Wall Street’s top analysts are betting on stocks like Qualcomm & Humana

2011 Gain: $32.87 (60%) 2011 Closing price: $87.61 Last year, investors turned away from HMO stocks such as this, fearing the impact of a new health care overhaul rule involving medical-loss ratios. However, Humana showed it was able to manage the new regulation and in October delivered better-than-expected profits and a better-than-expected forecast for 2012. Stephen Weiss, partner at Short Hills Capital, “At eight times earnings, you’re owning a stock that’s still cheap and very, very defensiv

Photo: Humana.com

While it’s now becoming clear Joe Biden will take the White House, investors are betting that Congress will be split, leaving President Trump’s corporate tax policy unchanged.

“Up until about last week, the consensus belief was a full blue sweep — now that’s changing you’re seeing a repricing taking place in the market… a more status quo Senate may ease the burden of regulations on the tech sector,” Anna Han, an equity strategist at Wells Fargo Securities, commented.

That said, as many factors remain uncertain, finding stocks primed to outperform the broader market isn’t easy.

One approach is to look at the recent stock picks from analysts that consistently get it right. TipRanks analyst forecasting service attempts to identify Wall Street’s best-performing analysts, or the analysts with the highest success rate and average return per rating, tracked on a one-year basis.

Here are the best-performing analysts’ five favorite stocks right now:

Provention Bio

On November 2, biotech company Provention Bio revealed the rolling submission of the BLA for teplizumab, a therapy that could potentially delay or prevent clinical type 1 diabetes (T1D) in at-risk patients, had been completed. For Chardan analyst Gbola Amusa, this development reaffirms his confidence in PRVB, with the company remaining a “Top Pick for 2020.” To this end, he reiterated a Buy rating and $35 price target (169% upside potential) after the news broke.

The FDA has 60 days to review the final submission, and after this, if the application is acceptable for review, a PDUFA goal date will be set. It should be noted that the drug was granted Breakthrough Therapy Designation (BTD) in 2019, reducing the review time from 10 months to 6 months.

“We see scope for Provention to meet its prior guidance of a potential U.S. approval of teplizumab for the delay or prevention of T1D in at-risk individuals in mid-2021… Teplizumab is a potential breakthrough asset, with highly significant results in subjects ‘at-risk’ for end-stage T1D,” Amusa commented.

Looking at the Phase 2 “at-risk” study, even though it’s smaller in size, the data represents the “first demonstration of therapeutic modulation of disease progression in T1D, strongly supporting Provention’s approach to treating autoimmune disease in the early stages,” in Amusa’s opinion. In addition, the therapy was praised in an editorial published in the New England Journal of Medicine.

What’s more, Amusa estimates the at-risk population is a blockbuster opportunity just in the U.S. Based on information from the JDRF T1 Fund, there are over 300,000 stage 1-2 T1D patients in the U.S. and 2.3 million worldwide. “300,000 U.S. patients at a $60,000 one-time price for a course of treatment implies a $18 billion total market opportunity. A 60,000 per year transitioning population for each stage implies a $2.4 billion per year recurring total market opportunity,” he explained.

Taking the #99 spot on TipRanks’ ranking, Amusa is currently tracking a 31.8% average return per rating.

Fabrinet

Fabrinet has just received a thumbs up from Needham’s Alex Henderson, with this five-star analyst putting an $85 price target (29% upside potential) and a buy rating on the stock on November 3.

In the most recent quarter, the optical communications device company handily beat Henderson’s revenue and EPS estimates by 4.4% and 7%, respectively, and posted year-over-year growth of 9.4% and 22.9%, respectively. All of this was achieved despite an uncertain backdrop, with pressure on Huawei and Service Provider spending also reflected. Putting it simply, Henderson said, “These are good results.”

Henderson argues that investors have been waiting to see Huawei’s impact fall out of its numbers, and now that the “fourth quarter bridge has been crossed, the upside is all that remains.”

Cisco is moving a large portion of Systems products to Fabrinet, which could exceed $250 million annually, according to Henderson. However, he points out that the reported numbers only reflect a minor contribution from the Cisco transition, but this should really ramp in CYQ1 2021 and reach full run rate by June, with the first full quarter run rate expected in September.

The analyst further mentioned, “We think the scale of this additional business is generally not reflected in the outlook and Street estimates… It should add at least $50-$60 million to Revenues year-over-year. The Street estimates have CYQ3 Revenues at $454 million up $18 million. We think the Fabrinet without Cisco could hit this number. If the rest of FN was flat it would do $486-$496 million. That’s a lot of upside.”

TipRanks shows that the #153-rated analyst scores a 57% success rate and a 20.4% average return per rating.

LivePerson

Since CFO John Collins came on board, business messaging and communications software company LivePerson has placed a significant focus on implementing a data-driven approach across all aspects of the business, giving five-star analyst Ryan MacDonald, of Needham, “increased confidence in the improving trajectory of the business.”

Taking an even more bullish stance, on October 30, MacDonald increased the price target from $60 to $65, in addition to reiterating a Buy rating. The new price target puts the upside potential at 5%.

Based on the results from its third quarter, MacDonald argues the data-driven approach appears to be working. The company delivered a “Rule of 40 with a combination of 26% revenue growth and 18% free cash flow margin.” This marked LPSN’s first quarter of positive free cash flow since Q4 2018, with it highlighting “the progress the company is making on expense optimization while producing strong top line growth,” in the analyst’s opinion.

“LPSN is adamant that the pandemic-driven increases in usage are sustainable and indicative of a structural shift in the market… When combining this with the operational efficiencies that the company is implementing across the organization, we remain confident that LPSN can continue to accelerate growth and expand margins,” MacDonald commented.

Some investors expressed concern that new logos have yet to rebound. However, MacDonald believes there is a “strong near-term expansion opportunity in the existing base can support growth acceleration while new reps and channel partners ramp.” As a result, he is a buyer at current levels.

Given MacDonald’s 81% success rate and 40.4% average return per rating, he is among TipRanks’ Top 45 best-performing analysts.

Qualcomm

On November 4, Deutsche Bank’s Ross Seymore maintained a buy rating on Qualcomm following a beat and raise quarter for the semiconductor company. Reflecting an additional bullish signal, the five-star analyst boosted the stock price forecast from $127 to $150, implying upside potential of 16%.

Shares of Qualcomm surged over 11% in after-hours trading in response to the print. Looking at the details, it reported fiscal Q4 revenue of $6.5 billion, up 33% quarter-over-quarter. The analysts were expecting revenue of $5.9 billion. Non-GAAP EPS of $1.45 beat the Street’s $1.17 call. Although gross margin declined by 60 basis points quarter-over-quarter to 58.7%, it exceeded the 58.1% consensus estimate.

When it came to its guidance for the upcoming quarter, Qualcomm didn’t disappoint. Management expects revenue to be in the range of $7.8 billion-$8.6 billion, up 26.1% quarter-over-quarter at the $8.2 billion midpoint. This easily beat the $7.1 billion consensus estimate.

According to management, the ramp of 5G networks and handsets drove the strong performance, with Qualcomm’s CEO stating that the results included a “partial quarter impact” from a large handset producer in the U.S.

Based on this “strong beat/raise,” Seymore argues Qualcomm is the “premier way” to play the expansion set to take place in the 5G handset space over the next year.

As the analyst boasts an 82% success rate and a 28% average return per rating, Seymore is Wall Street’s 24th best-performing analyst.

Humana

Following Humana‘s strong Q3 performance, Oppenheimer’s Michael Wiederhorn continues to see the health insurance company as a compelling play in the space. Accordingly, the five-star analyst reiterated a buy rating and $460 price target (2% upside potential) on November 3.

For Q3, adjusted EPS came in at $3.08, well ahead of the $2.80 consensus estimate. Additionally, utilization bounced back to 95% of historical baseline levels by the end of the quarter, with non-coronavirus utilization expected to remain below normal levels in Q4.

Although HUM guided for a Q4 EPS loss of between $2.29-$2.54, this factors in its investments in the Medicare channel, with this area of the business reflecting a significant market opportunity, in Wiederhorn’s opinion. On top of this, given the potentially “more favorable reimbursement environment and the maturation of its high-growth member base,” HUM could drive an improvement in margins.

“Given the attractive growth of the company’s Medicare Advantage (MA) business, we believe Humana should return significant returns to shareholders,” Wiederhorn noted.

Management also mentioned that the recently issued 2022 proposed rate increase of 2.82% for MA will likely, “benefit the company similarly to the overall market,” adding that 92% of members are in 4+ Star plans.

With a 75% success rate and 21% average return per rating, Wiederhorn lands within the Top 30 on TipRanks’ list of best-performing analysts.

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