We all want to build a profitable portfolio – but if you’re new to the markets, and starting from scratch, where do you begin? It’s tempting to buy into the big names, the companies that have been making waves and generating headlines. Tempting, but probably not the best idea. These companies have already made their splash; while they will continue to bring returns, they might not be the best choice for a retail investors looking to expand a return-oriented portfolio.
Start by looking low. Not at down-and-out stocks, but at fundamentally sound equities that are trading at recent low prices. Remember – a key to success in investing is to buy low and sell high. So, how to choose stocks that are trading at their bottom – but hold great potential down the road?
We’ve used the TipRanks database to look up three stocks whose price is close to a one-year low – but which all have a ‘Buy’ rating from Wall Street’s analysts, and a one-year upside potential starting at 70% or better. Let's take a closer look.
Allogene Therapeutics (ALLO)
We’ll start in the biotech sector, with Allogene Therapeutics. This clinical-stage biotech firm is focused on developing allogenic chimeric antigen receptor T-cell (AllCAR T) therapies, a class of medicines designed to combat various forms of cancer. The company has an active and wide-ranging pipeline, composed of 20 drug candidates at various levels of preclinical and Phase 1 testing. Most of Allogene’s drug candidates are under investigation as treatments for hematological or solid tumor malignancies.
This company’s stock has fallen sharply, losing 43% of its value over the past 12 months. The slide has not been even, featuring plenty of volatility in the form of partial recoveries and further slips. But some analysts see this as an opportunity.
To start with, the company’s AlloCAR T approach shows promise to render existing chimeric antigen T-cell therapies obsolete – and that leads us back to the pipeline. Allogene has several concurrent research programs; Drug candidate ALLO-715 has recently received the FDA’s RMAT designation for patients with relapsed/refractory multiple myeloma. ALLO-715 is currently in a Phase 1 UNIVERSAL study, and potential data update is expected in 4Q21. The company has also begun combination dosing for ALLO-715 in combination with SpringWork Therapeutics gamma secretase inhibitor, nirogacestat.
Furthermore, the company has started dosing patients in the phase I TRAVERSE trial for ALLO-316 in patients with metastatic clear cell renal cell carcinoma to evaluate the safety, tolerability, anti-tumor efficacy, pharmacokinetics, and pharmacodynamics.
Earlier this month, data from the company's CD19-targeted CAR-T programs for the treatment of relapsed/refractory non-Hodgkin lymphoma (r/r NHL) was released. Specifically, drug candidates ALLO-501 and ALLO-501A showed high levels of dosing tolerance and response rates between 50% and 75%.
All of this caught the attention of B. Riley analyst Kalpit Patel, who titled his latest report on this stock, ‘Driving AlloCARs in the Right Direction.’
Weighing in on the ALPHA/ ALPHA2 studies, Patel noted: “In our view, the response rates are in line with historical data shown by autologous CAR Ts… With respect to the durability of complete responses… we believe additional follow-up data are needed before forming an opinion on how alloCARs fare relative to autologous CAR Ts. Notably, alloCARs appear to encompass low single-digit rates of Gr3+ neurotoxicity/CRS in ALPHA/ALPHA2, which are favorable compared to historical event rates with autologous CAR Ts.”
The analyst added, "The clinical update from ALPHA/ALPHA-2 is a significant de-risking event for Allogene. We believe the company's differentiated lymphodepletion strategy and consolidation dosing approach will make offthe-shelf CAR Ts feasible in both late-line and early-line patients over time.”
In-line with these comments, Patel rates ALLO a Buy along with a $52 price target. Investors could be pocketing gains of ~115%, should the analyst’s forecast go according to plan. (To watch Patel’s track record, click here)
Patel is clearly not an outlier on ALLO shares, as the 10 recent reviews break down 9 to 1 in favor of Buy over Hold – giving the stock its Strong Buy analyst consensus rating. The shares are priced at $24.34 and their $49.38 average price target suggests a one-year upside of ~105%. (See ALLO stock analysis on TipRanks)
Quidel Corporation (QDEL)
With the next stock, Quidel, we’ll stay in the healthcare sector but take a look at a different segment. This company is a leader in diagnostic testing devices and products. Quidel saw a major boost in business last year, as the COVID pandemic put a hefty premium on development, production, and distribution of coronavirus testing kits. Quidel’s coup was receipt of FDA approval for a COVID-19 antigen test, and earlier this year the company received emergency use authorization for its at-home COVID-19 test, Quickvue.
In recent months, however, the COVID crisis has started to fade back. Infection rates are falling, recovery rates are rising, and it’s becoming clear that public health authorities are gaining the upper hand on the virus. For Quidel, this means reduced business – and Quidel’s stock has fallen 56% in the last 5 months as a result. Also in response to declining demand for COVID testing kits, the company has reduced its forward revenue outlook.
At the same time, Quidel’s Q1 top line, at $375 million, while down sharply form Q4’s peak of $809 million, was still up 115% from the year-ago quarter. That revenue total included $280 million worth of COVID-19 related product sales. In a less optimistic sign, influenza product sales were down year-over-year, $79 million to $5 million. There is some speculation that this reflects a demand distortion due to the pandemic.
In recent weeks, Quidel’s competitor Abbott announced a sharp cut to its guidance on COVID-19 testing sales, in a sign taken as evidence of softening demand.
Overall, however, Quidel remains a growth story. In the last five years, from 2016 to 2020, the company’s full-year revenue grew from $192 million to $1.67 billion. Even after reductions, forward guidance for 2021 remains high, at $2.5 billion.
According to Raymond James analyst Andrew Cooper, the recent sell-off could be an opportunity as the business remains sound.
"We continue to see the stock as fairly dramatically undervalued at current levels. The majority of attention… centers around COVID-19, which we still believe could prove underappreciated depending on how screening markets develop, but it is the base business that we believe is being overshadowed. The pipeline… is progressing and should accelerate growth at least towards management's18% 2019-2024 CAGR (though we remain conservative in our model). Still, we believe our fairly conservative view on the base business justifies current stock levels, with investors getting a free call option on COVID-19 cash still to come," Cooper opined.
To this end, Cooper rates QDEL shares an Outperform (i.e. Buy), and his $160 price target indicates room for a 50% one-year upside potential. (To watch Cooper’s track record, click here)
Overall, five of Wall Street’s analysts have weighed in on QDEL shares, giving the stock 4 Buys and 1 Sell, for a Moderate Buy consensus rating. The stock has an average price target of $187, suggesting a 76% upside from the current $106.43 trading price. (See QDEL stock analysis on TipRanks)
China Online Education Group (COE)
Supplemental education is big business in China, where the prevailing culture puts a high premium on student achievement. China Online Education Group offers a range of courses and other educational services in English, and uses online and mobile access as a key selling point. Students from across China can engage in interactive, live-streaming, English language lessons – on demand.
Even with a cultural imperative backing the product, and with consistently rising revenues, the stock has dropped sharply in recent weeks. COE shares are down 66% year-to-date, with most of that loss coming since the beginning of May.
The fall in share value has come as the Chinese government, in an effort to alleviate the high costs of parenting and promote larger families, is considering regulations to limit or ban after school, weekend, and holiday tutoring programs. These programs are highly popular with parents, who frequently pay more than they can afford to push their children to higher achievement. Limits have already been put on weekend and holiday tutoring for grades 1 through 9. Earlier this month, Chinese President Xi Jinping spoke about the change in policy, stressing that online and after-school programs will need stricter regulations.
That background makes some sense of both COE’s share depreciation, and rising revenues. The company saw a top line of US$91.6 million in 1Q21, up 23% from the prior year’s first quarter. Gross margins improved yoy, from 70% to 73%, and cash-on-hand grew to US$264 million. In a key metric, gross billings grew 14% yoy, passing US$104 million. EPS, however, slipped, from 35 cents per share in 1Q20 to 6 cents for the current report.
Benchmark analyst Fawne Jiang has noted the stresses put on the industry by the new regulation. The analyst acknowledges that this puts headwinds in COE’s path, but remains upbeat on the company’s prospects.
“[We] expect COE to maintain healthy active student growth thanks to revamped marketing efforts. Longer term, we believe the structure tailwinds for online education should remain intact, and COE in particular should benefit from relatively benign competition within the pure online K-12 online English education sector,” Jiang noted.
The 5-star analyst gives COE a Buy rating, with a $29 price target that implies a 221% growth runway for the coming year. (To watch Jiang’s track record, click here)
Only two analysts have weighed in on COE shares, but both agree that this is a stock to buy, making the Moderate Buy consensus rating unanimous. The stock is priced at $8.99 and the average price target of $32.50 suggests a strong 260% upside over the 12 months ahead. (See COE stock analysis 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.