What to make of the markets right now? Stocks finished the last full week of May with gains. The S&P 500 pulled back from the bear-market territory by gaining 6% for the week and moderating its year-to-date loss to 13%. The NASDAQ remains low, at a 23% year-to-date loss. It’s all a reminder that while markets are falling this year, the true key to understanding them is volatility.
It’s natural at times like this to turn to the financial experts – traders who’ve risen to prominence through long-term success in the markets. Ken Griffin, of Citadel, has been just such a market force for decades, and has built his firm into a multi-billion-dollar behemoth.
On the theme of volatility, Griffin has simple advice: keep it low for now. “The key in your equity portfolios is how much beta do you carry... It's been an environment where we believe that owning stock outright long is likely to be a punishing experience. Having said that, there has [sic] been just incredible moves — the valuations of countless companies. If you're on the right side of those moves, or you're quick to react to information, you can nimbly generate trading revenues in an environment like this.”
So, when Griffin takes out new positions for his stock portfolio, it is only natural for investors to sit up and take notice. With this in mind, we decided to take a look at three stocks his fund has recently loaded up on. Griffin is not the only one showing confidence in these names; according to the TipRanks database, Wall Street’s analysts rate all three as Strong Buys and see plenty of upside on the horizon too.
Latham Group (SWIM)
We’ll start with a stock closely linked to consumer discretionary spending. Latham Group designs, manufactures, markets, and install in-ground swimming pools, and boasts that it is the largest such firm in the North American, Australian, and New Zealand residential markets. The company’s operations are centered in North America and include over 2,000 employees in 30 facilities from across the continent. Latham holds the #1 position in all segments of the in-ground pool market, including fiberglass pools, pool liners, and pool covers.
Shares in SWIM are down 63% this year, making its losses much steeper than the overall markets. These losses have come even as the company has registered rising revenues. The company went public just over a year ago, and its recent 1Q22 financial report showed its highest top line as a public company – of $191.6 million, up ~28% year-over-year. The company attributed this gain to a combination of increased volume and increased product prices.
Latham’s gross profits and gross margins also both increased during the quarter. Profits rose 34% to reach $70.7 million, while margins moved from 35.3% to 36.9%. On the negative side of the ledger, Latham saw a sharp increase in administrative expenses, which rose from $27.2 million to $45.2 million. The main driver was an increase of $14.3 million in non-cash stock-based compensation expenses. Latham has announced a stock repurchase program, with $100 million authorized for the purpose over the next three years.
Clearly, Griffin liked what he saw here, as he bought into this stock to the tune of 647,270 shares in Q1. This stake is currently worth $5.95 million.
Griffin isn’t the only one giving this stock some love. Baird analyst Timothy Wojs points out several strong points from 1Q22.
“Encouragingly, this marks the second consecutive quarter of solid execution/estimate upside, helping investors regain confidence in management execution/long-term opportunities. Overall, while we acknowledge macro crosswinds, we remain positive on SWIM's longer-term potential, with the shift to fiberglass (secular growth opportunities, higher margins) supporting an attractive growth/margin opportunity,” Wojs opined.
Wojs’s comments back up his Outperform (i.e. Buy) rating, and his $16 price target implies a one-year upside of 74% for the next 12 months. (To watch Wojs’s track record, click here)
In its first year of public trading, Latham has racked up 8 recent analyst reviews – that include 6 to Buy and 2 Hold for a Strong Buy consensus rating. The shares are priced at $9.17 and their $20 average target indicates potential for 116% upside this year. (See SWIM stock forecast on TipRanks)
Integral Ad Science (IAS)
Next up, Integral Ad Science, is a digital media and advertising tech firm, specializing in the analysis of digital marketing, ensuring that ads and media are properly targeted for effective context and viewing by real people. Integral evaluates ad placement quality, and addresses issues of brand risk, fraud, and viewability to gain the strongest results.
The company has been in operation since 2009, but went public last year, riding the tide of rising stock prices when it held its IPO. The stock started trading in June, and closed its first day’s trading just above $20. Since then, however, the stock has slipped ~41%.
In that same time, the company’s revenues have increased from $75 million to $89 million, an overall gain of 18% at the top line. During this year, revenues peaked at $102 million in 4Q21. IAS reported having cash and other liquid assets totaling $82.3 million at the end of Q1.
During the first quarter of this year, Integral Ad Sciences made several moves to increase its business footing. These include expanding its partnership with TikTok, especially in the UK and Australian markets. In May, the company announced a new Control Panel feature, allowing customers a suite of reporting and planning tools for context value. Also, the company announced enhancements to its IAS Signal product, with an improved dashboard to simplify customer’s analysis and campaign performance management.
Looking at Griffin’s moves, we find that he bought up 247,416 shares of IAS in Q1. At current prices, this puts him into the company for ~$3 million.
5-star analyst Mark Mahaney covers this stock for Evercore ISI, and he is also highly bullish.
“We remain positive on IAS given relatively strong fundamental trends despite the growing list of macro headwinds. Fundamental trends are Rule-of-50 impressive – mid-20s%+ organic revenue growth with 30%+ EBITDA margins. We view these trends as reasonably sustainable for the foreseeable future, given IAS’s TAM and its execution track record to date," Mahaney wrote.
"We are also encouraged by commentary about what seems like very strong CTV growth (programmatic now makes up 54% total revenue), which is a key growth initiative for IAS in FY22. As does the fact that IAS has experienced 0 churn among its top 100 customers and consistently high 120s%+ net revenue retention. We continue to see IAS as a very intriguing derivative play off the growth in CTV and Social Media (TikTok)," the analyst added.
With this viewpoint in support, Mahaney rates IAS shares an Outperform (i.e. Buy), and sets a $22 price target that indicates ~82% upside potential for the year ahead. (To watch Mahaney’s track record, click here)
Wall Street is unequivocally positive on this stock, as the 8 to 1 analyst review split, favoring Buy over Hold, shows – with its Strong Buy consensus. The stock has an average price target of $20.78 and a share price of $12.1, for a 71% upside over the next 12 months. (See IAS stock forecast on TipRanks)
agilon Health (AGL)
Last on our list of ‘Griffin buys’ is agilon, a healthcare company that aims to improve the delivery structure of the modern healthcare system. agilon works with primary care physicians, offering an operating platform that facilitates a holistic view of a patient’s condition, and allows doctors to network with each other with great efficiency. The goal is a more effective mode of patient treatment, focused on senior citizens. agilon operates in 8 states – Texas, Hawaii, North Carolina, Connecticut, New York, Pennsylvania, Ohio, and Michigan – and provides physician groups with a combination of data, executive, and payor support to reduce back office time and increase face-to-face patient time.
The company went public just over a year ago – in April 2021. The stock got off to a good start, but like so many, the share price has pulled back significantly in recent times – over the past 12 months, shares are down 49%.
At the same time, top line revenues for 1Q22 are up 58% year-over-year, to a total of $653 million, and the company’s net income, which saw a negative $15 million in the year-ago quarter, rose to $1 million. agilon increased its live membership on the platform to 342,000 by the end of March this year.
This company has attracted notice for executing on its business plan. As SVB analyst Whit Mayo summed it up, “AGL continues to track exceedingly well on medical cost w/ meaningful momentum building around new group adds and the halo effect of its successful model. The visible success is driving enhanced visibility into growth and underscores our confidence in sustaining 30%+ rev growth in the tail. AGL has performed exceptionally well relative to its IPO plan and internal budgets.”
Mayo’s comments come along with an Outperform (i.e. Buy) rating, and a $33 price target suggests an upside of ~66% a year from now. (To watch Mayo’s track record, click here)
With that kind of outlook, it’s easy to understand why Ken Griffin bought in for 103,124 shares of AGL in Q1. His holding is currently worth $2.03 million.
Overall, Wall Street agrees with these bullish takes. AGL has 5 recent analyst reviews, and all are positive, making the Strong Buy consensus rating unanimous. The stock’s $32.60 average price target implies an upside potential of ~63% from the current share price of $19.81. (See AGL stock forecast at 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.