A trio of headwinds are rocking the markets, making investors jittery. The Russian-Ukrainian situation is making headlines. Foreign policy experts openly speculate on the prospect of war, should Russia invade its neighbor and the United States oppose it. For now, this situation is fluid and unpredictable.
On the home front, stubbornly high inflation remains a problem – and it continues to rise. Market watchers expect the Federal Reserve to raise interest rates at least 3 times this year, possibly up to 50 basis points each time. While high by recent standards, this would keep rates historically low, and therefore may or may not dampen inflation.
In the meantime, 4Q21 earnings have been broadly positive, with year-over-year gains of almost 15% and around three-quarters of companies reporting better-than-expected results.
The overall result, for the stock market, has been about 6 weeks of heightened volatility to start 2022. This begs the question, “How do you find the next hot stock to buy in this environment?” One way could be to filter out stocks that have been endorsed by analysts at particularly large investment banks, such as Wall Street banking giant Morgan Stanley.
The company’s stock analysts display their bullish outlook by picking stocks they see as winners for the year ahead — and winners with substantial upside potential, in the 90% or higher range. By using the TipRanks databasewe researched two of these Morgan Stanley picks, to see what sets them apart.
Safe (SAFE)
We’ll start with Safehold, a pioneer in the land lease segment of the real estate investment trust industry. Land leases are a way for landowners to “unlock value”, by allowing long-term tenants to build and make improvements to landholdings, with the stipulation that any such development will revert to the landlord upon completion. of the lease. The company offers long-term land leases, up to 99 years. Safehold has a $4.5 billion portfolio of these land lease properties.
This portfolio brought the company $47 million in revenue in 3Q21, last reported, for a 24% year-over-year gain, and the fifth consecutive quarter of sequential gains. EPS came in at 38 cents, beating the forecast of 8.5% and rising 35% year-on-year.
Safehold has properties across the United States, but in recent weeks has decided to expand its footprint in the South and Southwest. On Feb. 10, the company entered into a Nashville-area land lease that will capitalize a $128.4 million multi-family development — and which marks the company’s fourth major land lease in the Nashville area. On February 11, Safehold entered into its third ground lease in Phoenix, Arizona, for $54 million. This property will be developed as student housing for the State of Arizona.
Despite the positive developments, shares of Safehold have fallen and are down 18% year-to-date. However, according to Morgan Stanley analyst Richard Hill, the sale of SAFE is unjustified.
“Our work indicates that SAFE stocks are significantly undervalued…The market fails to recognize SAFE’s growth potential, reflected in 2021’s underperformance as growth outperformed and a rocky start to 22 as bond proxies underperform given sharp rise in rates Company targets aggressive growth… SAFE has set a 4Q20 growth target to double the size of its portfolio to $6.4 billion by the end of end of 2023. Over the longer term, organic growth can contribute significantly to value: its leases earn 3% and typically have annual rent increases of 2% with periodic retrospective CPI adjustments capped between 3, 0 and 3.5% to dampen inflation,” Hill explained.
Hill’s comments confirm his overweight (i.e. buy) rating, and his price target of $150 indicates upside potential for the stock of around 132% over the next 12 month. (To see Hill’s track record, Click here)
Overall, Safehold has a moderate buy rating based on analyst consensus, with 4 buys and 3 takes over the past few weeks. The stock is selling for $64.67 and, at $100.29, the mid-price target suggests 55% upside potential. (See SAFE stock analysis on TipRanks)
New relic (NEW)
Next, New Relic, is a technology company from Silicon Valley. New Relic offers cloud-based software solutions for monitoring, debugging, and improving application stacks. Data analysis is an urgent and growing need in the digital world, and New Relic combines it with troubleshooting and optimization for an effective package to meet customer needs.
This company has seen its revenue surge – revenue has increased sequentially every quarter for more than two years now – but also saw a sudden drop in stock value after the last earnings report. For fiscal 3Q22, New Relic reported revenue of $203.6 million, up 22% year-over-year. On a negative note, the company released fiscal guidance for the fourth quarter that represents a slowdown from recent quarters. For the fourth quarter of the fiscal year, the company expects revenue growth of 18% to 19%, while for the full fiscal year 2022, management expects year-over-year revenue improvement of 17% to 18%.
In his coverage of this stock for Morgan Stanely, analyst Sanjit Singh calls investors’ concerns overblown. He writes: “We believe that several factors account for the conservative guidance, including a lack of detailed understanding of the consumption behavior of customer cohorts switching to the new pricing model due to a lack of history. Moreover, the benefits of the significant improvement in churn over the past few quarters are starting to fade. Finally, data consumption growth at the end of December slowed and continued into January, likely for seasonal reasons…”
“Overall, we believe that the resumption of new customer growth combined with new model customers taking on a significantly higher level of commitments at renewal suggests that New Relic’s business is improving and that our revenue acceleration and margin improvement the thesis is intact,” summarizes the analyst.
To that end, Singh assesses that NEWR shares an overweight (i.e. buy) and sets a price target of $138 which suggests an upside of around 91% for the next 12 months. (To see Singh’s track record, Click here)
Overall, New Relic has garnered 9 recent analyst ratings, with 4 to buy and 5 to hold, for a moderate buy consensus. The average price target here is $109.88, which indicates a 52% upside from the current trading price of $72.15. (See NEWR stock analysis on TipRanks)
Affirm Assets (AFRM)
The latest stock on Morgan Stanley’s radar is Affirm Holdings, a customer-facing fintech company. Affirm is working on the next generation of digital and mobile commerce applications, in particular an application to facilitate consumer credit through point-of-sale approved installment loans. The result is that Affirm’s customers can access credit when they need it, in the amounts they need and at the rates they can afford, with payment schedules they determine. It is a flexible system, designed to facilitate trade. Affirm has applications in online retail and even has partnerships with Walmart for on-site use.
Since its IPO last year, Affirm has recorded an increase in revenue for each quarter reported. The most recent, for fiscal 2Q22, posted total revenue of $361 million, easily beating forecasts and growing 76% year over year. The revenue gain was driven by three major metrics: a significant year-over-year increase in the number of active merchants, from 8,000 to 168,000; a 150% increase in active consumers to 11.2 million; and a 15% increase in transaction per active consumer.
At the same time, the company’s net loss per share widened year-on-year from 38 cents to 57 cents – and worse, the increased loss came as investors expected it to narrows slightly, to 34 cents per share. This was the key point for investors, and the stock fell sharply after the report.
However, Morgan Stanley’s James Faucette, rated 5 stars by TipRanks, has covered Affirm, and he remains bullish on the stock. Faucette isn’t too worried about hard numbers in quarterly reports; he writes, “We believe the most important success factors at this stage are acquiring customers, increasing frequency of use, building an acceptance network to ensure the cycle continues, and navigating economic and credit cycles sufficiently effectively to ensure that these efforts do not derail. . So far so good… The key metrics we track as indicators of credit performance have all shown positive developments.
Consistent with those comments, Faucette rates the stock overweight (i.e. buy), with a price target of $140 to indicate a robust 212% year-on-year upside. (To see Faucette’s prize list, Click here)
At this time, AFRM has an analyst consensus rating of Moderate Buy, based on 14 reviews which include 8 Buys, 5 Holds and a single Sell. The stock is trading at $44.62 and has an average price target of $84, for a forecast upside of 87% by the end of the year. (See AFRM stock analysis on TipRanks)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Warning: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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