The US stock market is poised to end the week on a positive note, fueling optimism as the long holiday weekend approaches. This positive sentiment comes amid news that the White House and Republicans in Congress are approaching the final stages of reaching an agreement to raise the government debt ceiling, which currently stands at $31.4 trillion.
A successful debt ceiling law would allay fears that the US might default on its debt obligations and avoid the risks such an event would entail. Meanwhile, investors are still dealing with a confusing market environment: stubborn inflation, high interest rates, a tight labor market and growing recession fears.
So how do you find the next hot stock to buy in this environment? One way could be to screen for stocks that have been approved by analysts, particularly at major investment banks, such as Wall Street banking giant Wells Fargo.
The company’s equity analysts show their optimistic outlook by selecting the stocks they see as winners for the year ahead – winners with solid gains of up to 70%. Using the TipRanks database, we looked up two of these Wells Fargo picks to see what makes them stand out.
Stagwell Inc. (STGW)
The first stock that Wells Fargo bets on is Stagwell, a company founded by well-known marketing executive Mark Penn. Stagwell’s marketing strategies focus on bringing together human creativity and data analytics to provide a more complete understanding of today’s digital world. The company supports its strategy with teamwork and talent and provides exceptional service to its customers.
Penn originally founded Stagwell in 2015 and in 2021 the company entered its current incarnation through the completion of a merger with MDC Partners. Today, Stagwell is working to transform marketing through a digital-first approach. The company operates through a network of 70 agencies in more than 34 countries and serves more than 4,000 corporate clients worldwide.
The measure of Stagwell’s success can be seen in total revenue. In 2022, the company’s first full year of operation since the MDC merger, revenues reached $1.995 billion, and revenues increased in the second half of the year. However, the first quarter of this year brought a different result.
In 1Q23, Stagwell saw both sales and profits fall. Quarterly revenue, of $622 million, was down 3.3% year-over-year and was more than $24 million below expectations. In the end, the company reported non-GAAP earnings of 13 cents per share; this missed expectations by 7 cents.
On the upside, Stagwell reported $53 million in net new business gains for the quarter and $212 million for the next 12-month period. The company ended 1Q23 with $138.5 million in cash.
During the first quarter, Stagwell announced a share buyback program, a move to both return capital to shareholders and increase stock value by reducing the number of shares outstanding. The program comprises a total of 23.3 million shares; during 1Q23, the first 2.6 million were repurchased for a total of $18 million.
All this has caught the attention of Well Fargo analyst Steven Cahall, who writes of Stagwell, “STGW is establishing itself as the digital-first agency network with a foundation in digital transformation. We estimate a 3-year organic growth stack (’21+’22+’23E) of +41%, or nearly 2x the larger Agency holdcos. STGW also has political advocacy and we think political spending should be in the range of $10 to $11 billion by 2024, up from $9 billion in ’20. In terms of cost/margin, STGW is early developing AI tools focused on cost reduction ($35mm cost for ’23-’24) and the Stagwell Marketing Cloud provides high margin SaaS revenue.
“We see the catalyst for a higher share price as executing strong organic growth, deleveraging and continuing to commit capital to M&A and share buybacks,” the analyst summarized.
Cahall uses these comments to support his Overweight (ie Buy) rating for this stock and sets a price target of $9, implying 47% upside potential over a year. (Click here to view Cahall’s track record)
Like Cahall, the rest of the street is optimistic. With 4 Buys and no Holds or Sells, STGW scores a Strong Buy consensus rating. The $6.10 trading price and $9.75 average price target together suggest ~60% upside potential over the next 12 months. (To see STGW stock forecast)
Zentalis Medicines (ZNTL)
Now we turn our attention to Zentalis Pharma, a clinical-stage biotech company working on new treatments for several types of cancer. The company is using its patented integrated discovery engine to develop novel small molecule compounds as the basis for new and more effective treatments. The company creates its drug candidates based on careful analysis of cancer pathways to ensure potential therapies are on track.
The company’s approach—a rigorous discovery process, with drug candidates that have multiple potential applications—allows it to operate in a capital-efficient manner. Zentalis’ lead candidate is azenosertib, or ZN-c3, a WEE1 inhibitor that is the subject of 8 separate clinical trials.
In these studies, azenosertib is being tested as both a monotherapy and a combination therapy. The targeted cancers include uterine serous carcinoma, various ovarian cancers, osteosarcoma and pancreatic cancer.
Upcoming catalysts of the Company’s clinical trial suite include the planned release of positive clinical data for azenosertib as a combination treatment with chemotherapy for ovarian cancer. Publication of the data is scheduled for June 5 at the meeting of the American Society of Clinical Oncology.
Other upcoming catalysts include the planned release of data on azenosertib as a monotherapy dose during 1H23. This study will provide data on maximal exposure and tolerability, as well as the clinical benefits of the drug candidate for a wide range of patients. In 2H23, the company expects to release data on azenosertib in combination with drug candidate ZN-d5. These data are being collected in a phase 1/2 study for the treatment of acute myeloid leukemia. Additional data on the company’s drug candidate ZN-d5, from a phase 1/2 trial against relapsed or refractory light chain amyloidosis, is also expected in 2H23.
Analyst Derek Archila, who covers this biotech stock for Well Fargo, sees the burst of upcoming data releases as the most important point for investors to watch.
“This has been a sleepy file as there haven’t been many clinical catalysts lately. That’s why we like the setup as the upcoming updates seem under the radar and the stock remains heavily shorted – could see some major push…We like the risk/reward ahead of the dose optimization/RP2D data and subsequent ASCO presentations… In our base In the case of both updates, we think the stock moves to the mid $40 (+100%) implying a ~$2.5 billion mkt cap, which we think is reasonable, Archila thought.
All of the above prompted Archila to rate ZNTL as Overweight (ie Buy). Additionally, the analyst gives the stock a $46 price target, suggesting a ~70% upside in the stock over the next year. (Click here to view Archila’s track record)
This is another stock that receives a unanimous Strong Buy rating from Wall Street analysts, based on 8 recent positive reviews. ZNTL is trading at $26.98 and its $48.25 average price target implies a 12-month gain of ~79%. (To see ZNTL stock forecast)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.