We’ve never seen anything like this. Since the onset of the COVID-induced recession, unprecedented levels of monetary and fiscal stimulus have been pumped into the economy, demonstrating the Federal Reserve’s efforts to support the economic recovery. To prevent the fallout seen during the Great Depression after monetary accommodation was withdrawn too early, the Fed plans to continue this accommodative policy.
Against this backdrop, continued volatility could be on tap as the market unpacks the effects of surging COVID-19 cases, the U.S. presidential election, the historic gains from the pandemic-driven low point and economic reopenings. According to some analysts, this combination of continued stimulus and the resulting improvement of the credit market and liquidity sets the stage for growth.
We mean business when we say growth. Not just in the short-term, Wall Street pros argue that several names are in it for the long haul, boasting strong growth prospects through 2020 and beyond.
Bearing this in mind, we used TipRanks’ database to pinpoint three stocks flagged by members of the Street for their impressive long-term growth narratives, with each Buy-rated ticker sporting over 30% upside potential. This is on top of the huge gains each has already posted in 2020.
Hoping to advance the automotive, aerospace, commercial transportation, industrial and building and construction markets, Arconic offers aluminum sheet, plate and extrusions, as well as cutting-edge architectural products. Even though the company has experienced headwinds in the aerospace sector, it has managed to add 110% to its share price since April 1, with one analyst calling for even more gains.
Writing for Credit Suisse, four-star analyst Curt Woodworth believes the third quarter represents “a major inflection point as Ford and GM truck/SUV production sharply accelerates and OEMs need to restock heat-treat plate, which has limited shelf life.” Looking at its Q1 performance, he cites the fact that despite the rough macro conditions, segment EBIT rose 26% year-over-year with margins up 310 basis points. This demonstrates the system-wide restructuring benefit, in Woodworth’s opinion.
To support his bullish thesis, Woodworth points out that ARNC has multiple growth levers including its 600 million pounds of excess capacity, which is slated to be absorbed by automotive and even packaging over the next two years. “ARNC won material share on the new 2020 GM SUV launches and should see sharply higher utilization rates at its Tenn. plant by end 2020. Once ARNC’s non-compete with Alcoa expires in 4Q, we expect ARNC to quickly re-qualify for US can sheet production, which could add $40 million to EBITDA,” he added.
It should be noted that 737 Max issues at Boeing have taken a toll on demand. While Woodworth’s estimates for aerospace volumes in 2020-2021 are conservative, he stated, “… we expect aerospace will be a material driver in 2022-24 as build rates accelerate, especially for the 737 Max where ARNC has a high margin content share.”
Speaking to its valuation, Woodworth thinks it’s compelling given the company’s “strong positions and ~250kt spare capacity.” Adding to the good news, the robust free cash flow could enable the dividend policy to kick off in early 2021.
Everything that ARNC has going for it prompted Woodworth to initiate coverage with an Outperform rating and set a $22 price target. This target implies shares could climb 52% higher in the next year.
Turning now to the rest of the Street, it has been quiet when it comes to other analyst activity. Woodworth’s call is the only recent review, so the consensus rating is a Moderate Buy.
Moderna Inc. (MRNA)
Biotech company Moderna is no stranger to the spotlight, thanks to its efforts to advance a COVID-19 vaccine. Despite having already gained 220% in 2020, several analysts believe that there’s still plenty of fuel left in the tank.
Pointing to the encouraging Phase 1/2 results from Pfizer and BioNTech’s competing mRNA/LNP-based COVID-19 vaccine, five-star analyst George Farmer, of BMO Capital, argues that they are a positive for MRNA. According to the analyst, the data “supports the utility of this technology platform against SARS-CoV-2 and the likelihood of success of MRNA’s mRNA-1273.”
Looking specifically at Pfizer/BioNTech’s candidate, BNT162b1, it is one of several mRNA vaccine candidates against SARS-CoV-2. Remarkably, after 28 days, 24 participants receiving two injections of either 10 ug or 30 ug of the vaccine generated neutralizing antibody titers against coronavirus infection that were about 2-3 times what was seen in convalescent sera used as controls. On top of this, the vaccine had a robust safety profile.
Turning to mRNA-1273, two injections of Moderna’s experimental vaccine produced neutralizing antibody titers in 8 out of 8 subjects that reached or exceeded titers generally measured in convalescent sera.
“In contrast to mRNA-1273, which encodes for a version of the complete trimeric coronavirus Spike protein, BNT162b1 encodes for just the Spike protein receptor binding domain (RBD). Whether this makes a difference in relative potency remains to be seen; however protection conferred by DNA vaccines encoding the RBD or full-length Spike appeared comparable in macaques,” Farmer commented.
While Farmer points out that these results set up a “head-to-head competition”, with Pfizer/BioNTech’s timeline and scale matching MRNA’s Phase 3 plans, he remains optimistic. “These results also set up a competitive race between the PFE/BNTX and MRNA vaccines, but the potential market is certainly large enough to accommodate both, in our view,” he said.
As a result, Farmer is still giving MRNA a thumbs up, reiterating his Outperform call. In addition, the price target stays at $112. Should the target be met, a twelve-month gain of 79% could be in store.
In general, other analysts are on the same page. 12 Buys and 2 Holds add up to a Strong Buy consensus rating. Based on the $85.36 average price target, the upside potential comes in at 36%.
Last but not least, we come across Overstock.com, which is a tech-driven online retailer that sells products ranging from furniture and home décor to apparel and jewelry. Given the strong projections for 2020 sales and its year-to-date gain of 591%, one member of the Street is taking an even more bullish stance.
Representing D.A. Davidson, five-star analyst Tom Forte tells clients that several factors have made him more optimistic going forward. First and foremost, separate from COVID-19, the company has made improvements to the business.
That’s not to say COVID-19 hasn’t had an impact on OSTK. During the months of April and May, the company reported a 120% gain in sales as a result of the pandemic, with the strength persisting in June.
Weighing in on this result, Forte commented, “Further, when considering the valuations for other e-commerce players managing surges in demand from COVID-19, including its closest peer Wayfair (which, according to Capital IQ, trades at more than 1.6x EV/Sales), should Overstock be able to further exploit the opportunity and emerge with faster sales growth than we are currently forecasting, we see the potential for upside to our one-turn multiple.”
If that wasn’t enough, Forte highlights the “government contract it won (a $6B annual spend, while recognizing it was one of three providers selected, along with Amazon and Fisher Scientific).”
Based on all of the above, Forte assigned a new price target, in addition to staying with the bulls. He didn’t just lift the figure, he set the new Wall Street high when he bumped up the price target from $33 to $66. This new figure conveys his confidence in OSTK’s ability to surge 35% in the next twelve months.
Like ARNC, OSTK has stayed relatively under-the-radar, as Forte is the only analyst to have thrown an opinion into the mix recently. To this end, the stock gets a Moderate Buy consensus rating.