It’s safe to say investors had a lot of options this past spring. According to J.P. Morgan strategist John Normand, excluding emerging market currencies and agricultural products, every market has recovered by at least 50% from COVID-19-induced lows.
“When the business cycle is turning higher, policy hyper-stimulative and downside risks manageable, the obvious investment strategy might be to own anything but cash… This indiscriminate approach would not have damaged absolute returns over the past few months,” Normand commented.
That said, the strategist thinks this “everything wins” strategy might not be as reliable in the second half of the year, recommending a more selective approach. This means focusing on stocks in the tech, communications and healthcare industries poised to emerge as COVID-19 “endgame winners.” Normand added, “Liquidity cannot paper over specific weaknesses indefinitely.”
Bearing this in mind, we used TipRanks’ database to get the rest of the Street’s take on three names J.P. Morgan believes represent great stock market values. Taking an even more bullish stance, the firm’s analysts bumped up all three’s price targets, indicating that each could surge by at least 30% in the year ahead.
As one of the top producers of premium entertainment content that includes television, streaming and digital content, studio production, publishing and live events, ViacomCBS is able to connect billions of people from around the world. Following its impressive rebound from a bottom in March, J.P Morgan thinks there’s still plenty of fuel left in the tank.
Representing the firm, analyst Alexia Quadrani argues that this rally reflects “the market move, recognition of April as a bottom for advertising and a PayTV ecosystem that has held relatively stable during this period.” She also believes that its strong performance recently can largely be attributed to real long buying. “In the low $20 range – and certainly in the teens – ViacomCBS is simply not priced appropriately for the ultimate value of its content and brands,” the analyst stated.
Further contributing to Quadrani’s confidence, the firm recently hosted multiple meetings with the leadership of several entertainment names. The analyst highlights the fact that the universal theme of these meetings was the large demand for content, which bodes well for VIAC.
Expounding on this, Quadrani said, “ViacomCBS is well positioned in this environment with two studios – Paramount and CBS Television – to sell into this strength. While a cost-plus model for third party sales limits upside, this is partly offset by high volume as many streamers are unable to meet their needs with in-house production arms.” When it comes to international demand, specifically from OTT and broadcast, VIAC can capitalize on the opportunity in cases in which it doesn’t license global rights.
Against the backdrop of the streaming wars, library content, including older programming that’s getting put to AVOD on a non-exclusive basis, is becoming increasingly valuable. This is good news for VIAC as it can sell to third parties and support Pluto, in Quadrani’s opinion.
“As the streaming wars are only getting started, we believe the heightened demand can persist beyond the near-term. We don’t expect all content to go external, and where there is a jump-ball or the content fits in the ViacomCBS brand, the programming is likely to stay in-house,” the analyst noted.
Based on all of the above, it’s no wonder Quadrani reiterated her Overweight (i.e. Buy) rating. Lifting the price target from $27 to $32, the analyst believes shares could surge 39% in the next twelve months. (To watch Quadrani’s track record, click here)
Judging by the consensus breakdown, opinions from the broader analyst community are split almost evenly down the middle. 8 Buys, 8 Holds and a single Sell add up to a Moderate Buy consensus rating. The $25.67 average price target puts the upside potential at 11%. (See ViacomCBS stock analysis on TipRanks)
Keysight Technologies (KEYS)
As for J.P. Morgan’s next pick, Keysight Technologies offers innovative technology that’s capable of solving tough measurement challenges. With its recent acquisition creating new opportunities, the firm sees significant gains on the horizon.
KEYS recently revealed that it had inked a deal to acquire Eggplant, which provides functional test automation products as a subscription to software developers working to design customer experience interfaces across applications for diverse end-markets.
Weighing in on the move for J.P. Morgan, analyst Samik Chatterjee tells clients it “marks a change for Keysight relative to its traditional customers that design and test hardware, and will allow the company to address an emerging market opportunity around software testing by application developers.” Eggplant’s product offerings include a Digital Automation Intelligence platform that can allow tests for a broad range of technologies to be conducted, with its current clientele inhabiting the automotive, aerospace and defense and retail industries.
Speaking to the importance of AI-based testing platforms, Chatterjee points out they are becoming more “relevant for testing user interfaces through simulation of synthetic users.” In addition, it’s necessary to make the platform easy to navigate as well as to abstract the software developer from the technology itself, both of which Eggplant has been able to do, making it a top player in the space, according to the analyst.
It should also be noted that Eggplant doesn’t directly compete with traditional APM vendors, but rather a more “fragmented” group of names including Tricentis, Parasoft and ACCELQ, as well as IBM, Broadcom, mabl, Micro Focus, Sauce Labs and Perforce Software.
While some investors have expressed concern regarding Eggplant’s relatively modest revenue contribution, Chatterjee anticipates it being modestly accretive, with it potentially able to demonstrate earnings ramp given a combination of favorable growth/margins.
Everything KEYS has going for it prompted Chatterjee to stay with the bulls. Along with an Overweight rating, he added $2 to the price target, with it now landing at $129. This new figure implies shares could climb 31% higher in the next year. (To watch Chatterjee’s track record, click here)
Do other analysts agree with Chatterjee? As it turns out, most do. The stock’s Strong Buy consensus rating breaks down into 5 Buys and only 1 Hold. At $122.40, the average price target indicates 25% upside potential. (See Keysight stock analysis on TipRanks)
Dana Inc. (DAN)
Last but not least we come across Dana, which provides driveline components, including axles, for the light and commercial vehicle industries and the off-highway vehicle market, with its product lineup also featuring a range of engine components and heat transfer products. While shares have taken a tumble year-to-date, J.P. Morgan believes big things are in store for this name.
Singing a different tune now, analyst Ryan Brinkman had previously recommended that investors focus on quality when it comes to auto parts suppliers. That being said, based on the industry’s faster pace of recovery, he is now recommending a more “risk on” approach. It should be noted, though, that DAN is less levered than its peer, American Axle & Manufacturing.
Looking at the company’s client base, Brinkman likes the fact that it is more exposed to non-light vehicle markets, which he thinks should “exhibit moderating growth but to levels that are still on the whole greater than for light vehicle end markets.”
On top of this, the increasing electrification of commercial vehicles bodes well for DAN. According to Brinkman, the content per vehicle opportunity is 2x higher when compared to traditional internal combustion powered commercial vehicles.
If that wasn’t enough, Brinkman pointed out, “Dana also has a solid track record of generating synergies from acquired companies in recent years, such as Brevini, and we expect additional cost synergies as a result of its acquisition of Oerlikon.”
It should come as no surprise, then, that Brinkman stands squarely in the bull camp. In addition to keeping an Overweight rating on the stock, he increased the price target from $15 to $16, which brings the upside potential to 31%. (To watch Brinkman’s track record, click here)
Turning now to the rest of the Street, 5 Buys and 3 Holds have been assigned in the last three months. As a result, the analyst consensus rates DAN a Moderate Buy. Based on the $13.75 average price target, shares could gain 12% in the next year. (See Dana stock analysis on TipRanks)
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