Stock markets have been bearing the brunt of multiple headwinds in recent months. Persistently high inflation, slowing GDP growth, and a jobs market that, while expanding in absolute terms, is still down from pre-pandemic levels are feeding fears that we’re facing a round of ‘70’s-style stagflation. And these have combined with geopolitical factors – the Russia-Ukraine war, the resumption of severe lockdown policies in China – to ratchet up worries about recession in the near term.
It’s a trading environment that sets up ideal conditions for investors into bottom fishing. Plenty of stocks have been pushed down to bargain-basement pricing, and this has opened up new opportunities for smart investors.
JPMorgan strategist Marko Kolanovic makes a set of recommendations based on these facts, writing: “While a slowdown seems clear, it remains an unsettled question whether we're headed for a mid-cycle slowdown or recession. Markets are increasingly pricing the latter, implying a much higher recession probability than economic data. There are currently great opportunities in segments such as Energy, small caps, high beta/cyclicals and EM, many of which trade at record valuation discounts.”
Kolanovic’s JPM colleagues have been following his leads, picking stocks from those categories as potential winners. Using TipRanks' database, we've looked up the details on two of their small-cap picks; 'strong buy' stocks with depressed share prices. Impressively, the firm’s analysts believe each ticker could climb over 90% higher in the year ahead. Here are the details.
Porch Group (PRCH)
We’ll start up with a tech firm, Porch Group, a company offering a vertical software platform that connects homeowners with the home improvement and maintenance services they need to build up and keep up their homes. Porch’s offered services include contracting, home inspection, moving, and home improvement and warranty. The annual market in home improvement totals some $500 billion – and Porch Group has an in with every segment of it.
All of that makes for a solid base on which to build solid revenues. Porch went public 18 months ago through a SPAC merger, and since then the company’s quarterly revenues have increased year-over-year from $26.7 million in the 1Q21 report to $62.5 million in the recent 1Q22 release. For 2021 as a whole, Porch Group reported $192.4 million. Porch Group is not yet profitable, but did finish the quarter with $303 million worth of cash and other liquid assets.
While these financial results were well-received, investors were most interested in the company’s guidance. Porch is looking to show $320 million in revenue for 2022, which would mark a 66% y/y increase should it meet the goal. Investors gave PRCH shares a bump since the financial release and reaffirmed guidance on May 10. At the same time, however, the stock is down 74% since 2022 trading started in January.
JPMorgan analyst Cory Carpenter initiated coverage of Porch with an upbeat outlook for the mid- to long-term, seeing the current low share price as a chance to buy in.
“We believe PRCH’s B2B go-to market strategy is differentiated and provides PRCH with unique data and early access to high-intent movers at low customer acquisition cost. PRCH offers these homebuyers its free moving concierge service, which has healthy uptake rates and PRCH monetizes through B2B2C move-related services (i.e., booking movers) and increasingly its in-house insurance and warranty products. We believe PRCH is well positioned for sustainable 30%+ growth, with margins improving each year and Adj. EBITDA turning positive in 2H23," Carpenter opined.
In line with his bullish stance, Carpenter rates PRCH an Overweight (i.e. Buy), and his $8 price target implies room for ~96% upside potential in the next 12 months. (To watch Carpenter’s track record, click here)
Overall, Porch is an emerging tech company, targeting a huge TAM, and Wall Street has responded with approval – all 9 of the recent analyst reviews are positive, for a unanimous Strong Buy consensus rating. Porch's current share price is $4.07 and the average price target of $16.67 indicates room for a powerful gain of ~310% in the next 12 months. (See PRCH stock forecast on TipRanks)
HilleVax, Inc. (HLVX)
Recent events have left us all hyperaware of infectious viral diseases, and the impact they can have on us, at individual, group, and national levels. It’s this background that makes HilleVax’s work important. This biopharmaceutical company is at the clinical stage, and is focused on the development of new vaccines for the norovirus.
This virus has gotten its share of headlines; it causes a generally non-fatal – but unpleasant – illness in healthy adults, and there are currently no vaccines available. A few stats will give an idea of the scale of norovirus as a public health issue: it causes over 90% of infectious gastroenteritis cases worldwide, including some 700 million cases annually. While the death rate is low – only one in every 3,500 people infected – the virus does cost economies and government authorities some $60 billion per year.
So there is a need for preventative treatment, and that’s were HilleVax steps in. The company’s leading drug product, HIL-214, is a vaccine candidate based on virus-like particle (VLP) technology, and is under testing as a preventative agent for moderate-to-severe acute gastro disease caused by the norovirus. On May 2, the company announced initiation, and the first patient dosing, of a Phase 2b study of HIL-214 for the prevention of norovirus disease in infants. The company plans to enroll as many as 3,000 patients in this study.
Previous clinical trials have included a total of 9 Phase 1 and 2 studies, with over 4,500 patients in total, ranging in age from 6 weeks to 102 years. Collectively, these studies have proven the concept behind HIL-214 and shown the vaccine candidate to be well-tolerated.
Testing of this nature, and of this magnitude, is an expensive enterprise, and to raise capital HilleVax went public in April of this year. The IPO opened on April 29, at an initial price of $17 per share. The event was upsized, putting over 13.5 million shares on the market (instead of the 11.765 million originally planned), and the sale raised approximately $230 million in gross proceeds. However, since the close of trading on HLVX’s first day, the stock has lost ~50%.
JPMorgan's Eric Joseph opens his firm’s coverage of HLVX by describing a path forward and a clear profit potential in the leading vaccine candidate.
“[We] see HilleVax’s vaccine candidate HIL-214 emerging with a significant first-mover, if not best-in-class, advantage on the basis of a compelling clinical package to date, ease of manufacture, and a shared development strategy with those of other successful pediatric vaccine franchises," Joseph noted.
"Attributing the pullback in HLVX shares post IPO to broader sector weakness and still fairly lengthy timelines to the next meaningful value inflection point (phase 2b vaccine efficacy data anticipated 2H23), we believe current levels significantly under-reflect the commercial potential of HIL-214 in the pediatric vaccine market alone with conservative success expectations,” the analyst added.
Joseph uses this bullish stance to back an Overweight (i.e. Buy) rating on HLVX, which he believes will hit $24 in the year ahead for a 148% upside potential. (To watch Joseph’s track record, click here.)
In its short time as a public company, this biopharma has already picked up 4 analyst reviews – and they are all positive, giving the stock its Strong Buy consensus rating. The shares are selling for $9.67 and have an average price target of $24, matching the JPM view. (See HLVX stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.