While stocks have rallied this past January, giving a good start to 2023, there’s no doubt that last year was decidedly bearish. A receding tide pulls back all boats, and that complicates the art of successful stock picking.
The key to winning in a complicated environment like this is to find stocks that may be down – but are poised for a comeback.
With this in mind, we've used the TipRank database to pinpoint two stocks that the analysts believe, in their words, are 'oversold' and are primed for gains. Let's take a closer look.
Twist Bioscience Corporation (TWST)
We'll start with Twist Bioscience, a biotech firm operating in the field of synthetic biology. Specifically, the company is working on silicon-based, high-precision DNA, to create gene fragments and clonal genes that can be used in a variety of medial applications, including the treatment of cancers and genetic diseases, and the development of new drugs. Novel applications are also possible, such as digital storage in DNA. The company uses a proprietary technology to manufacture synthetic DNA, by ‘writing’ it on a silicon chip.
Twist is making strides toward increasing its output, and on January 26 announced the first product deliveries from its second manufacturing site, an 110,000 square foot facility in Wilsonville, Oregon. The facility has begun delivering oligo pool and gene fragment products, and delivery capacity is expected to expand rapidly.
This development comes just two months after Twist reported solid results for its fiscal year 2022, which ended on September 30. The company had record-level revenue, at $203.6 million. The top line was up 54% from the prior year. Revenues were supported by increases in customer orders, which expanded 42% y/y to reach $226 million. Looking ahead, Twist had guided toward $261 million to $269 million in revenues for fiscal year 2023, and ~$350 million for fiscal year 2024. As of the end of FY22, Twist reported having $505 million in cash and liquid assets on hand. On the negative side, Twist still operates at a net loss; the net loss attributable to common shareholders in fiscal 4Q22 was 91 cents per share.
The company’s stock is down 52% over the past 12 months, with heavy losses coming after an activist short seller published a highly negative review of Twist’s activities. The short seller described the company’s technology as ‘fatally flawed,’ and said it was set up for a crash, as a ‘cash burning inferno.’
Cowen's Steven Mah seems to disagree. The analyst describes Twist Bioscience as a ‘Best Idea’ for 2023 and goes on to say, “TWST is discounted to peers (4x price/FY24 revenue multiple vs. peer group average of 5x). We believe TWST is oversold and poised to outperform given its superior growth profile vs. peers & path to profitability. New product launches and scaling of the FOTF offer catalysts in FY23, and we believe Street estimates are conservative given demand.”
Putting some numbers to his outlook, Mah gives TWST shares a $38 price target, suggesting a 33% one-year upside potential. He rates the stock as Outperform (i.e. Buy). (To watch Mah’s track record, click here)
Overall, this stock has a Moderate Buy analyst consensus rating, based on 7 recent reviews that include 5 Buys, 1 Hold, and 1 Sell. The shares are trading for $28.56 and the $33.50 average price target implies ~17% upside from that level. (See TWST stock forecast)
Semtech Corporation (SMTC)
The next beaten-down stock we're looking at is Semtech, a semiconductor chip company. This is one of the smaller chip companies, with a market cap just over $2 billion, and a product line, in analog and mixed signal chips, that focuses on communications, enterprise computing, and industrial markets. The company’s chips have applications in wireless RF, circuit protection, and signal integrity, and are found in high-end consumer and industrial products.
Looking at the company’s latest quarterly statement, we see that the fiscal Q3 report put the top line at $177.6 million, down 9% year-over-year. On earnings, adjusted EPS came in at 65 cents, down 14% from the year-ago quarter. Looking ahead, Semtech is predicting a further revenue drop in fiscal Q4, and is guiding toward sales totaling $145 million to $155 million.
Semtech’s financial results have suffered from a combination of inflationary pressures and soft consumer demand. But this has not stopped the company from acquiring Sierra Wireless, in an all cash deal first announced last August and finalized this on January 12. The company fronted $1.2 billion in an call-cash transaction that Semtech expects will create new opportunities for IoT sales, up to $10 billion by 2027.
Overall, the sliding revenues and earnings have spooked investors, and SMTC shares are down 54% over the past 12 months. Nevertheless, Roth Capital’s 5-star analyst Scott Searle believes the stock is now 'oversold.'
“Semtech is our contrarian pick for 2023 as macro semiconductor headwinds and investor concerns related to the SWIR acquisition have driven 2022 underperformance. However, we expect this to reverse in 2023 given 1. A strong core IC portfolio position, 2. Stabilizing semi trends, 3. Consumer ICs have over corrected and 4. The addition of the highly accretive SWIR acquisition. We believe that as the page turns into 2023 and SWIR acquisition closes, investors will take notice... We continue to believe that SMTC is oversold," Searle opined.
Searle thinks the stock has some way to go, and by some way, we mean 91% of upside. Those are the returns investors are looking at, should the stock make it all the way to Searle's $63 price target. No need to add, the analyst’s rating is a Buy. (To watch Searle’s track record, click here)
Turning to the rest of the Street, opinions are split almost evenly. With 4 Buys and 3 Holds assigned in the last three months, the word on the Street is that SMTC is a Moderate Buy. At $43, the average price target implies ~31% upside potential. (See SMTC stock forecast)
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.Click Here To Get Funded!