The COVID pandemic is receding into the rear view mirror, and good riddance to it. It’s left a mark, though, and in areas as varied as education, employment, and e-commerce, we’ll be dealing with the repercussions for months, or even years, to come.
For investors, the pandemic was the time to get into companies connected with online shopping, home digital entertainment, and wireless networking. With the lockdowns and work-from-home, these areas soared. But – they’ve seen sharp losses more recently, as the economy has normalized.
That said, there are some firms, especially in e-commerce, that are bouncing back after the post-pandemic crunch. Jim Cramer, the well-known host of CNBC’s Mad Money, has taken notice, and is describing some of these stocks as his current favorites. Even though their rebounds haven’t pushed them back to corona-era highs, Cramer believes that they have potential to keep going. As he puts it, “Most of the Covid stocks are still in the doghouse — where they belong. But some of them have started making real comebacks and I think they’ve got more room to run.”
We’ve used the TipRanks platform to look up two of Cramer’s rebounding ‘Covid stocks,’ and found that some of Wall Street’s analysts are in agreement on their potential. So let’s take a closer look at them, to find out just what is drawing Cramer to them.
Pinterest, Inc. (PINS)
The first Cramer pick we're looking at is Pinterest, the online visual social bulletin board. The Pinterest platform allows users to publish content based on images, and sorted by categories. Early on, it was billed as a social image curator, but more recently it has lent itself to e-commerce users as a digital ‘visual storefront,’ letting customers easily see, search, and browse available products. Pinterest has embraced that use, and is shifting its revenue base from paid ads to e-commerce.
That shift is what draws Cramer to the stock. He says, “I think Pinterest’s shift from advertising to e-commerce could be a big story next year,” and he is unequivocal in his response to that potential. Buy this one, he urges investors, ‘right here, right now.’
Cramer is making that recommendation based on future potential; right now, Pinterest’s earnings are down year-over-year. In the recent 3Q22 financial release, Pinterest showed net income at a loss of $65.1 million, compared to a profit of $93.9 million in the year-ago period. That shift came even as the top line rose – revenue was up 8% y/y, to $684.5 million. While the platform’s global monthly active users (MAU), a key metric, was flat y/y in Q3, the number is still high, at 445 million, giving Pinterest plenty of reach.
On share performance, PINS is down 38% this year – but the stock troughed in June, and since hitting that low point it has rebounded 36%.
Cramer is not the only bull here. In his coverage of this stock for Baird, analyst Colin Sebastian takes an upbeat stance. He writes, “Pinterest remains in a favorable position vs. social media/display platforms with improving trends in usage, engagement and monetization, limited exposure to privacy-related constraints, and with an app that is ripe for more shopping/ecommerce functionality. Emerging from an investment year, we continue to expect a rebound to double-digit growth and margin expansion next year. While we recognize there could be some macro- and seasonal-related wobbles in Q4, our positive thesis is intact…”
To this end, Sebastian rates PINS shares an Outperform (i.e. Buy), unsurprisingly in light of his comments, and sets a $32 price target that suggests a 41% one-year upside for the stock. (To watch Sebastian’s track record, click here)
Looking at the consensus breakdown, PINS currently has a Moderate Buy from the analyst consensus, based on 5 Buys and 14 Holds (i.e. Neutrals). (See PINS stock forecast on TipRanks)
Etsy, Inc. (ETSY)
The next stock on Cramer's sights is Etsy, an online company that saw great success during the lockdowns – and for good reason. Etsy is an online e-commerce platform, connecting buyers and sellers around the world, and has built up a reputation as the place to go in the online ‘crafty’ market. The platform caters to hobbyists, artists, and craft suppliers, and is popular with vendors of handmade items and vintage or niche merchandise. Etsy attracted large numbers of new users during the pandemic period, and it has been able to keep them connected, an important factor that points toward continued success.
The stock is down 38% in 2022 – but since hitting its low point this past June, shares are up an impressive 94%, and their recent trend points toward continued gains, according to Cramer. He says of Etsy, “Next year, the company will have put the trough Covid-era comparisons behind it, which should give Etsy much stronger growth year-over-year.”
In early November, the company announced its financial results for the third quarter. The company reported a significant net loss – of $963.1 million, which was mainly attributed to a one-time, $1.04 billion ‘goodwill impairment charge’ related to the company’s acquisition of Depop and Elo7 earlier this year. Without that impairment charge, Etsy was profitable, with an adjusted EPS of 58 cents.
Revenue and guidance, however, is where Etsy impressed the Street. Both came in above expectations. The top line came in at $594.5 million, beating the forecast by more than 5%, and the Q4 revenue guidance, in the range of $700 to $780 million, was considered positive compared to the Street’s expectation of $743 million. The company’s gross merchandise sales (GMS) guidance, of $4 billion at the top end, exceeded the $3.9 billion expected guidance.
Covering ETSY for Jefferies, analyst John Colantuoni believes the stock presents a 'compelling risk-reward.' Colantuoni rates ETSY a Buy, while his $175 price target indicates his confidence in a 30% one-year upside for the stock. (To watch Colantuoni’s track record, click here)
Backing his bullish stance, Colantuoni writes: "We see continued outperformance for ETSY, driven by upside to top/ bottom line estimates, accelerating GMS growth on easy comparisons, and future take rate increases. Our '24 EBITDA of $1B+ is 15% above consensus, as a return to low-teens GMS growth combines with ~80 bps of take rate upside and ~300 bps of margin expansion."
Overall, Etsy stock has a Moderate Buy consensus rating, based on 15 reviews favoring Buy over Hold by 8 to 7. (See ETSY stock forecast 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.Click Here To Get Funded!