strong Buy consensus rating. The stock is trading at $99 and has a $158.52 average price target, suggesting an upside of 60% from current levels. (See Peloton’s stock analysis at 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.
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April 30, 2021 at 05:14AM
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