Stock selection will become a bit more difficult in the short term, if Goldman Sachs’ words are correct. The firm’s strategist, Peter Oppenheimer, sees a combination of rising bond yields and high stock valuations working together to boost overall stock market gains.
“The faster rates rise, the greater the impact on equities,” Oppenheimer says, adding: “Given the valuation of equities, this will be a speed bump.”
But even as the stock rally looks toward a possible shift to a lateral move, there are still opportunities moving forward. Oppenheimer notes, “Diversification is the opportunity investors have in a flatter market environment.”
Diversification is a common strategy for a more careful approach to portfolio management, and while Oppenheimer advocates that kind of caution, his colleagues among the Goldman stock analysts are busy selecting stocks where they see solid potential for gains.
We ran two of their recent recommendations through the TipRanks database and it appears the Street agrees with the Goldman view here – both are rated Strong Buys by analyst consensus. let’s see what sets them apart.
Jazz pharmaceuticals (JAZZ)
For biotech companies, approving and bringing a drug to market is akin to finding the Holy Grail – and Jazz Pharmaceuticals has a wide range of such approved products in both neuroscience and oncology. These commercialized drugs mean that Jazz, even though it also has an extensive pipeline of new drug research projects, makes a largely consistent quarterly profit. From an investor’s perspective, this biotechnology offers a ‘best of both worlds’ situation, with a record of solid revenues and sales plus the high potential of promising drug candidates in the pilot clinic.
Of the company’s existing and approved drugs, three were cited by the company as “key growth drivers” in the first quarter of this year. These three showed a combined year-over-year sales increase of 12%; two came from Jazz’s neuroscience portfolio, and the third from the oncology side. From lowest to highest growth, the top three revenue generators were Epidiolex, a cannabidiol used to treat seizures, with net product sales up 5% year over year; Xywav, a drug used to treat excessive daytime sleepiness, with a 14% increase in net product sales; and the oncology drug Rylaze, a treatment for acute lymphocytic leukemia, which increased net product sales by 20%.
On the pipeline side, we see the company’s drug candidate zanidatamab being the subject of multiple clinical trials. These studies look at zanidatamab as both monotherapy and combination therapy, in the treatment of a wide range of cancer types. One of these studies is the trial of zanidatamab in the treatment of HER2-positive bile duct cancer. The company on June 1 released positive data from the HERIZON-BTC-01 Phase 2b clinical trial of zanidatamab in previously treated, unresectable, locally advanced or metastatic HER2-positive bile duct cancer; the data showed that zanidatamab “demonstrated sustained and durable antitumor responses.”
Just a few days prior to this data release, Jazz announced that the FDA had granted a Priority Review for the BLA, Biologics License Application, for zanidatamab in the previously treated, unresectable, locally advanced or metastatic HER2-positive bile duct cancer indication. The PDUFA date for the assessment is set for November 29, 2024.
In addition, Jazz provided presentations at SLEEP 2024, the 38th annual meeting of the Associated Professional Sleep Societies, in early June. The presentations highlighted the safety and efficacy of Xywav, which, as mentioned, is the company’s approved drug to combat excessive daytime sleepiness.
For Goldman analyst Andrea Tan, part of the appeal of this company is the quality of its pipeline. She writes of the stock: “While the debate has been about the prospects for the sleep sector (and Epidiolex, to some extent), we are optimistic about the emerging pipeline to support the longer-term growth profile… The continued investment in R&D and the early-stage pipeline alongside business development (JAZZ has $8 billion in incremental balance sheet capacity if it could achieve 5x EBITDA by 2024) serve as sources of growth. Because the name trades at a higher relative discount to the S&P than the five-year average, we view JAZZ as attractive at current levels.”
Tan then begins her coverage with a Buy rating and a $169 price target, implying a robust 55% one-year upside potential. (To view Tan’s track record, click here)
The Strong Buy consensus rating on JAZZ is based on 16 reviews, including 13 Buys to 3 Holds, and the stock’s $180.86 average price target is even more bullish than the Goldman view, suggesting a 66% upside compared to the current share price of $108.99. (To see JAZZ stock forecast)
Zeekr Intelligent Technology (ZK)
The next stock on our Goldman-backed list is Zeekr Intelligent Technology, the electric vehicle brand partly owned by Chinese auto giant Geely. Zeekr is a luxury EV brand, focused on combining European styling and performance with the latest advanced manufacturing and production processes. The company’s models include the Zeekr 001, a five-seater hatchback crossover, and the Zeekr The company also has a six-seater MPV, the Zeekr 009, and is working on a premium luxury sedan. The company’s cars are pure battery EVs and feature high-end software and hardware applications to enhance the driving experience.
Zeekr is new to the stock market, having gone public last May, and will report its first set of quarterly results on June 11. If we look back at the IPO, we see that the company went public through the initial sale of 21 million euros. American Depositary Shares on Wall Street. ZK currently has a market capitalization of $5.86 billion.
Early this month, Zeekr announced delivery figures for May 2024, showing strong year-over-year gains. Last May, the company delivered 18,616 vehicles, an annual increase of 115%. Since it started making deliveries, Zeekr has delivered a total of 264,397 electric vehicles.
This Chinese EV maker has caught the attention of Goldman’s EV expert, Tina Hou. She opens her coverage of the new public shares by noting some of Zeekr’s clear strengths, before providing her long-term outlook: “We believe ZEEKR is better positioned to compete by adopting an asset-light manufacturing model , taking advantage of the advantages of the parent company. Geely) factory capacity, which helps alleviate the heavy initial investment burden. Geely’s mature supply chain also gives ZEEKR a cost edge, as evidenced by ZEEKR’s higher vehicle contribution margin of 18.2% (vs. Nio/XPeng’s 16.2%/3.7%). ZEEKR had net cash flow of Rmb3 billion and operating cash flow of Rmb2.3 billion in 2023. However, we expect negative operating cash flow of Rmb-4 billion in 2024 (vs. Nio/XPeng of Rmb-10 billion/-6.5 billion) and expect FCF to turn positive in 2027E given continued competition.”
For Hou, this amounts to a stock worth buying now. She gives it an initial rating of Buy, with a $34 price target that suggests a 44% one-year upside. (To view Hou’s track record, click here)
Overall, ZK stock gets a Strong Buy from the analyst consensus, based on three unanimous Buy ratings for this new stock. The shares are priced at $23.66 and the average price target of $34.67 suggests an upside of 46.5% for the coming year. (To see Zeekr’s stock analysis)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
