What can we make of the markets right now? On Friday, we saw the February jobs numbers – and they were far above the expectations. The economy added 678,000 jobs in the month, against a forecast of 400,000, and the official unemployment rate ticked down to 3.8%. It was the best jobs print of the ‘pandemic era.’
But it didn’t move the dial. The war in Ukraine did, and that movement wasn’t positive. All three of Wall Street’s major benchmarks are down as this week gets started, capping a weeks-long string of high market volatility overlaid on a downward trend. The NASDAQ leads the way, down 2.3%.
This leaves the average retail investor wondering just how to recognize stocks with real potential. After all, one of the few certainties of unsettled market conditions like we’re seeing now is that the ‘normal’ signs and signals have broken down. So maybe it’s time to check in with the market’s major institutions, the ones that, to a degree, set the rules in the first place. This can bring us to a Wall Street giant like JPMorgan.
JPMorgan isn’t just any giant bank; it’s the giant of the giants, the largest US bank, and the world’s fifth largest by total assets. And this behemoth to the market has picked out two beaten-down stocks that investors need to watch for a rebound. Using TipRanks’ database, we found out that the rest of the Street is also on board as both have earned a “Strong Buy” consensus rating.
Grid Dynamics Holdings (GDYN)
We’ll start with Grid Dynamics, a provider of consulting, analytics, and engineering services in the digital transformation niche. In short, Grid Dynamics is a tech company that helps other companies make digital upgrades, especially upgrades to cloud-based operations.
This Silicon Valley tech firm has taken a hard hit in recent months. The stock peaked in December of 2021 with a price just above $42. Since then, it has tumbled badly, losing 75% of its share value in just over 2 months. That loss came even as the company expanded its operational footprint and reported solid quarterly earnings.
On the expansion side, Grid Dynamics announced in February that it was entering the Indian market via a strategic partnership with Cygnet Infotech. The move gives the company a larger presence in South Asia, a rapidly growing economic region with a population of some 1.5 billion. The partnership is the first phase of a long term plan for South Asia expansion that will go into next year.
On the earnings side, the company reported its 4Q21 results early this month, and showed a record level quarterly top line of $66.5 million, more than double the $30.1 million reported in the year-ago quarter. At the bottom line, the non-GAAP diluted EPS came in at 10 cents, 2.5x the 4 cents reported one year ago, and 11% higher than the 9-cent forecast.
However, like many tech firms, Grid Dynamics hires talent where it finds it – and the company had found a lot of such talent in Ukraine. Grid Dynamics’ website lists 217 positions open in Kharkiv, 206 in Kyiv, and another 196 in Lvov. The company’s exposure to the Russia-Ukraine war is a headwind that cannot be avoided.
In covering GDYN for JPMorgan, analyst Puneet Jain notes this exposure, but believes the stock price has fallen far enough to reflect that headwind.
“Given the recent Russia’s invasion of Ukraine, we are proactively setting a lower bar for 2022 growth. We assume a reasonably adverse case scenario in which the ongoing turmoil persists for more than a few weeks, and leads IT buyers to delay new projects or award them to other countries (no impact on existing work). We’d also expect the company to increase focus on ramping up other countries/regions, and service incremental demand from elsewhere, but conservatively assume a near term headwind (mostly 1Q/2Q) to get 16% organic growth in CY22 (vs. 20% before). However, we think that recent stock weakness more than adequately discounts the risk of a slower revenue growth rate,” Jain opined.
Looking forward, Jain gives this stock an Overweight (i.e. Buy) rating, along with a $23 price target that implies an upside of 137% for the coming year. (To watch Jain’s track record, click here)
While Grid Dynamics has fallen sharply recently, Wall Street still gives it a Strong Buy rating. That consensus is based on 5 recent reviews, including 4 to Buy and 1 to Hold. The shares are selling for $9.82 and their $21.70 average price target suggests ~121% upside potential. (See GDYN stock forecast on TipRanks)
Singular Genomics Systems (OMIC)
Now we’ll change pace and head over to a medical research company. Singular Genomics is working on multiomics technologies, the next generation of genetic sequencing and the tools that are set to build a new wave of genetically-based medicines and medical products.
Singular Genomics made another large stride in that path last quarter, 4Q of 2021, when it launched its G4 platform. This platform, the company’s latest, is a benchtop genome sequencer, offering greater accuracy, flexibility, speed, and power to boost applications in oncological and immunological research. G4 instrument kits are now in production, and first kits are in internal testing. The company expects to commence deliveries in 2Q22.
G4 deliveries, when they start, will be a major leap for Singular Genomics, as it will also mark the start of a revenue stream. For the now, the company remains highly speculative for investors, dependent on raising capital to offset operating expenses and losses. Singular Genomics went public last year, with an IPO at the end of May, and since then has seen the share price gradually fall by 73%.
JPMorgan’s 5-star analyst Tycho Peterson lays out a strong case for Singular Genomics to reach profitability in the near future, writing: “Overall, we are encouraged by the continued early launch progress of the G4 and the pipeline. While 2022 is set to be a busy year for the sequencing industry with multiple recent and upcoming competitive launches (ILMN, PACB/Omniome Element Biosciences, Ultima), OMIC remains confident in its competitive differentiation around throughput and cost (and accuracy once HD-Seq launches). With a differentiated technology and strong IP position, as well as unique value propositions in target applications, OMIC has an encouraging prospect of driving attractive revenue growth and margin expansion, and we believe solid commercial progress will drive multiple expansion over time…”
To this end, Peterson gives OMIC shares an Outperform (i.e. Buy) rating, and sets a $25 price target that indicates his confidence in a robust 250% potential upside for the next 12 months. (To watch Peterson’s track record, click here)
Judging by the consensus breakdown, opinions are anything but mixed. With 3 Buys and no Holds or Sells assigned in the last three months, the word on the Street is that OMIC is a Strong Buy. At $23, the average price target implies ~222% upside potential. (See OMIC stock forecast on TipRanks)
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Disclaimer: 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.