Home Business Wells Fargo says buy these two stocks for double-digit returns

Wells Fargo says buy these two stocks for double-digit returns

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Wells Fargo says buy these two stocks for double-digit returns

Markets were reeling late last week as high CPI numbers sent major indexes into a tailspin. Meanwhile, it remains to be seen how the Iranian missile and drone attack on Israel on Saturday evening shapes the war in the Middle East and affects market sentiment in the coming week.

Looking at the bigger picture of where the markets are going, investors shouldn’t worry too much right now, according to Chris Harvey, chief equity strategist at Wells Fargo. “There is more room for upside,” he tells us in a recent note on current market conditions. Harvey expects stocks to continue rising; he now puts his year-end forecast for the S&P 500 index at 5,535, up from the previous 4,625, implying an 8% gain from current levels.

“In our view,” Harvey explains his position, “the bull market, AI secular growth story and index concentration have shifted investor attention from traditional valuation metrics to longer-term growth and discount metrics. Since late 2022, investors’ valuation thresholds appeared to be falling while time horizons were increasing, a function of this secular optimism. Over a year ago we reduced our equity risk premium to zero, and now the focus shifts to 2025.”

Building on this, Wells Fargo stock analysts are looking for the stocks that will rise once the bull run resumes. They picked two stocks with double-digit returns this year, and a look at the TipRanks databases shows each of them getting a Strong Buy rating from the consensus view. Here are the details and comments from Wells Fargo.

GitLab (GTLB)

First up is GitLab, a DevOps company that has created an open source platform for DevSecOps. This sounds like a mouthful, but workers in the field will understand: GitLab offers its customers a specialized platform solution to optimize fast, efficient software development and high returns from the end product. As noted, GitLab’s platform is offered as open source software; The basic theory of the company was that ‘everyone can contribute.’ The company’s open-source model allows all its users to contribute to the platform code if they wish; As a result, the model has a rapid pace of innovation.

The open source platform also aligns directly with GitLab’s ‘freemium’ business model, where a basic level of access and service is available to all users, while higher level functionality and upgrades, as well as larger scale support, are available to paying subscribers. GitLab claims to have 1 million paying active license users out of a total of about 30 million users; On the business side, the company employs approximately 2,000 people in 60 countries around the world, and has more than 3,300 active employees contributing to its open source platform code.

In recent months and weeks, GitLab has begun integrating AI technology into its software platform, as part of an overall strategy that will use AI, and specifically generative AI, to “solve customer pain points,” i.e. solve users’ most pressing problems. and create a seamless experience. GitLab has a partnership with Google to use the tech giant’s generative AI technology within its own cloud infrastructure; By using the technology in GitLab’s own cloud, the company can maintain the privacy and security of its own customers.

In addition to its branches in AI, GitLab also recently acquired Oxeye. The acquisition, announced last month, will bring Oxeye’s cloud-native security applications and risk management capabilities to GitLab’s platform, and expand GitLab’s capabilities in software composition analysis and regulatory compliance. GitLab will also gain functionality in tracking vulnerabilities from code to the cloud, an important field for an open source company.

On the financial side, GitLab last reported results for the fourth quarter of 2024, which ended on January 31. Revenue for the quarter was $163.8 million, a gain of 33% year over year – beating estimates by $5.54 million. GitLab reported earnings of 15 cents per share on non-GAAP measures, beating forecasts by 7 cents per share.

On the negative side, GitLab’s fiscal 2025 guidance projected a revenue range of $725 million to $731 million — while analysts had hoped for a revenue forecast of $732.2 million. Shares in GitLab plummeted 21% after the miss, and shares haven’t recovered since.

However, analyst Michael Turrin covers this stock for Wells Fargo and is impressed by the company’s moves into AI and the opportunities presented to investors by the stock’s current relative discount. He writes: “We believe GTLB is well positioned to benefit from the tailwinds of genAI, given the code generation use case in Duo Pro – in our view likely the first genAI use case deployed in software. We estimate that the current opportunity for GTLB could be as much as $750 million ARR, benefiting from both AI SKU add-ons and incremental customer upgrades… With shares -21% (now -23%) since the fourth quarter of 2015, with the FY25 model now more conservatively biased and an AI-led product cycle starting to take shape, we are seeing an opportunistic entry for GTLB stock.”

To quantify his view on the stock, Turrin rates the stock Overweight (Buy), with a $70 price target indicating room for 22.5% upside in the coming months. (To watch Turrin’s track record, click here.)

GitLab’s 20 recent analyst reviews are divided into 16 Buys and 4 Holds, which equates to a Strong Buy consensus rating. The shares are priced at $57.07 and their average price target of $73.35 implies a one-year upside potential of 28.5%. (See GitLab’s stock forecast.)

monday.com (MNDY)

Sticking with the technology sector, we turn our attention to monday.com, a cloud software company that offers customers a range of work management products. These include office systems optimization, project management and CRM tools, and marketing and sales operations tools, all offered on a cloud-based platform. monday.com targets its products at enterprise customers of all sizes, making the platform available to subscribers on a software-as-a-service model. The company counts names such as Coca-Cola and Uber among its customer base.

monday.com was founded in 2012, and in its first decade of operation, the company gained widespread acceptance based on its reputation for quality and support – and its easy-to-use, ‘low-code, no-code’ -platform. Customers can quickly adapt Monday’s work management systems to their own needs, based on idiosyncratic business models, staffing practices and operational scales.

Since launching its product in 2014, this company has emerged as the go-to place for work management software. The company has more than 1,800 employees, a product line that is available in approximately 200 countries – and is used by more than 225,000 business customers every day. We should note that 2,295 of Monday’s customers each generate more than $50,000 in annual recurring revenue.

That last metric, from the company’s 4Q23 report, was up 56% year over year, topped by 833 customers with more than $100,000 in annual recurring revenue, up 58% annually. In total, monday.com generated $202.6 million in the quarter, up 35% year over year and $4.83 million better than expected. The bottom line of 65 cents per share in non-GAAP measures was 35 cents above forecasts.

Returning to Wells Fargo, the company’s position is clearly expressed by analyst Michael Berg, who sees a lot of potential in this company and its shares. Berg writes: “We view monday.com as a leader in a large market of more than $150 billion. With a differentiated work management platform, MNDY has a number of robust growth tools to capture market share and drive sustainable growth, including: 1) moving up the market; 2) a fast-growing product that will grow and cross-sell; 3) leveraging a growing partner network to drive awareness and strategic relationships; and 4) price changes.”

These comments support the analyst’s initiation of an Overweight (Buy) rating, and his price target, set at $260, implies a 34.5% upside over the next twelve months. (Click here to view Berg’s track record.)

In total, monday.com has 16 recent recommendations, including 14 to Buy and 2 to Hold, for a Strong Buy consensus rating. The shares are priced at $193.11 and their average price target of $256.21 is almost as bullish as WF thinks, suggesting a 33% upside over one year. (To see monday.com’s stock forecast.)

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.

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