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Down More Than 40%: Analysts See an Appealing Entry Point in These 2 ‘Strong Buy’ Stocks

It’s difficult to put a positive spin on the current state of the stock market. While 2022’s action has seen moments of relief, for the most part, the trend has been resolutely downbeat, as reflected in the main indexes’ performances. All are down by at least double-digits; the tech-heavy NASDAQ’s 30% drop has been the most acute, while the S&P 500 now sits 17% lower year-to-date.

That said, while it’s hard to watch any owned stock sink to the bottom, the upside to the downside is that investors get to pick up shares of good companies on the cheap. Of course, the hard part is to spot the good companies — those that will flourish again once the market-wide sell-off abates. This is where a guiding hand from Wall Street’s pros comes in handy.

Using TipRanks' database, we identified two names whose share price is down over 40% this year; however, the analysts believe both offer good value right now and are set to push higher over the coming months – and by higher, we’re talking about triple-digit gains. Let's take a closer look.

Hippo Holdings (HIPO)

The first stock we’ll look at, Hippo Holdings, is many things: a tech company, a smart home company, and an insurance company – but mostly, it’s all of that, wrapped together. Hippo combines artificial intelligence and data technology to streamline and improve the market for homeowner’s insurance. The company’s system lets customers and agents together create a fine-tuned policy that directly meets the homeowner’s needs. Policies are created based on statistical data from the neighborhood, as well as on the contents of the house. On Hippo’s end, the company draws revenues from underwritten policies and sales agency commissions.

The housing market boomed in the second half of last year and the first half of 2022, and Hippo reported sound revenues during that time, but the company’s shares are down 81% so far this year. That loss deepened even as the company reported a 44% year-over-year increase at the top line, from $21.3 million in the year ago quarter to $30.7 million in the recent 3Q22 report.

One reason for the share price decline, and investor reticence, may lie in Hippo’s regular net losses. That loss deepened in 3Q22, to $129.2 million by GAAP measures; this compared unfavorably to the $30.9 million losses from 3Q21. The steeper losses were impacted, in part, by the recent Hurricane Ian in Florida.

Company guidance for the full-year 2022 is predicting a top line of $119 million to $121 million, and an adjusted net loss in the range of $197 million to $203 million – but longer-term guidance is predicting improvements in 2023 and a turn to profitability in late 2024.

Covering this insurance tech stock for JMP, analyst Matthew Carletti takes an even keel regarding recent headwinds, and writes: “We believe Hippo’s modern, proactive approach to coverage, alongside its omni-channel distribution and strong customer retention will result in strong growth for many years. There is no hiding from the fact that Hippo’s loss ratio not too long ago left much to be desired, but following significant pricing and re-underwriting actions it has seen significant improvement over the past several quarters and we believe it should provide investors improved visibility and confidence on the company’s path toward profitability."

"We believe shares of HIPO are attractively valued, currently below enterprise value (EV). While we acknowledge Hippo’s struggles since becoming a publicly-traded company in mid-2021... we believe the shares’ underperformance is overdone," the analyst summed up.

In Carletti’s view, HIPO deserves an Outperform (i.e. Buy) rating, and his price target, set at $70, implies a tremendous 443% upside potential over the next 12 months. (To watch Carletti’s track record, click here)

Overall, Hippo has picked up reviews from 5 Wall Street analysts recently, and these include 4 to Buy against just 1 to Hold (Neutral), for a Strong Buy consensus rating. The shares are selling for $12.89 and have an average price target of $54.70, suggesting a robust 324% one-year upside. (See HIPO stock forecast on TipRanks)

Schrödinger, Inc. (SDGR)

The second beaten-down stock we’ll look at is both a software and pharmaceutical company. Schrodinger uses a physics-based platform to accelerate innovation, using a combination of physics, chemistry and predictive modeling. The results is a discovery platform that opens up novel molecules more rapidly, and less expensively, than traditional methods. The company has marketed its platform to outside customers, and also uses it to leverage an internal drug candidate discovery research track.

That research program includes a variety of drug candidates currently in the discovery and pre-clinical stages – but also one, SGR-1505, undergoing a Phase 1 clinical trial. The trial opened for enrollment this month and is designed as a dose-escalation study of the safety, pharmacokinetics and pharmacodynamics of the drug candidate. SGR-1505 is a potential treatment for relapsed or refractory B-cell malignancies.

So far this year, Schrodinger has underperformed the overall markets, falling 48%. That doesn’t mean the company is without potential, according to Craig-Hallum analyst Matt Hewitt.

“We believe Schrodinger checks all the right boxes for high growth investors. In recent years, the company has established itself as a software-driven disruptor in the pharma/biotech space, with a core product (FEP+) that is still in the early stages of adoption. Coupled with an attractive pricing model, significant opportunities outside pharma/biotech, and optionality in the form of an internal pipeline/collaborations, we see numerous reasons for high growth investors to own the stock,” Hewitt opined.

In-line with this upbeat assessment, Hewitt rates SDGR shares a Buy, and his $60 price target indicates room for an impressive 232% gain on the one-year horizon. (To watch Hewitt’s track record, click here)

All in all, with 6 recent analyst reviews, including 5 to Buy and 1 to Hold, SDGR shares have a Strong Buy consensus rating from the Street. The average price target of $60.83 implies a 237% upside from the current trading price of $18.05. (See SDGR stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.
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