Wall Street is sending mixed signals. While the S&P 500 is up 45% from its March lows, the market was choppy throughout most of June and July. On top of this, new COVID-19 cases are being reported at an alarming rate and trade tensions between the U.S. and China are flaring. What does all of this mean? The investing game has changed, so new strategies are needed to keep up with the new rules.
TipRanks has a tool that offers more than just an evaluation on a fundamental and technical basis. Providing a more comprehensive stock analysis, the Smart Score pulls together 8 commonly used predictive metrics, and collates all of the data into a single numerical score. This score ranges from 1 to 10, with 10 being assigned to the names most likely to outperform.
Using TipRanks’ database, we pinpointed three stocks that have earned the enviable “Perfect 10” Smart Score. Let’s dig a bit deeper into the details.
Arrowhead Pharmaceuticals (ARWR)
Through its versatile drug discovery and development platform designed using its patented technologies, Arrowhead Pharmaceuticals develops therapies that target intractable diseases by silencing the genes that cause them. Given its impressive development pipeline, some members of the Street believe that it’s time to take another look at this Perfect 10.
Currently, Phase 1 studies of ARO-APOC3 and ARO-ANG3 are fully enrolled, with updates potentially being provided at the European Society of Cardiology in late August, American Heart Association in November and the National Lipid Association meeting in December. Writing for Piper Sandler, five-star analyst Edward Tenthoff has been impressed by ARWR thus far.
Looking at interim Phase 1 multi-dose data on ARO-APOC3, the therapy was able to generate a 95% reduction in TG. Additionally, ARO-ANG3 demonstrated an LDLc reduction of 39-42% in hypercholesterolemia patients on top of background therapy and a TG reduction of 79% in hypertriglyceridemia patients. Not to mention, the safety and tolerability profile was robust.
Weighing in on the implications, Tenthoff stated, “Clean safety and lipid lowering will enable initiation of pivotal trial starts of ARO-APOC3 in Multifactorial Chylomicronemia (MCM) syndrome and a Phase IIb study of ARO-ANG3 in mixed dyslipedemia by 1H:21. Amgen could report Phase I AMG-890 data and start a Phase II study triggering a milestone.”
Even though COVID-19 forced the company to halt the Phase 2/3 SEQUOIA and open-label Phase 2 AROAAT2002 studies of ARO-AAT, both have now been restarted. The AROAAT2002 study is assessing pre- and post- ARO-AAT treatment biopsies to measure histological liver disease activity over two years, with ARWR potentially releasing six-month biopsy data from the first cohort at AASLD. “While histological changes are not expected at this point, observation of reduction in production of pathological misfolded AAT protein would indicate drug activity,” Tenthoff added.
The company also has other ongoing clinical activity including Phase 1 studies for ARO-HSD to treat NASH, ARO-HIF1 in kidney cancer and ARO-ENaC for cystic fibrosis, and thus, the deal is sealed for Tenthoff. In addition to reiterating an Overweight rating, he kept his $80 price target as is. A twelve-month gain of 65% could be in store, should the analyst’s thesis play out in the year ahead. (To watch Tenthoff’s track record, click here)
Judging by the consensus breakdown, other analysts also like what they’re seeing. 5 Buys and a single Hold add up to a Strong Buy consensus rating. Based on the $64.17 average price target, the upside potential comes in at 33%. (See ARWR stock analysis on TipRanks)
Dropbox Inc. (DBX)
Meeting the needs of a very large market, Dropbox offers cloud storage, team collaboration and work productivity solutions. After hosting a conference call with its SVP of Engineer, Product and Design Timothy Young, one analyst is even more optimistic about DBX’s long-term growth prospects.
Five-star analyst Alex Zukin, of RBC Capital, tells clients he sees “solid potential for the company’s new product strategy, which essentially aims to be a knowledge worker’s central engagement hub.” The platform allows employees to communicate and collaborate using DBX’s own products, integrated applications and other content including URLs and various types of files.
According to Young, technology across various consumer goods is transitioning from an “ownership model” to an “access model”, with the cloud enabling this shift to happen in the workplace as well. As a result, this prompted DBX to revamp its product and strategy. Going beyond managing files, the company is now “in the business of managing asynchronous communications across mediums and even other applications.”
Zukin explained, “We note that Dropbox is not the only vendor trying to serve this need, but Dropbox does view its role here as unique, nothing that while companies like Zoom and Slack are greater for short conversations and exchanges, Dropbox is trying to provide institutional long-term memory.”
As part of this updated strategy, DBX has placed a significant focus on shifting it from an OS/utility layer to a foreground application. “The company highlighted not only its new desktop app, but also tray and menu bars that bring contextual awareness to the knowledge workers and an ability to bring in new aggregation points around access,” Zukin commented. Adding to the good news, management stated its user base is incredibly loyal and has reacted positively to the product changes.
Everything that DBX has going for it keeps Zukin with the bulls. To this end, he maintained an Outperform rating and $30 price target. The implication? Upside potential of 39%. (To watch Zukin’s track record, click here)
Looking at the consensus breakdown, 5 Buys, 1 Hold and 2 Sells have been assigned in the last three months. So, DBX gets a Moderate Buy consensus rating. At $26.43, the average price target indicates 23% upside potential. (See Dropbox stock analysis on TipRanks)
LKQ Corporation (LKQ)
As one of the top providers and distributors of auto repair parts in the U.S. and Europe, LKQ offers lower-cost alternative parts that are considered of “like kind and quality” when compared to OEM manufactured parts. While COVID-19 has had a serious impact on LKQ, the tides could be turning for this Perfect 10.
Covering the stock for SunTrust Robinson, four-star analyst Stephanie Benjamin believes that better days are ahead. To support this conclusion, she pointed out miles driven activity has been recovering across LKQ’s major markets since April, with driving activity now above January 2020 levels.
According to Apple mobility data (driving only), driving activity is up 124% in the U.S., 183% in Germany, 199% in the UK and 829% in Italy since March 31. It should, however, be noted that typically, the highest driving levels are seen in the summer, with work-from-home and virtual education also potentially hampering driving activity in the back half of the year.
That being said, Benjamin argues that “an increase in accident frequency will at least partially offset the reduction in miles driven and ultimately drive demand for LKQ’s alternative parts.” Expounding on this, she stated, “Risky and distracted driving has increased the last several months with speeding up 27% and phone usage up 38% among drivers. As a result, there has been a 20% increase in crash frequency per mile driven during COVID despite an overall decline in the number of crashes.”
Additionally, increased vehicle complexity and higher repair costs could lead to more collision repairs and the need for alternative parts, in Benjamin’s opinion. If that wasn’t enough, margins could get a boost. “In our view, LKQ is well positioned to see the margin progression in 2021 due to its (1) ~$250 million in quarterly cost savings implemented in response to COVID-19, (2) restructuring program which enables the closure of underperforming branches, and (3) ongoing European integration efforts,” the analyst said.
It’s also important to mention that the effects of COVID-19 through May were not as bad as previously anticipated. To this end, Benjamin expects to see similar organic growth in June, with her estimate potentially being “conservative as economies continued to reopen and miles driven improved throughout the month.” Therefore, her 2020 EPS estimate gets a lift, from $1.43 to $1.54.
In line with her optimistic take, Benjamin continues to rate LKQ a Buy. In addition, she bumped up the price target from $30 to $35, suggesting 26% upside potential. (To watch Benjamin’s track record, click here)
The bulls represent the majority on this one. Out of 6 total reviews published in the last three months, 5 analysts rated the stock a Buy, while 1 said Hold. So, the word on the Street is that LKQ is a Strong Buy. The $34.75 average price target implies shares could rise 25% in the next twelve months. (See LKQ stock analysis on TipRanks)
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In this time of pandemic and panic, stock markets have been – rising. Yes, we had a crash in February/March, part of that initial ‘panic mode’ when Federal, state, and local governments shut down economic activity and ordered social lockdown policies, but that turned around at the end of March. We’ve had a bullish rally since then. The S&P 500 stands just above 3,200, only 5% below its all-time peak.
A bull rally naturally attracts investors, and plenty of stocks see a lot of action – but that doesn’t mean every stock is a buying proposition. Given the uncertainty of the ongoing pandemic and the looming November election, investors need to make their stock choices carefully. And that means knowing which ones to keep away from.
Opening the TipRanks database, and screening for the ‘Strong Sell,’ we’ve pulled up details on three stocks that Wall Street’s analysts agree on: don’t touch it with a 10-foot pole! That’s about three meters, so keeping that distance should fit in well with coronavirus restrictions.
Invesco Mortgage Capital (IVR)
First on our list is a real estate investment trust. REITs are frequently excellent investments; real property tends to bring in solid returns, and due to regulatory requirements, REITs also tend to pay out reliable and generous dividends. But not every company in the segment hits that potential.
Invesco has a portfolio based on residential and commercial mortgage-backed securities and mortgage loans, with an emphasis on those guaranteed by the US government. For those who don’t remember, these are the securities whose collapse 12 years ago sparked the last financial crisis. And in the current climate, with unemployment skyrocketing, many states are offering legal remedies for people having trouble making the house payment – a clear sign that property owners, reliant on mortgage and rent payments, are in for a rough ride.
The company saw expenses rise and earnings fall in Q1, reported at the end of June. In a move to shore up liquidity, Invesco took aggressive action to pay down debt and deleverage the portfolio. And finally, the company was forced to slash back the regular quarterly dividend, from 50 cents to just 2 cents. While these moves may, in the long run, give the company a secure footing, they do not inspire confidence in the short run. The stock, which fell 89% in the February/March crash, has utterly failed to regain any traction. IVR shares remain 78% below their February levels.
Douglas Harter, 4-star analyst with Credit Suisse, sees hard times ahead for IVR. He writes, “IVR has continued to shed assets to meet margin calls and boost liquidity; the company has sold an additional $6.2 billion of MBS and CRT assets…”
No company shedding assets at this pace can attract investors, and Harter rates the stock a Sell. His $2.50 price target indicates a downside of nearly 26% in the coming year. (To watch Harter’s track record, click here)
Overall, IVR's Strong Sell consensus view on IVR is based on 4 ratings, all of which agree. The shares are selling for only $3.35, and the average price target stands at $2.50, matching Harter’s downside prediction. (See Invesco stock analysis at TipRanks)
REV Group, Inc. (REVG)
The next stock on our list is a specialty manufacturer. REV Group lives in the automotive sector, where it builds niche vehicles, such as ambulances, buses, fire trucks, and street sweepers. The company saw earnings turn negative in Q1, which was partly in-line with historical precedent (calendar Q1 is typically REV Group’s worst of the year), but also due to coronavirus shutdowns forcing factory closures. Q2 earnings remained negative, with a 13 cent per share loss, a far cry from last year’s Q2 profit of 20 cents per share.
Company revenues were also way down in Q2, at $547 million compared to $615 million the year before. In the earnings release, management acknowledged that REV Group has not been executing as they would like; the company has consistently missed targets in recent quarters, and losses incurred are not wholly due to the ongoing pandemic. A new CEO took the reins in March, which is a natural response to management failures, but the current climate is a difficult one for a top management transition.
Another Credit Suisse’s 4-star analysts, Jamie Cook, has been less than impressed by REV Group. He points out the basic soundness of the company’s niche, it’s good liquidity position, and the positive vibes of the new leadership – but then writes, “[Until] a formal plan of attack is laid out to the street coupled with reasonable financial targets, which we do not expect until early 2021, we believe the stock will likely underperform the broader group. Furthermore, we believe REVG will need to re-gain credibility by executing against new targets, given the history of execution issues under previous leadership.”
Cook downgrades REVG, moving the stock from Neutral to Sell. His price target, at $6, shows the extent of his pessimism, indicating a 6% downside risk. (To watch Cook’s track record, click here)
Cook’s move to Sell makes the outlook on REVG shares unanimous, with four recent reviews giving the stock a thumbs down. This makes for a Strong Sell analyst consensus rating. Shares are priced at $6.38, and the average price target, $6.04, implies a 5% downside. (See REVG stock analysis on TipRanks)
Waddell & Reed Financial (WDR)
Asset management company Waddell & Reed has been showing inconsistent performance during 1H20. Q1 saw earnings collapse dramatically, from 51 cents to 32 cents sequentially. In Q2, May was the company’s best month since the winter of 2018, but June was a $720 million outflow of cash and assets. The stock has managed to rebound from the winter’s crash, but remains 10% below February’s peak – an unfavorable comparison to the S&P 500, which is only down 5% in the same period.
On a positive note, WDR has maintained its dividend during these times, keeping the payment steady at 25 cents per share. This gives the stock a 6.7% yield, excellent by any standard.
Evercore ISI analyst Glenn Schorr covers this stock, and he sees the cash outflows as decisive. Acknowledging the positives, he goes on to write, “WDR saw $720mn of outflows to end the quarter, more than doubling sequentially… Relative to monthly expectations, we see the -$0.7bn figure as a little worse than the -$0.4bn we had & pretty close to what the Street was looking for.”
Schorr sees Waddell continuing to underperform in the near term, and that informs his Sell rating. His price target, $14, suggests a 4.9% downside to the stock. (To watch Schorr’s track record, click here)
Once again, Wall Street’s analysts are unanimous in their Sell ratings, with four of them marking WDR down. The stock has a $12.88 average price target, indicating a potential 11% one-year downside from the current trading price of $14.54. (See WDR's stock-price forecast on TipRanks)
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