Given the S&P 500’s recent surge above 5,300 points, exceeding some experts’ end targets, is it wise for investors to worry about a possible market overheating?
David Kostin, Goldman Sachs’ chief US equity strategist, believes that with the S&P climbing above his forecast target of 5,200, there isn’t much room left at the top this year. Kostin believes that the current combination of high stock valuations and low expectations for GDP and earnings growth in 2024 will likely dampen stock gains. “The base case is that the market will trade around this level of multiple, or even lower, by the end of the year,” Kostin says.
But don’t panic; This is not to say that investors should give up hope in the stock market. Despite Kostin’s flat forecast, Goldman Sachs analysts are weighing in on two stocks, arguing they are well positioned to deliver nice returns in the coming year – in one case as high as 108%.
We used the TipRanks database to take a closer look at these two Goldman picks; they all have a ‘Strong Buy’ rating on the street and plenty of reasons to attract investors. Here are the details.
Fulcrum Therapies (FUL)
The first stock we’ll look at is Fulcrum Therapeutics, a Goldman pick from the biopharmaceutical research space. Fulcrum focuses on the development of novel therapeutics for genetically defined diseases with both severe symptoms and high unmet medical needs. This is a potentially rich area, as current therapies have already proven ineffective or insufficient; a company that can successfully create an effective treatment in this area will have a dramatic impact on patients’ lives.
Fulcrum’s approach is based on the underlying genetics of the disease state. The company has a proprietary product development platform, which it has called FulcrumSeek, which it uses to identify targets for its drug candidates. The targets can be used to modulate gene expression, alleviate symptoms and modify disease progression by treating the known causes of genetic misexpression.
The company has two clinical-stage drug candidates in its pipeline: losmapimod and pociredir. The first of these, a new compound being investigated in the treatment of facioscapulohumeral muscular dystrophy (FSHD), is the most advanced.
Losmapimod is currently the subject of the Phase 3 REACH trial and Fulcrum reports that the drug continues to show progress. There are 260 patients enrolled in North America and Europe, with topline data expected to be available by the end of this year. Early data from the Phase 2 ReDUX4 trial showed losmapimod demonstrated improvements in functional, structural and patient-reported outcomes.
In another development that should interest investors, Fulcrum recently entered into a collaboration and licensing agreement with Sanofi for the continued development and commercialization of losmapimod. Sanofi will pay $80 million upfront in exchange for exclusive commercialization rights outside the US, and Fulcrum will also receive up to $975 million in regulatory and sales-based milestone payments and royalties in the future. The two companies have also agreed to equally share the global development costs of the drug.
In the pociredir pathway, Fulcrum is currently conducting a Phase 1b clinical trial and has activated dosing cohorts 3 and 4. This drug is a potential treatment for hemoglobinopathies, including sickle cell disease (SCD), and the phase 1b trial is evaluating the drug in the treatment of SCD. Each dosing cohort in this study includes 10 patients.
For Goldman analyst Corinne Johnson, the most important point of this company is the losmapimod development program. The drug is in late-stage clinical testing and Johnson sees great potential in its further development. She writes: “We are positively moving toward Q4 24 topline data for the Ph3 REACH trial of losmapimod in facioscapulohumeral muscular dystrophy (FSHD), based on multiple factors. First, losmapimod demonstrated positive clinical data on the primary endpoint reachable workspace (RWS) of the Ph3 REACH study in the previous Ph2b study ReDUX4 (including the open-label extension) with a significant correlation with muscle fat infiltration (MFI) and alignment with Patient Reported Outcomes (PROs). Together, these data provide a concordance of evidence for clinical benefit with the benefit, which we consider to be risk-reducing. Second, our discussions with KOLs have shown support for losmapimod in FSHD, with potential for robust patient uptake of the drug post-approval. Finally, losmapimod has a significant clinical development lead over the competition, positioning it to become a first-in-class agent in the field of FSHD.”
This bullish long-term outlook for its flagship product has Johnson rating the stock a Buy, and she supplements that with a $15 price target that suggests a robust ~108% upside for the next twelve months. (To view Johnson’s track record, click here)
Overall, it’s clear that The Street agrees with the bullish view on this issue. FULC stock bases its Strong Buy consensus rating on 9 reviews, including 8 for Buy versus just 1 for Sell. The stock is currently trading at $7.21, and the average price target of $17 implies a one-year upside of ~136%. (To see FULC Stock Prediction)
Marex group (MRX)
Next on our list is a financial services company. Marex Group is a global broker-dealer providing a combination of market access, liquidity and infrastructure services to a client base in the energy, commodities and financial markets communities. The company has more than 4,000 customers worldwide, including producers and consumers of raw materials, but also asset managers and major banks. Marex is mainly active in Europe and the US, but is expanding its activities into the Middle East and the Asia-Pacific region.
The company has five major business segments: Clearing, Agency & Execution, Market Making, Solutions and Corporate. The largest of these is Agency & Execution, which represents 46% of the company’s annual revenue. This segment, in addition to other activities, also provides liquidity and connects buyers and sellers in various securities markets. The Clearing segment, which generates 28% of revenue, powers the company’s Future Commission Merchant business. Last year, MRX was one of the ten largest FCM companies in the US.
Marex operates from 35 offices worldwide, through a group of brand companies. Marex Group entered the public trading markets as a parent company through an initial public offering in April this year, with its shares listed at $19 per share and 3.846 million shares floated by the company. The initial public offering, which included a large tranche of privately sold shares, raised approximately $292 million.
On May 16, after the dust had settled on the IPO, Marex announced its 2023 financial results. The company generated $1.245 billion in revenue this year, up 75% from 2022. Full-year pretax profit was $197 million. .
Goldman’s 5-star analyst Alexander Blostein is bullish on this new stock, writing in his introductory note: “We expect MRX to deliver average earnings per share of ~20% through 2026, driven by healthy industry volumes, increasing market share gains and expanding margins. as the company grows. Under our assumptions, MRX will see revenue growth of ~13% through 2026 as the company continues to gain market share in markets and regions in which it previously did not compete (namely Prime Brokerage Services via the Cowen acquisition, the clearing of fixed income swaps against LCH and APAC expansion), with additional short-term tailwinds from higher interest rates and volatility. As the business scales, we see operating margins of 18%/19%/20% by 2024/25/26.”
Looking ahead, Blostein justifies an optimistic price target by pointing to MRX’s growth potential, saying: “At ~8x 2024 price/earnings, MRX is meaningfully discounted to the ~10x average 2024 price/earnings of peers, which in our view is not justified given the company’s more diversified product range in terms of both products and geographies, superior sales growth and higher ROE.”
Accordingly, the analyst rates MRX stock a Buy, paired with a $33 price target, implying 61% upside potential over one year. (To view Blostein’s track record, click here)
So far, all seven of Marex’s stock reviews are positive, making the Strong Buy consensus rating unanimous. Shares are now trading at $20.50, and the average price of $26.29 suggests MRX will rise 28% over the next year. (To see MRX Stock Prediction)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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 for informational purposes only. It is very important to do your own analysis before making an investment.
