How do you make sense of the current market conditions? We came off a strong bull year for stocks with the worst January in a long time – but the month ended, and February started with the best two-day action since April 2000. And in a quirk, that investors should note, small-cap stocks are showing strong signs of being heavily oversold.
Small-caps took a harder hit in January’s swoon than the market giants, and according to JPMorgan's Chief Global Markets Strategist Marko Kolanovic, investors should buy the dip.
"Small cap valuations are at 20Y lows, and investor sentiment is bearish. Many market metrics such as recent performance of high vs. low beta stocks and valuations of small caps are already fully pricing in a recession – something we do not see materializing," Kolanovic noted.
Against this backdrop, we used TipRanks' database to locate several oversold small-caps that have received enough bullish support from analysts to earn a “Strong Buy” consensus rating. The upside potential at play here isn’t too shabby, either.
ACV Auctions (ACVA)
We’ll start with ACV Auctions. This company takes wholesale auto dealer auction sales online, streamlining the process and bringing a winning combination of transparency, speed, and candor to the auto wholesale market. ACV is a holding company, whose subsidiaries handle the full range of services involved in automotive wholesaling – from managing the auctions, to providing financing for buyers, to transporting vehicles, to providing unbiased third-party car inspections.
The company has been public for just under one year, having held its IPO on March 24 of last year. The initial offering saw ACV put more than 19 million shares on the market, at a price of $25 each, and the company raised $414 million in new capital. Since the IPO, however, ACV stock price has fallen by 63%.
Despite the fall in share price, ACV has been reporting solid year-over-year revenue gains. In the last quarter reported, 3Q21, the company showed $91.8 million at the top line, up 36% yoy. This included a 41% gain in Marketplace and Service revenue, which accounted for $78.3 million of the total.
Looking forward, ACV has pre-announced some of its 4Q21 results. The company expects revenue to beat the high end of the previously published $83 million to $86 million guidance; while down from Q3’s revenue, this will represent approximately 60% yoy growth. The company also expects the EBITDA loss to moderate in Q4. Official results will be presented on February 16, and the company will hold an analyst day on March 1.
Covering ACV for Guggenheim, 5-star analyst Ali Faghri lays out a case for the stock to surge, writing: “We believe ACV’s nearly 100% exposure to dealer consignment positions it more favorably from a volume perspective, especially into 2H22 and 2023 as new vehicle SAAR starts to gradually rebound…. we believe it should continue to deliver strong volume growth as it takes share from physical auctions, putting it in a better position to navigate this tight supply backdrop."
"We believe 2022 consensus estimates are achievable for ACVA and also see the March 1 analyst day as a positive catalyst where the company should update LT targets,” Faghri summed up.
In line with his bullish stance, Faghri rates ACVA a Buy, and his $35 price target implies room for a powerful 202% upside for the year ahead (To watch Faghri’s track record, click here)
This stock has a unanimous Strong Buy rating from the Wall Street consensus, with 5 positive reviews on file. The shares are selling for $11.58 and their $30 average price target suggests room for 159% appreciation in the next 12 months. (See ACVA stock forecast on TipRanks)
Arbe Robotics (ARBE)
Next on our list is a company in the autonomous vehicle niche. Arbe Robotics was founded in 2015 and has focused its research and development work on the advanced radar systems self-driving cars need to ‘see’ their immediate environments. Arbe uses a combination of sensitive radar technology, robust processing tech, and advanced algorithms to create an ultra-high resolution system with the best performance on the roads. The company boasts that its radar systems are up to 100x more sensitive than existing radars currently in use on self-driving cars. Arbe’ system, called Phoenix, has a 300 meter range, a 100 degree azimuth, and 30 degrees of elevation, and can differentiate between false alarms and true threats.
The company entered the public markets in October of last year, completing a SPAC combination at that time with Industrial Tech Acquisitions. The ARBE stock started trading on the NASDAQ on October 8, and the company realized $118 million in gross proceeds from the transaction. The stock quickly surged to a peak above $14 in November, and has since fallen 48% from that level.
Even though the stock has fallen, Arbe has had some solid wins to report in recent months. BAIC Group, a Chinese auto manufacturer, announced in November that Arbe’s radar systems are expected to be installed on BAIC Group’s new vehicles going forward, and that same month, Weifu, a Chinese tier-1 auto parts supplier launched a customer road-pilot phase of Arbe’s radar systems and chipsets. Weifu expects to have the systems in full production by the end of this year.
And, in January, Arbe introduced its radar based free space mapping at the CES2022 exposition. The new mapping system is an addition to the imaging radar perception stack, and includes algorithms that allow the system to build a map of the near environment, with the vehicle localized in it.
Analyst Josh Buchalter, from Cowen, sees Arbe building a solid foundation in the automotive radar segment, writing of the company: “Arbe Robotics provides investors the opportunity to own an ADAS radar pure-play with sizable announced auto wins… While much of the investment community has focused on lidar within the vehicle autonomy space, Arbe’s solutions participate in a significantly less competitive radar market and can already be sold at <$200, a price auto OEMs can incorporate on high-volume vehicles."
"Our checks in the sensing space reveal Arbe holds a significant edge in radar resolution, an important enabling feature needed to enable L2/L2+ autonomous features. For early growth investors, we believe the differentiated technology, limited competition, and validating wins are signs the story is just beginning,” the analyst added.
To this end, Buchalter puts an Outperform (i.e. Buy) rating on the stock, along with a $15 price target that implies an upside of ~96% for the next 12 months. (To watch Buchalter’s track record, click here)
This stock’s low price hasn’t deterred Wall Street’s analysts from staking out bullish positions. The stock has a unanimous 3 reviews, for a Strong Buy consensus rating, and the average price target of $15.33 suggests a one-year upside of ~100% from the share price of $7.67. (See ARBE stock forecast on TipRanks)
ALX Oncology Holdings (ALXO)
Last on our list is ALX, an immune-oncology biopharma working on CD47 blockers as a therapeutic target in cancer treatment. The company’s leading drug candidate, evorpacept (also known as ALX148) is the subject of no fewer than 6 clinical trials, as a treatment for a variety of hematologic cancers and solid tumors. The drug candidate has shown anti-tumor activity in multiple indications, and an acceptable tolerability profile for patients.
The company has had several recent updates on its evorpacept programs, and released the announcements in January. The updates include the expected initiation of a Phase 2/3 clinical trial for the treatment of great gastric/GEJ cancer. This trial will evaluate evorpacept in combination with several other therapeutic agents, including Herceptin (trastuzumab), Cyramza (ramucirumab) and paclitaxel.
Another upcoming catalyst announced in January concerns the Phase 1b trial of an evorpacept-azacitidine combo in the treatment of MDS, myelodysplastic syndromes. The company will be releasing the dose optimization readout of this trial during this year.
The final January update came from the FDA, which granted evorpacept its Orphan Drug Designation in the treatment of gastric cancer and gastroesophageal junction cancer. Orphan Drug Designation comes with financial benefits, including tax credits and user fee exemptions for the company.
The clinical pipeline isn’t the only source of positive updates for ALX. The company, in its January corporate update, reported having $385.1 million in cash on hand at the end of 3Q21. At current spending rates, this is expected to keep the company operating trough the middle of 2024.
Despite the positive announcement and upcoming catalysts, ALXO shares are down 83% in the last 12 months.
Nevertheless, Piper Sandler analyst Christopher Raymond is bullish, saying of ALX: “We continue to like the ongoing progress across the pipeline for evorpacept, with a number of catalysts on tap for 2022 and more clarity around longer-term readouts noted today. Overall, given where the stock is currently trading, we believe this name continues to be undervalued and remain buyers.”
Raymond uses his comments to back an Overweight (i.e. Buy) stance here, and his $77 price target indicates confidence in a sky-high 464% one-year upside potential. (To watch Raymond’s track record, click here)
Raymond isn’t the only bull here, as the 6 recent reviews break down 5 to 1 in favor of Buys over Holds and give a Strong Buy consensus view. The stock is selling for $13.65 and its $70 average price target implies an upside of 413% by the end of 2022. (See ALXO 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.