One thing is certain these days, and that is uncertainty. Markets remain volatile as a series of releases leaves investors with some uncertainty as to whether high inflation, rising interest rates or a possible recession – or perhaps all three at once – will dominate forecasts. The result: daily price swings and sharp changes that make forecasting a risky business.
Not every economist is ready to throw in the towel, however, and the tough market environment hasn’t frightened John Stoltzfus. Oppenheimer’s chief investment strategist remains bullish on equities, and he explains why in his monthly market strategy report.
“Our long-term outlook for the US economy and stock market remains decidedly optimistic. We believe that the US economic fundamentals remain on solid footing. Once inflation begins to moderate, US growth should begin to recover, supported by consumer demand and corporate investment,” said Stoltzfus.
Acknowledging the current volatility and the high risk of a dangerous economic recession, Stoltzfus continues: “We can’t say that the market has bottomed out at these levels or that the bear market will continue for some time yet. priced in, the potential rewards of investing at these levels appear more attractive relative to the risks.
Keeping in mind Stoltzfus’ outlook, we wanted to take a closer look at three stocks that earned Oppenheimer a round of applause, with the company’s five-star analysts predicting more than 30% upside for each. Using TipRanks’ database, we found that the rest of The Street agrees, as all three analysts have a “Strong Buy” consensus.
CSG Systems International (CSGS)
Oppenheimer’s first choice is CSG Systems International, a software and services company in the business support systems (BSS) niche. CSG’s platforms, available on the SaaS model, offer a wide range of features, including revenue management and monetization, wholesale and affiliate management, and payment and merchant services. The company has a global reach and partners with well-known brands such as Bell, Comcast and Dish.
CSG has delivered steady performance over the past several years, with recent 3Q22 results considered fairly typical. On the top line, total sales were reported at 273.3 million, up 3.8% year-over-year. In the end, the company’s results were divided; GAAP EPS was down 20% year over year, from 50 cents to 40 cents, while non-GAAP EPS was up 20.5%, from 88 cents to $1.06.
On the balance sheet, CSG’s cash flows declined year over year. Cash from operations fell from $46.1 million to $22.8 million, while free cash flow fell from $38.7 million to $10.9 million. The company attributed the decline to “adverse changes in working capital.”
Although cash flows declined, CSGS maintained its regular dividend payment, as part of an annual $91 million return of capital to shareholders. The dividend for the third quarter was set at 26.5 cents per share of common stock and totaled $8 million paid in the quarter. On an annualized basis, the dividend is $1.06 and yields 1.9%, about average for the broader markets. The company has gradually increased the dividend payment over the past 9 years.
In his coverage of CSG Systems for Oppenheimer, five-star analyst Timothy Horan gives several reasons to believe that this company will return investors long-term returns. Horan writes, “The company has traditionally been a consistent cash cow serving MSOs (née ‘Cable Services Group’) but accelerating core businesses of: 1) digital, 5G and cloud, 2) CSG is taking market share from less focused competitors and 3 ) new management is refocusing its modular SaaS and cloud-native customer engagement offerings toward faster-growing regions and industries beyond communications service providers (CSPs). The process will take time, but should drive growth and appreciation.”
Horan translates his bullish view of CSG’s future prospects into numbers with a price target of $75 implying an upside of ~36%. It is therefore not surprising why he rates the stock as an Outperform (ie Buy). (To view Horan’s track record, click here)
Overall, there are 3 recent analyst reviews on record for CSGS, and they all agree it’s a stock to buy – making the Strong Buy analyst consensus unanimous. The stock has an average price target of $74, implying a ~34% year-over-year gain from its current trading price of $55.26. (See CSGS Inventory Forecast on TipRanks)
wait! Group co. (PET)
The next stock we’ll be looking at is Wag! Group, an emerging online app that provides users with access to a full range of pet care services, including dog walking, pet sitting, consulting, and even pet training. The company has an online community of more than 400,000 pet groomers and has completed transactions for more than 12 million pet grooming services since its inception in 2015.
This stock is new to the public markets, having entered the NASDAQ exchange earlier this year through a merger of a business combination – a SPAC transaction. The merger was with CHW Corporation and was approved on July 28. The PET ticker began trading on August 10. At close, the transaction was just Wag! Group about $350 million in gross capital.
Last month, Wag! financial results released for 3Q22, with revenue of $15.4 million, a 161% year-over-year gain. The company’s revenue gains were driven by a strong increase in gross bookings during the period, from $13.7 million a year ago to $25.3 million in a recent report — or an 85% year-over-year growth.
At the same time, the company’s net income declined sharply during this period, from $1.6 million in 3Q21 to a 3Q22 net loss of $40.9 million. wait! attributed that shift to the one-time inclusion of COVID-era PPP loan forgiveness. Excluding that factor, the company saw a $1.4 million loss in Q22.
During 3Q22, Wag! reported significant gains on customer metrics. The company reached a total of 473,000 platform participants during the quarter, up 22% y/y and increased its Pet Parent Wag! Premium program penetration to 53%, better than company target of 50%.
Oppenheimer’s Jason Helfstein, a top analyst with a 5-star rating from TipRanks, sees plenty of reasons for investors to buy shares of this new public stock. Going into some details and his outlook for the company’s longer-term prospects, Helfstein writes, “We believe the company is well positioned to grow as pet services move online…We believe the overall addressable market (TAM) for online pet care will be a $24 billion opportunity by 2028, driven by the secular shift of consumers purchasing services/products through online platforms. We estimate that the US online pet care industry will grow by 2021 by Growing 98% year-on-year as approximately 20 million families have adopted a pet during the pandemic lockdown.”
“Our service estimate for 2026 would imply 190,000 households using the platform 2.0x per week. This is 3% of our estimated 7.4 million households that could move to online dog walking and pet service bookings. Currently modeling positive EBITDA profitability in FY24 and no need for additional funding,” Helfstein added.
Maintaining his bullish outlook, Helfstein rates PET Outperform (ie Buy), and his $5 price target implies a one-year upside potential of a whopping 132%. (To review Helfstein’s track record, click here)
Overall, all three recent analyst reviews of PET have been positive, making the consensus rating here a unanimous strong buy. The stock is selling for $2.15 and the $5.50 average price target suggests 156% upside potential by the end of 2023. (See PET stock forecast on TipRanks)
Datadog, Inc. (DDOG)
The latest is Datadog, a cloud software company that provides observation tools, the tools needed to monitor, track and secure cloud-based websites in real time. Datadog’s suite of cloud-based software tools includes automation, resource management, bug tracking, troubleshooting, optimization, and basic monitoring tools. Customers can use Datadog’s software and service to search and navigate site logs, track key metrics and website traces, and make proactive management choices based on high-quality data sets.
The company provides investors with a history of consistent EPS beats. Datadog’s last reported quarter, 3Q22, showed a bottom line of 23 cents per diluted share, compared to the forecast of 16 cents, for a 43% hit. Revenue in the same quarter increased 61% year over year to $436.5 million.
The top and bottom weren’t the only positive metrics. Datadog also saw $83.6 million in total cash flow from operations, including $67.1 million in free cash flow. At the end of the third quarter, September 30, Datadog had $1.8 billion in cash and liquidity available.
Looking ahead, there is reason for continued optimism. Datadog’s high-yield customers, defined as customers with at least $100,000 in annual recurring revenue (ARR), reached 2,600 at the end of the third quarter, compared to 1,800 a year earlier, for a 44% year-over-year increase .
All this shows that Datadog has a solid foundation to move forward, and Ittai Kidron, another Oppenheimer five-star analyst, agrees. The analyst says of Datadog, “The company has a strong history of exceeding expectations, never missing consensus expectations, and typically leading above the street… While not recession-proof, the mission-critical nature of its solutions gives Datadog relative resilience in times of spending constraints.The company has also expanded into security, benefiting from security shift-left efforts and its strong reputation with developers, offering major TAM expansion and a long tail of growth.
Ultimately, Kidron describes this company as “a long-term core holding company.” Consistent with this optimistic view of Datadog’s overall excellence as an investment, Kidron rates DDOG an Outperform (i.e. Buy), with a price target of $105, suggesting ~35% gains a year ahead. (To view Kidron’s track record, click here)
With 28 recent analyst ratings on file, including 22 Buys vs. 6 Holds, Datadog stock earns a Strong Buy consensus from the pros of the street. The stock is selling for $77.83 and its average price target of $109.68 implies an upside of ~41% over the next 12 months. (See DDOG stock forecast on TipRanks)
To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.
disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.