Those hoping for the fourth quarter to herald a return to the stock market have been disappointed so far. A year-end rally has yet to materialize with the market still in turmoil as the fight against inflation continues and the specter of a recession persists.
However, while the prospect of a recession looms, Morgan Stanley Chief Investment Officer Andrew Slimmon points out that many stocks seem to have implicitly assumed a recession.
“I can’t imagine that the tightening that the Fed has and will continue to do won’t affect the stock market at some point… But the bottom line, and perhaps this is where the tightening comes in. Picking stocks can add a lot of alpha, is there are a lot of stocks that are down 40%, 50%, 60% that are reflecting a recession,” Slimmon said.
Slimmon doesn’t see a “terrible drop in price” on most stocks from here, so maybe it’s time to take a look at some of these constrained names.
Morgan Stanley analysts have been looking for two such stocks that are down at least 40% this year, but they believe they are poised for change. We used TipRanks database to get a feel for the rest of the Street about these names. Let’s take a closer look.
Smartsheet Inc. (SMAR)
Nowadays, online workplace collaboration is big business with many companies providing software services to provide a more convenient working environment. One name that caters to these needs is Smartsheet. The company is a leader in the competitive Project Portfolio Management (PPM) software segment. The company provides a platform used to assign tasks, track project progress, manage calendars, and share documents with the product’s easy-to-use features for efficient workflow management. than.
A glance at the growing revenue levels shows that the companies using the service agree; Sales have been steadily increasing over the past few years, a trend that continued in the second fiscal quarter (July quarter) financial results. Revenue rose 41.7% year-over-year to $186.7 million, beating consensus estimates of $6.14 million. The company also posted a beat in the bottom line, with the word article. EPS – $0.10 is much better than – $0.20 that analysts predicted.
Even so, the company’s stock price has dropped significantly, 56% to date. For Morgan Stanley’s Josh BaerHowever, investors should be aware of this stock’s “undervalued secular growth”.
“Smartsheet is a high-quality asset in the collaboration software space, with the most powerful Enterprise features and the broadest product portfolio equipped to handle the most use cases of its community peers. work in the workplace,” Baer said. “We see Smartsheet pursuing a massive $21 billion total addressable market as its platform addresses a growing number of use cases. With over 100k customers of all sizes, Smartsheet has seen viral adoption in its customer base, highlighted by its 120%+ best-in-class net retention. Given the company’s low market penetration and strong competitive trends, we see a revenue CAGR of >20% sustained over the next 10 years.”
Accordingly, Baer rates SMAR stock as Overweight (i.e. Buy) while his $54 price target suggests the stock is undervalued 70%. (To see Baer’s track record, click here)
Most agree with Baer’s argument; SMAR Strong Buy consensus rating based on 15 Buys vs 3 Holds. At $45.24, the mean target implies a one-year stock price gain of 42%. (View SMAR stock forecast on TipRanks)
Ford (F)
The next defeated name we’ll look at needs no introduction, but let’s do it. Automotive giant Ford is a household name and one of the most famous brands in the world. Millions of people have ownership of a Ford, be it trucks, cars, SUVs, and more recently EVs (electric vehicles).
Indeed, that has all changed in the auto industry with the rise of electric vehicles and Ford is wary of being left behind. The company is increasingly focusing on the electric vehicle opportunity and currently offers the Ford F-150 Lightning pickup, the Mustang Mach-E crossover and the e-Transit van. More electric vehicles are expected to be added in the coming years with the company pledging to invest up to $50 billion by 2026 in its electrification efforts.
As part of the reorganization, Ford is also splitting its business into commercial, electric and internal combustion.
However, these plans fail to reflect the problems currently facing an industry rocked by supply chain woes, parts shortages and associated supplier costs. to higher inflation.
While Ford beat both upper and lower profits when it reported Q2 earnings in July, in a recent update the company said Q3 EBIT will be in the range of 1.4 billion to 1.7 billion. billion dollars, much lower than the consensus of 3 billion dollars.
Like Morgan Stanley’s Adam Jonas noted, “The Q3 earnings warning coupled with macro concerns led to a drop in bull expectations and a sharp drop in equities.” On a year-over-year basis, the stock is down 43%.
However, Jonas believes the current share price makes Ford attractive on a valuation basis, and gives the rationale: “We estimate Ford’s cash flow for FY 2019 could exceed 100% of its value. the company’s current business. Our preference for Ford is tied to our belief in management’s strategy to re-architect the business portfolio following a sweeping reorganization. “
Finally, Jonas rates Ford stock as overweight (i.e. Buy) backed by a $14 price target, suggesting a 12-month profit potential of 21%. (To see Jonas’s achievements, click here)
What do the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread. 7 Buy and Hold, each and 2 Sell add up to a moderate Buy consensus rating. The average target is an optimistic target; at $16.53, numbers suggest the stock will grow 43% in the coming months. (View Ford stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. Content is used for informational purposes only. It is very important to do your own analysis before making any investments.
