Intel logo exhibited during the Mobile World Congress, on February 28, 2019 in Barcelona, Spain.
Joan Cros | NurPhoto | Getty Images
Earnings season is here, and Wall Street analysts are calling for another decline amid the pandemic.
However, some pros are more optimistic about the fourth quarter earnings season, with Ignacio Cantos, investment director at ATL Capital in Madrid, noting the “next catalyst will be the upcoming earnings season.”
Against this backdrop, Wall Street experts argue that there are exciting plays to be made. But how are investors supposed to spot the most compelling opportunities out there? By looking to the analysts that consistently get it right. TipRanks analyst forecasting service attempts to identify the Street’s best-performing analysts, or the analysts with the highest success rate and average return per rating.
Here are the best-performing analysts’ five favorite stocks right now:
Biotech name BioMarin just released better-than-expected top-line Phase 3 results for Roctavian (valrox), the company’s gene therapy designed to treat hemophilia A. In response to this “significant de-risking event for the asset (and company),” J.P. Morgan analyst Cory Kasimov reiterated a Buy rating and a $131 price target on January 10.
Notably, the candidate was able to meet the primary endpoint of a reduction in mean annualized bleed rate (ABR) and all secondary endpoints at one year. Mean ABR was lowered by 84%, versus the standard of care.
According to Kasimov, the ABR result isn’t that surprising. However, he points out that FVIII levels have been “scrutinized” based on the variability witnessed between the releases of the Phase 1/2 and interim Phase 3 results. “On this front, Roctavian demonstrated mean FVIII of 42.9 in the modified ITT population, which we believe is clearly better than prevailing assumptions (at least based on our conversations),” the analyst noted.
Kasimov further argues that the outcome supports “the approvability of Roctavian,” although he will be waiting to see whether or not the FDA will ask for one-year data as required by the EU.
“Either way, however, we believe these results meaningfully de-risk the asset and add to the company’s overall strategic value. We underscore BioMarin’s attractive valuation (trading slightly above the base business) and expect the pipeline to have meaningful contribution to share performance in 2021,” Kasimov opined.
Currently, the top healthcare analyst is tracking a 57% success rate and 21.9% average return per rating.
Media platform Avid Technology just got a thumbs up from Maxim Group’s Jack Vander Aarde, with the analyst recently reiterating a Buy rating on the stock on January 8. In a further bullish signal, the five-star analyst bumped up the price target from $14 to $23.
At the beginning of the month, the company revealed a new debt refinancing that consists of a $180 million term loan and a $70 million unfunded revolving credit facility, which mature on January 5, 2026. Vander Aarde points out that this move cuts AVID’s annual interest expense by roughly $10 million and adds an incremental $0.20 to non-GAAP EPS in 2021.
On top of this, management says 60% of the $30 million cost saving initiatives rolled out in 2020 will continue in 2021 and even after.
“While we hold a cautious view for non-recurring product sales in 2021, we continue to expect robust growth in services segment revenue as early-stage subscription revenues continue to ramp at an accelerated pace (up 74% year-over-year in 3Q20, representing ~20% of total 3Q20 revenue). We also remain highly confident in management’s ability to execute on margin expansion and free cash flow generation, even despite near-term top-line pressure from COVID-19 on some of AVID’s core verticals (live events, music festivals/ concerts), which we anticipate will gradually recover by 2H21,” Vander Aarde explained.
Additionally, AVID shares are trading at 13.3x and 10.2x Vander Aarde’s increased 2021 and 2022 non-GAAP EPS estimates, respectively, which represents a discount to peers trading at 20x and 18x consensus 2021 and 2022 non-GAAP EPS estimates, respectively.
“Further underpinning our bullish view on AVID are our that indicate AVID has a strong competitive position in this secular growth market and remains the de facto standard for Hollywood video and audio editing. Other factors supporting our bullish view include a high-quality management team, an increasing mix of high-margin recurring revenue (now 70% + of total revenue), best-in-class product portfolio and recently launched product launches that are focused on SaaS subscription offerings for enterprises,” Vander Aarde added.
With a 75% success rate and a whopping 79% average return per rating, Vander Aarde scores the #111 spot on TipRanks’ list of best-performing analysts.
A player in the semiconductor space, II-VI develops engineered materials, optoelectronic components and optical systems.
For BofA Securities analyst Vivek Arya, II-VI is his top SMid-cap pick, thanks to “its leading position in the optical market well levered to 5G/cloud complimented by a strong silicon carbide (SiC) portfolio that will rapidly expand with the proliferation of EVs and 5G base stations.” To this end, the five-star analyst keeps a Buy rating and $100 price target on the stock.
Specifically, Arya highlights the fact that using its increased scale from the Finisar acquisition, the company has been able to enhance its product portfolio within its communications business as well as strengthen its manufacturing footprint within and outside China “to adequately serve customers worldwide despite uncertainty surrounding trade tensions and COVID-19.”
What’s more, II-VI scaled the 3D sensing operations to support all of the current market, which Arya believes could help it take even more market share. All of this prompted the analyst to comment, “II-VI remains in position to achieve a double-digit sales/EPS CAGR (through CY22).”
Speaking to the SiC opportunity, Arya acknowledges that this area of the business is still in its “infancy,” but argues that the ongoing 5G rollouts could push the company’s TAM to $30 billion in about 10 years-time.
“While historically supplying the market with SiC-based substrates, recent acquisitions (Ascatron, INNOViON) and partnerships (GE) are enabling II-VI to establish a vertically integrated portfolio capable of producing SiC modules and devices. While SiC accounts for a modest mid-single digit percentage of sales today, the technology can enable long-term topline/margin outperformance,” Arya explained.
Based on his 69% success rate and 26.7% average return per rating, Arya lands among the top 125 analysts tracked by TipRanks.
Ultra Clean Holdings
Wall Street’s best-performing analyst, Quinn Bolton, sees Ultra Clean Holdings as a compelling play, with the analyst maintaining a Buy rating and $43 price target on January 13.
The company just pre-announced that its Q4 2020 revenue and NG EPS are expected to come in above the midpoint of the original guidance range. Additionally, UCTT noted that for Q1 2021, it estimates revenue will land within the range of $370-$400 million. This is 3-11% above the midpoint of its Q4 2020 revenue guidance, and “represents strong sequential growth,” in Bolton’s opinion.
Additionally, management thinks that wafer fab equipment (WFE) mix will shift away from NAND and towards DRAM and foundry/logic, with some moderation in NAND potentially coming later in 2021.
“UCTT currently sees demand remaining strong through the year and does not see H/H changes at this point, thanks to the good visibility. The company sees NAND investment remaining focused on node conversions and believes NAND players are cautious about the timing of volume investments, which could keep the industry in a healthy position,” Bolton stated.
On top of this, Bolton is optimistic about its $348 million acquisition of Ham-Let, as he argues it will “help UCTT diversify some revenue to non-semi markets, but also within semis.”
Summing it all up, Bolton said, “As global WFE grows and semiconductor manufacturing sector consolidates, there is a pressing need for original equipment manufacturers (OEMs) to consolidate the fragmented subsystems supply chain to better cope with the cyclical growth demand of WFE. Ultra Clean provides turnkey solutions and operational excellence to OEMs and should see an increasing share of content in WFE as WFE grows.”
The #1-rated analyst more than earns his ranking based on his 80% success rate and 45.6% average return per rating.
Intel just revealed a management shakeup that will see former Intel CTO and VMware CEO Pat Gelsinger succeed Bob Swan as CEO, effective February 15. In response to this development, J.P. Morgan analyst Harlan Sur reiterated a Buy rating and $70 price target on January 13.
“We view the management change positively given Mr. Gelsinger’s track record at VMware, EMC and also considering his instrumental roles as Intel’s first CTO and head of Intel’s desktop and server CPU businesses (key contributor to the flagship Core and Xeon platforms)… We believe he is well-respected by the investment community and has the right background to navigate the company through what is arguably one of the most challenging periods of the company’s existence,” Sur explained.
Additionally, INTC stated that Q4 2020 revenue and EPS will surpass its previous guidance on the back of “strong progress” on its 7nm process technology, with Sur expecting the company to utilize a hybrid insourced/outsourced manufacturing strategy.
According to Sur, the company likely saw upside in the client compute segment, with the data center business also potentially posting a gain.
“Looking ahead, we anticipate better than seasonal demand for PCs and for cloud data center investments to inflect positively in 1H21, which bodes well for Intel. We also note that during the CES, Intel announced that Ice Lake (10nm) is in production… we believe Intel has a strong roadmap of future products and, assuming, they can execute on their roadmap without further delays, we think the company will stem share loss,” Sur commented.
As evidence of his impressive stock picking abilities, Sur boasts a 69% success rate and 21.7% average return per rating. More
Fuel prices are displayed at an Exxon Mobil Corp. gas station in Arlington, Virginia, U.S., on Wednesday, April 29, 2020.
Andrew Harrer | Bloomberg | Getty Images
Company: Exxon Mobil Corp. (XOM)
Business: Engaged in the exploration, production, transportation and sale of crude oil and natural gas, and the manufacture, transportation and sale of petroleum products. Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and a range of specialty products. The company’s segments include upstream, downstream, chemical, and corporate and financing. The upstream segment operates to explore for and produce crude oil and natural gas. The downstream operates to manufacture and sell petroleum products. The chemical segment operates to manufacture and sell petrochemicals. The company has exploration and development activities in projects located in the United States, Canada/South America, Europe, Africa, Asia and Australia/Oceania.
Stock Market Value: $202.5 billion ($47.89 per share)
Activist: Engine No. 1
Percentage Ownership: 0.02%
Average Cost: n/a
Activist Commentary: Engine No. 1 is a new investment firm founded by Chris James, founder of Partner Fund Management and co-founder of Andor Capital Management and Charlie Penner, former partner at JANA Partners. Their mandate is to create long-term value by driving positive impact through active ownership. This is EN1’s first public campaign.
Engine No. 1 (“EN1”) sent a letter to Exxon Mobil Corp’s (XOM) Board announcing that it has identified the following four director candidates to be nominated, if necessary, to the company’s board: (i) Gregory J. Goff, former CEO of Andeavor, a leading petroleum refining and marketing company formerly known as Tesoro; (ii) Kaisa Hietala, former EVP of renewable products at Neste, a petroleum refining and marketing company; (iii) Alexander Karsner, a senior strategist at X (formerly Google X), the innovation lab of Alphabet Inc; and (iv) Anders Runevad, former CEO of Vestas Wind Systems, a wind turbine manufacturing, installation, and servicing company with more installed wind power worldwide than any other manufacturer. EN1 noted that CalSTRS, which owns over $300 million in value of the company’s stock, has stated that it intends to support these candidates if nominated for election to the board. EN1 also called on the company to impose greater long-term capital allocation discipline, implement a strategic plan for sustainable value creation and realign management incentives.
Behind the Scenes:
Exxon Mobil is one of the most iconic companies in the oil and gas sector, which has seen steep declines in recent years. The company’s return over the last 10 years has been negative 20% versus a 277% return for the S&P 500, and its total shareholder return for the prior 3-, 5-and 10-year periods trails its self-selected proxy peers, both before and after the COVID-19 pandemic. Engine No. 1’s (“EN1”) plan to reverse this underperformance has economic and social elements, but is primarily economic, at least in the short and mid-term.
Arrows pointing outwards
EN1 points to capital allocation as the primary driver of this poor performance. Return on capital employed (ROCE) for upstream projects (which have historically accounted for over 75% of total capital expenditures (“capex”)) has fallen from an average of 35% from 2001-10 to 6% from 2015-2019. EN1 urges Exxon Mobil to adopt a more disciplined and forward-thinking approach to capital allocation strategy, including a long-term commitment to only funding projects that can break-even at much more conservative oil and gas prices. They believe that a long-term commitment to better capital allocation would likely increase free cash flow, strengthen the company’s balance sheet, and help secure its ability to cover its dividend.
The second thing that EN1 focuses on is “a strategic plan for sustainable value creation in a changing world.” This part of the plan has less detail and is admittedly void of any quantitative analysis, but is a push by EN1 for the company to get on the right side of history with respect to renewable energy. EN1 is not asking the company to make immediate changes and acknowledges that change will not come overnight, but they want them to at least explore investments in net-zero emissions energy sources and clean energy infrastructure. While any change in this area could take many years, the company is used to looking out to the future in its E&P business as plants they invest in have lives of up to 20 years.
EN1 suggests two significant initiatives to accomplish these changes. First, they propose a slate of four directors for the board, all with energy industry experience and three of whom also have experience is in renewables. Second, EN1 would like to see a change in executive compensation to better align compensation with value creation for shareholders, as total CEO compensation at the company rose almost 35% from 2017 to 2019 despite Exxon Mobil’s negative cumulative total shareholder return (-12%) during that period.
EN1 makes some very compelling points, but as a 0.02% shareholder, has an uphill, yet achievable, path to success. They own substantially less than 1% even with the support of CalSTRS’s $300 million of shares, which is more symbolic than anything else. To have any chance of success here, they will have to convince large stockholders like Vanguard (8.43%), State Street (5.17%) and BlackRock (4.97%) to not only talk the talk, but walk the walk when it comes to ESG investing. While Exxon is somewhat of a poster boy for the need for environmental change, it will be hard for those large shareholders to completely ignore this campaign. There is already evidence that other shareholders are like-minded — D.E. Shaw & Co. (0.11%) also sent a letter to the company urging them to reduce costs and improve performance. This might end up coming down to the recommendation of ISS. Even with their support, four seats is a long shot here, but one or two is possible. A small investor like this going up against a behemoth like Exxon would have been unheard of ten years ago. But with the evolution of shareholder activism combined with the allure of ESG investing, it is more than possible today.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. More
Angela Weiss | AFP | Getty Images
Yet again, the Mega Millions jackpot has catapulted higher.
The top prize is now a staggering $850 million — the third-largest in lottery history — following no ticket matching all numbers drawn Friday night. Then there’s Powerball: Its jackpot is an estimated $640 million for Saturday night’s drawing.
Of course, the odds of winning either game aren’t in your favor: The chance of a single ticket matching all six numbers is 1 in 302 million for Mega Millions and 1 in 292 million for Powerball.
Nevertheless, it’s still worth considering how you’d handle such a windfall if you were to beat the odds.
Jackpot winners usually get six months to a year to claim their prize, depending on the state where it was purchased. This generally means that rushing to lottery headquarters isn’t necessary.
In other words, winners should take a deep breath.
Big money equals big emotions
Whoever ends up hitting either jackpot should be prepared for a rollercoaster of emotions.
Experts say that once the initial excitement of winning the jackpot wears off, the magnitude of their windfall can settle in.
“For anyone experiencing newly created wealth … there are feelings of dislocation and a sense of being overwhelmed,” said Valerie Galinskaya, a managing director and head of the Merrill Center for Family Wealth.
For anyone experiencing newly created wealth … there are feelings of dislocation and a sense of being overwhelmed.
Of course, you don’t have to go it alone.
Given the sheer size of these jackpots, winners should assemble a team of experienced professionals — including an attorney, CPA and financial advisor — to help them navigate the windfall.
“You want to hire the right advisors who can provide not just good advice, but advice that’s tailored to your needs and wants,” Galinskaya said.
Protect your ticket and identity
You should make a copy of your ticket, put it in a safe place — i.e., a lockbox or safe deposit at a bank — and resist the urge to share your news with everyone in your life.
“Don’t blab to people about it right away, except for your immediate and trusted family,” said certified financial planner Jim Shagawat, a New Jersey-based partner advisor with AdvicePeriod of Los Angeles.
Additionally, you should shield your identity when you claim the jackpot, if possible. While the standard advice is to sign the back of the ticket, this could interfere with remaining anonymous if state laws let you create a trust or limited liability corporation to claim the windfall instead of doing so in your own name.
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If your state laws require your name to be publicly announced, it’s worth preparing how to respond if others bring up your windfall in conversation, Galinskaya said.
“You say ‘I’m really grateful, and we’re still working through what it means for us,'” she said.
Prepare for the tax bill
For the $850 million Mega Millions jackpot, the cash option — which most winners choose instead of an annuity — is $628.2 million.
Before that gets to you, however, 24% — or $150.8 million — will be withheld for federal taxes. You also could count on owing a lot more to Uncle Sam due to the highest marginal rate of 37% applying to income above $523,600 for individual tax filers and $628,300 for married couples filing jointly. State taxes also are typically due.
For Powerball’s $640 million jackpot, the lump sum option is $478.7 million. The 24% withholding would be about $114.9 million. And, again, more would be due.
One way to reduce your tax bill is to think charitably. Basically, the government gives you a tax break if you use private money to do public good.
“It’s not only about what you want to do for yourself and your family, but also philanthropically,” Galinskaya said.
You can contribute cash, up to 60% of your adjusted gross income, to a public charity or a donor-advised fund and get a tax deduction for the amount in the year you make the donation. You also could create a private foundation, donate income to it and then determine over time how to employ it. More