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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton
| October 5, 2018
The stock market – especially growth stocks – is at an interesting inflection point as we enter the final quarter of 2018.
On the one hand, the Standard & Poor’s 500-stock index recovered from a tumultuous midyear with a 7% third-quarter gain that marked its best quarterly performance since 2013. On the other, interest-rate worries have sent a quick scare into the markets, and riskier, growth-oriented equities have suffered a bit of a pullback.
Still, corporate earnings have impressed, unemployment remains at multi-decade lows and the economy is growing. So as we head into the seasonally strong fourth quarter, the question for anyone who still believes the broader trend is up becomes, “Which stocks are Wall Street analysts singling out as compelling investing opportunities?”
We can use TipRanks to pinpoint top growth stocks – as identified by Wall Street’s brightest minds – that have significant growth potential. Let’s take a closer look at these 10 top picks now:
Data is as of Oct. 4, 2018. Stocks listed in alphabetical order.
Market value: $540.8 million
TipRanks consensus price target: $33.67 (194% upside potential)
TipRanks consensus rating: Strong Buy (See Details)
Abeona Therapeutics (ABEO, $11.43), which develops novel gene and cell therapies for the potential treatment of rare diseases, is among the highest-potential growth stocks Wall Street is looking at. Abeona’s targets include little-known but devastating diseases such as epidermolysis bullosa, Sanfilippo syndrome and Batten disease.
For H.C. Wainwright analyst Ram Selvaraju (Track Record & Ratings), a recent transaction in the gene therapy sector provides an encouraging benchmark for Abeona’s value. Amicus Therapeutics (FOLD) is acquiring Celenex – which focuses on gene therapy targeting the same rare diseases as ABEO – for $100 million, with up to $262 million in additional milestones.
The Celenex transaction is a “bullish signal for Abeona and may provide additional incentive for investors to consider the company as an intriguing investment opportunity in the gene therapy field, with multiple shots on goal and diversified technology platforms” he states. Most crucially, any potential competition to Abeona from the Amicus acquisition is likely to be muted and, at best, several years away.
As a result, Sevaraju reiterated his “Buy” rating with a $30 price target. This suggests more than 160% upside from current levels.
Market value: $8.2 billion
TipRanks consensus price target: $97.50 (46% upside potential)
TipRanks consensus rating: Moderate Buy (See Details)
Large regional airline Alaska Air (ALK, $66.82) is looking increasingly attractive right now. Top Imperial Capital analyst Michael Derchin (Track Record & Ratings) sent shares rallying after he upgraded the stock from “In-Line” (equivalent of hold) to “Outperform” (equivalent of buy). HJe also ramped up his price target from $62 to a confident $95 (43% upside potential), arguing that the stock is now trading far too cheaply.
So why the shift in sentiment?
Derchin cited industry-leading unit sales growth of 4% in 2019, as well as Alaska’s capacity discipline, merger synergies and a successful loyalty program generating higher sales. He also raises the possibility that Alaska, like its peers, will decide to hike luggage fees.
Alongside Hawaiian Holdings (HA) and Spirit Airlines (SAVE), ALK is now one of Derchin’s three favorite airline stocks.
Market value: $393.1 billion
TipRanks consensus price target: $234.63 (47% upside potential)
With 18 back-to-back buy ratings in the last three months, Alibaba (BABA, $156.13) is undoubtedly one of the Street’s favorite growth stocks.
RBC Capital’s Mark Mahaney (Track Record & Rating) recently attended Alibaba’s investor day in Hangzhou, China. He left the event with his bullish thesis on the stock reaffirmed, writing, “We believe management did an impressive job of explaining their long-term vision of empowering businesses to succeed in a digital era.” This includes helping businesses use a data-driven approach to boost sales.
Ultimately, Alibaba’s fundamentals remain very strong. Alibaba represents a stellar play on Chinese middle-class growth and the rapid boom of e-commerce. Combine this with management’s long-term focus and excellent execution and you have a very compelling stock, Mahaney writes.
As a result, this top analyst reiterated his “Outperform” rating on BABA with a bullish $215 price target (38% upside potential).
Market value: $8.7 billion
TipRanks consensus price target: $57.71 (34% upside potential)
Auto-parts maker BorgWarner (BWA, $42.96) is buzzing right now. Following an upbeat investor day, the company revealed several new production contract wins. These contracts “underscore (BWA’s) opportunity set and strong positioning around vehicle electrification,” Oppenheimer’s Noah Kaye (Track Record & Ratings) writes.
Kaye has a “Buy” rating on the stock with a $58 price target (35% upside potential). Kaye is confident that the company’s electric vehicle operations “will support cross-cycle topline outperformance and the robust growth targets management outlined.” Indeed, BWA is modelling for 6% compound annual growth through 2023 with a total addressable market of $47 billion in combustion, $39 billion in hybrids and $11 billion in electric vehicles.
Kaye explains, “As the global auto industry evolves to meet increasingly stringent emissions regulations, we expect BorgWarner to benefit.” This is due to accelerating vehicle electrification, continued runway on turbochargers and the company’s “overall strong position” for internal combustion engines.
Bottom line: BorgWarner is perfectly poised for auto industry changes – and this sets the stock up for stellar long-term growth.
Market value: $452.6 billion
TipRanks consensus price target: $206.31 (30% upside potential)
The world’s most dominant social platform still has plenty of room to run, say top analysts. This makes sense given that Facebook (FB, $158.85) shares are currently down 8% over the past month. The stock has pulled back for several reasons, including a security breach that affected 50 million users, and the departure of Instagram’s co-founders.
“We reiterate our Strong Buy on FB and view the recent selloff as a buying opportunity as the company’s long-term growth story remains intact,” cheers Tigress Financial’s Ivan Feinseth (Track Record & Ratings). He sees “substantial upside” from current levels but doesn’t offer a specific price target. No worries: We can see that the average analyst price target indicates 30% upside ahead.
Most notably, Feinseth cites Facebook’s gigantic user base as a key competitive advantage. Right now, the company boasts over 2.2 billion MAUs (monthly active users), and 1.5 billion DAUs (daily active users). This enables advertisers to use Facebook’s tools to effectively target their best potential customers, he explains.
Plus keep an eye out for Facebook’s next big growth drivers: Marketplace, Stories and Watch, an on-demand video service. Meanwhile, SunTrust’s Youssef Squali reassures investors that Instagram’s founders have left the popular photo-sharing app “in a good place” with “stable footing,” and “impressive” user growth.
Market value: $281.1 million
TipRanks consensus price target: $26.33 (72% upside potential)
Gaia Inc. (GAIA, $15.27) is a global digital video company that streams curated videos to subscribers in more than 120 countries. Currently the platform boasts over 8,000 titles aimed at a very specific audience. The videos, 90% of which belong exclusively to Gaia, focus on Seeking Truth, Transformation and Yoga.
Five-star Roth Capital analyst Darren Aftahi (Track Record & Ratings) has just left meetings with Gaia’s CFO and CMO with his bullish thesis reaffirmed. He subsequently reiterated his “Buy” rating with a $25 price target (64% upside potential).
According to Aftahi, Gaia is planning to increase subscription prices in mid to late 2019, alongside a new premium service. He sees this as a savvy move. “Given that Netflix has raised prices on multiple occasions in recent years, it is not out of the cards for Gaia to also implement a price increase,” the analyst points out.
He also sees any subscriber loss from the price-hike as immaterial longer-term due to the impressive brand loyalty and stickiness of most of Gaia’s subscriber base.
Market value: $120.4 billion
TipRanks consensus price target: $174.89 (13% upside potential)
In just the last week, cloud-computing stock Salesforce.com (CRM, $154.90) has scored multiple buy-equivalent ratings from the Street. The reason: Salesforce’s Dreamforce conference and upbeat analyst day.
Alex Zukin (Track Record & Ratings) from Piper Jaffray gives the stock his seal of approval. Salesforce “is making all the right moves, at the right time, with the right people” Zukin argues. He tells investors to buy and hold as this is a “set it and forget it” stock. Citing higher demand, rapid product innovation and an impressive ecosystem of products, Zukin boosted his price target from $180 to $190 (23% upside).
Similarly, Oppenheimer’s Brian Schwartz (Track Record & Ratings) advises investors to “stay the course.” “We consider CRM one of the healthiest long-term growth stories in our SaaS/applications software universe,” he wrote in a Sept. 27 report. The bullish outlook came with a new price target: $180, up from $160 previously. Note that Schwartz is one of the Top 10 analysts ranked by TipRanks for his precise stock-picking skills.
Market value: $451.8 million
TipRanks consensus price target: $21.67 (436% upside potential)
Cutting-edge biotech stock Sorrento Therapeutics (SRNE, $4.04) may only have three recent ratings. But these ratings indicate an extremely compelling story. All three analysts are top-performing analysts, and their consensus opinion is that Sorrento has more than 400% of upside potential.
The best-rated analyst covering the stock is B. Riley FBR’s Andrew D’Silva (Track Record & Ratings). His price target may be a more cautionary $15, but this still indicates upside potential of more than 270%.
Sorrento is developing new therapies to turn malignant cancers into manageable and possibly curable diseases. This includes a first-in-class non-opioid pain management (“RTX”) and a next generation lidocaine patch (“ZTlido”).
“SRNE is pioneering cutting-edge immuno-oncology (IO) treatments and is leveraging its proprietary technological expertise, which includes one of the world’s most robust fully human monoclonal antibody (mAbs) libraries, to develop novel CAR T-cell treatment” D’Silva writes.
He sees the risk/reward dynamic for Sorrento’s pipeline as favorable and notes multiple additional opportunities in animal health and pain management.
Courtesy Turtle Beach
Market value: $240.1 million
TipRanks consensus price target: $38.75 (118% upside potential)
Turtle Beach (HEAR, $17.80) is one of the leading makers of award-winning gaming headsets. Its motto: “Hear Everything. Defeat Everyone.”
According to top D.A. Davidson analyst Tom Forte (Track Record & Ratings), it’s full steam ahead on Turtle Beach.
The company currently is enjoying the benefits of Epic Games’ massively successful Fortnite Battle Royale. “Our headset sales were up over 80%. Gamers want that better headset in order to play Fortnite,” Turtle Beach CFO and COO Robert Lloyd told analysts on the recent Q2 earnings call.
However, even aside from Fortnite, the stock still looks compelling. “We see headset usage rates increasing as additional games move towards this more social gaming format, regardless of ‘Fortnite’s’ ability to sustain its meteoric growth” Forte writes.
Forte reiterated his “Buy” rating with a bullish $38 price target. From current levels, this means he expects HEAR to more than double.
Market value: $4.5 billion
TipRanks consensus price target: $106.80 (52% upside potential)
TipRanks consensus rating: Moderate Buy* (See Details)
Five-star Oppenheimer analyst Brian Nagel (Track Record & Rating) recently initiated coverage on Weight Watchers (WTW, $70.04). With a “Buy” rating and $98 price target (40% upside potential), it’s clear he likes what he sees.
Weight Watchers, one of the world’s largest weight loss companies, currently is undergoing a significant transformation. Under the leadership of new CEO Mindy Grossman, WTW is now introducing improved programming and better digital infrastructure. The purpose: to better connect with a larger and more diverse community of subscribers.
“For investors, the new WTW strategy suggests the potential for a sustained, stronger and higher margin growth trajectory,” Nagel writes. He calls a recent pullback in shares “largely mechanical in nature and at odds with strengthening fundamentals at the company.”
* Note: If we look only at the best-performing Wall Street analysts, the consensus shifts from “Moderate Buy” to “Strong Buy.” This is with six buy-equivalent ratings in the past three months vs just one hold rating.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,700 Wall Street analysts as well as hedge funds and insiders. You can find more of TipRanks’ stock insights here.