Let’s take a moment to talk about investment strategies. Every investor needs one – whether a hedge fund billionaire or a small-time retail investor, getting into the market without a clear plan is a recipe for failure.
Two of the clearest such strategies are also among the simplest. Investors can find an expert, one of the Wall Street pros with a solid record evaluating stocks, and follow his or her trail of stock choices. Investors can also buy into stocks with attractively low prices. ‘Buy low and sell high’ may be the oldest possible financial advice, but it sticks because it works.
And some creative investors will combine their strategies. The markets are complicated constructs, and using multiple filters to screen the stock choices may be the smartest way to find the nuggets of true value.
Today, we’ve done just that. Using TipRanks’ database, we’ve located three stocks that are trading at a discount compared to their recent peaks, have recent positive reviews from top-rated Wall Street analysts, and show considerable upside potential for the coming year. It’s a solid combination of forward-pointing attributes. Let’s take a closer look.
Teradata Corporation (TDC)
We’ll start with Teradata, a software company in database management. Teradata offers customers a variety of installation and cloud based software products, as well as hardware and apps, to smooth out the processes of big data analytics, business applications, and data warehousing. The company’s products work with AI, IoT, and data lakes, and have found homes in a range of industries, including telecom, travel, media, finance, government, and healthcare.
Teradata’s business is in high demand – data has become an urgent commodity in today’s digital world – and the company showed some important gains in its last quarterly report. Revenue was reported at $460 million, slightly above the $457 million consensus view, while the cash from operations flow reached $33 million, of which $23 million was free cash flow. The EPS of 43 cents, while down 41% from the previous quarter, was well above the previously published guidance of 30 to 34 cents.
With all of that, however, TDC shares have been falling. The stock peaked in October, at $59, and is now down 27% from that level. Some analysts, however, believe the pullback from TDC was unwarranted.
Jack Andrews, one of Needham’s 5-star analysts, takes a bullish view on Teradata shares for four main reasons: “1) Our valuation work implies that TDC is currently priced as if the company will either experience sustained revenue declines or flattish ARR growth over the next several years, which we view as unlikely, because; 2) our fundamental work on TDC’s competitive position reveals that the company actually has a lower TCO versus other cloud-native DWs for high compute, enterprise grade workloads, so we believe TDC has a differentiated value proposition; 3) assuming very modest growth in ARR and revenue over the next several years yields upside through multiple valuation lenses; and 4) if TDC is able to continue ramping its burgeoning cloud ARR, we expect substantial upward revisions to consensus estimates, which would yield even further upside.”
To this end, Andrews suggests a $64 one-year price target, implying share appreciation of 48%, and rates the stock as a Buy. (To watch Andrews’ track record, click here)
The consensus view on Teradata shows both confidence and a split, with 7 recent reviews including 5 Buys and 2 Sells, for a Moderate Buy consensus. Shares are priced at $43.19 and the $59.83 average price target indicates a ~39% upside from that level. (See TDC stock analysis on TipRanks)
Invesco, Ltd. (IVZ)
Next up, Invesco, is a financial services company specializing in investment management. The company manages over $1.5 trillion in assets, as of this past November, through its headquarters in Atlanta and its offices in 25 countries around the world.
Invesco’s quality can be seen by its financials over the past year or two. The company doesn’t get the publicity that some of its larger peers have received (think Blackrock), but it has performed for its customers and investors. Invesco recorded $1.9 billion at the top line in 3Q21, the best in over two years, and the fifth quarter in a row of sequential gains. The company’s EPS has been a bit more volatile over that period, but at 73 cents, the Q3 result was up 37% yoy.
In short, Invesco has been a growth story in the financial world – and yet the stock is down 17% from the peak it reached in June 2021. Perhaps the only negative for investors to consider is the cash to debt ratio on the balance sheet. Invesco reported $1.77 billion in liquid assets in Q3, up 33% from Q2, against $2.08 billion in long-term debt.
Nevertheless, BMO’s 5-star analyst James Fotheringham believes the stock’s current valuation represents an opportunity.
“Following recent multiple compression, IVZ’s valuation is very attractive. We see potential for upside from M&A (primarily as an acquirer). Our confidence in IVZ’s stand-alone valuation is buttressed by consistently-positive net flows (20+ consecutive months), which we expect will prove sustainable and catalyze a multiple re-rating even in the absence of M&A,” Fotheringham opined.
“We see room for further upside to net flows (key determinant of IVZ’s P/E multiple) from ongoing outperformance of the Great Wall JV (42% AuM CAGR since 2018) and from the ETF business. We believe the success of the QQQ franchise may help drive additional share gains for IVZ’s ETF business (fourth largest globally),” the analyst added.
Fotheringham’s comments back up his Outperform (i.e. Buy) rating, and his $33 price target indicates potential for ~37% share appreciation in the next 12 months. (To watch Fotheringham’s track record, click here)
Overall, the analyst consensus here is a Moderate Buy, based on 8 reviews that include 3 Buys and 5 Holds. The stock’s average price target of $30.13 suggests ~25% upside from the current share price of $24.15. (See IVZ stock analysis)
Definitive Healthcare (DH)
Last but not least is Definitive Healthcare, a software and data analytics company with a focus on – of course – the healthcare field. The company offers a data platform based on the SaaS model to its customer base, which includes a wide range of players on the provider side of the industry, from physicians to payors to hospitals to consultants, allowing them to understand and navigate the healthcare market. The company’s product is Healthcare Commercial Intelligence, HCI, a fancy way of saying actionable info in the health industry.
Definitive is a new face in the public markets, having held its IPO just this past September. The company put a total of 17.88 million shares on the market, which included the underwriters’ options, at $27 each, and raised $483 million in gross proceeds. The stock closed its first day’s trading over $43 per share, making for a successful opening.
Since then, however, DH has slipped downhill. The shares peaked shortly after the September 15 IPO, and are now down 42%. It’s important to note that in November the company held a follow-on public offering, putting an additional 11 million shares on the market. Most of the share price drop occurred after that secondary offering – an indication of stock dilution.
At the same time, DH reported its Q3 results just before the second stock sale, and showed solid yoy revenue gain, or 43%, to $43.1 million, and reported an EPS profit of 1 cent per share. More importantly, the company showed a strong gain in annual recurring revenue (ARR) from customers with annual contracts for more than $100,000. DH reported 377 customers in this category, up 49% yoy, and a solid indicator of reliable income going forward.
In coverage for Morgan Stanley, 5-star analyst Craig Hettenbach explains why he sees the recent weakness as an opportunity for investors.
“Sharp underperformance relative to other high growth software stocks has taken DH from above the trendline of growth and margins vs. valuation… creating an attractive entry point. We highlight two catalysts that could help to drive share price outperformance: (1) The potential for new enterprise customer announcements and evidence of traction in upselling customers during earning calls; and (2) a strengthened balance sheet that provides additional fire power for M&A, which could drive revenue growth a few hundred bps above Street estimates,” the analyst wrote.
Hettenbach sets an Overweight (i.e. Buy) rating here, while his $40 price target implies a 12-month upside of ~45%. (To watch Hettenbach’s track record, click here)
Overall, the Wall Street analysts are taking a range of views on this stock, as shown by the 11 recent reviews – which include 4 Buys and 7 Holds. Added up, it comes out to a Moderate Buy analyst consensus rating. The average price target, at $45.20, implies ~67% one-year upside from the current trading price of $27.05. (See DH stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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.