It’s time to get your crystal ball out and try to figure out what awaits the stock market this year. So far, it’s clear that stocks are rebounding somewhat from their 2022 lows, and one Wall Street expert says there is more runway for gains.
Writing about the market situation for 2023, Larry Adam, chief investment officer of Raymond James, notes that last year was the second year in a row for multiple leverage — but that situation is rarely repeated for the third time. He expects multiple expansions to “drive stock market returns” in the future. To wit: “History suggests that our view of a mild recession ending at the end of the year, easing of inflationary pressures, lower interest rates, and a less aggressive Fed all suggest that ‘bad news’ has been priced into multiples and sets up multiple possibilities in the year. 2023.”
Adam acknowledges that earnings are likely to decline this year, but he’s still targeting the end of the year Standard & Poor’s 500 at 4,400, or about 10% above current levels. Supporting this position – with multiple expansionary factors – Adam specifically cites the prospect of lower inflation, with price increases tapering off to around 3%; a subsequent slowdown in interest rates, as higher rates would not be needed to combat rising rates; And the Fed switched to just two more rate hikes, halting in March.
So, in Raymond James’s view, we should be looking for a better investment environment that comes into play in the second half of this year – and the company’s stock analyst Andrew Cooper has picked two stocks that he sees as poised for gains, and he recommends buying in now. Let’s take a closer look.
Natera, Inc (The National Telecommunications Regulatory Authority)
We’ll start with Natera, a biotechnology company that’s in the pipeline for cell-free DNA, or cfDNA, testing. CFDNA tests are minimally invasive, based on a simple blood draw, and focus on naturally occurring DNA fragments that float freely in the bloodstream. Natera’s technology captures those parts and uses them in genetic testing.
The company’s test platforms are based on novel molecular biology techniques and AI-driven bioinformatics software, and can detect single DNA molecules in a tube of blood sample. Natera uses this technology for accurate, non-invasive prenatal testing (Panorama platform), tumour-specific screening test for individual cancer treatments (Signatera platform), and best-in-class rejection evaluation test before kidney transplantation (Prospira platform).
Diagnostic DNA testing is big business, and Natera is capitalizing on patients’ desire for a less invasive medical experience. The company’s revenue has shown consistent growth over the past several years, and in its most recently reported quarter, Q3 ’22, Natera saw a top line of $210.6 million, up 33% year-over-year. The revenue gain came on top of a 27% increase in tests processed during the third quarter of ’22, from 407,300 to 517,500. Of this total, the oncology segment experienced the strongest growth. The company processed 53,000 oncology tests in the quarter, up 153% year-over-year.
Natera revised its forward guidance upward in its third-quarter report, projecting full-year 2022 revenues of $810 million to $830 million. This was $40 million higher at the halfway point than previously published guidance. The company is expected to report Q4 ’22 results in late February, and we’ll find out after that how the guidance holds up.
Joining the bulls, Raymond James’ Andrew Cooper is taking a bullish stance on this company and its stock.
“With every segment growing nicely in the near and medium term and a catalyst-rich setup in 2023, particularly in oncology, we’re upgrading the stock to Outperform. Leadership in the burgeoning MRD field, where we believe it can win additional coverage and potential directive listing on The least for CRC generates excitement, while the increasingly lucrative women’s health company has its own catalysts in the conversation about 22q. It all comes down to an assessment that seems, at least on a relative basis, to be reasonably appropriate all things considered.” said the analyst.
The Cooper Outperform (i.e. Buy) rating on NTRA comes with a price target of $58, indicating a one-year upside potential of 35%. (To watch Cooper’s log, click here)
Overall, this interesting biotech has received 9 analyst reviews recently, including 8 Buys for 1 contract – for a Strong Buy consensus rating. Shares are trading for $42.94 and an average price target of $63 suggests an upside of around 47% for the next 12 months. (We see National Telecommunications Regulatory Authority stock forecast)
Fulgent Genetics, Inc. (FLGT)
Fulgent, Raymond James’ second pick we’re looking at, is a full-service genomic testing company, with a focus on improving patient care in the areas of oncology, infectious and rare diseases, and reproductive health. The company operates proprietary technology behind its testing platform, and has created a catalog of tests that is broad, flexible, and able to expand with offerings optimized as the genetic reference library grows.
This company was founded in 2011, and in the years since then it has built up a reputation for high-quality genomic testing. The company provides best-in-class support services for its testing platform, ensuring the best results for the best patient care and outcomes.
In Q3 of ’22, the most recent reported quarter, the company’s top line was $105.7 million, less than half of the $227.9 million reported in Q3 of ’21. The revenue drop shouldn’t be surprising, considering Billable tests decreased year-on-year from 2.2 million to 952,000. On the positive side, core revenue — which does not include COVID-19 testing products and services — grew 110% year-over-year to $56 million, more than half of total revenue. The company’s non-GAAP income came in at 32 cents a share, compared to $4.05 in the prior year quarter.
In short, Fulgent has thrived during the pandemic, when COVID testing requirements boosted demand, and has seen demand drop sharply as the pandemic subsided. Although this has reduced revenue, the company has two bright spots to draw on: expanding its core revenue and cash holdings, a legacy of the COVID boom. Fulgent had $918 million in cash and liquid assets at the end of Q3 ’22.
Checking in again with analyst Cooper, we find that he sees the company in the midst of a transformation, from profitable COVID testing in a pandemic era to an oncology testing base that will power future operations.
“With a strong core technology backbone across both the Wet Lab and Dry Lab and broader operations, we believe the company can successfully sell these capabilities as well as add new customers for each. It will demonstrate the ability to scale without compromising service (as the company prides itself on competitive turnaround times if Pioneer) was not central to the company’s success, but with targets that the company sees as a total baseline test of $105 billion, the runway is significant,” Cooper wrote.
“From an investment perspective, $26 in net cash per share not only helps create a floor for the stock, but creates an additional option for capital deployment,” the analyst summarized.
Overall, Cooper thinks this is a stock worth holding. The analyst rates FLGT stock as an outperformer (i.e. Buy), and its $45 price target suggests a strong upside potential of 34%.
Only 3 analysts have weighed in on FLGT stock, and their reviews include 2 Buys for 1 Hold for a Medium Buy consensus rating. The average stock price target of $45 matches Cooper’s. (We see FLGT stock forecast)
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Not giving an opinion: 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.