2 ‘Strong Buy’ Stocks Showing Monster Growth
Investors are in the stock market to find growth, returns, and profits, and the last year has brought plenty of that. The S&P 500 and NASDAQ both finished last week at near-record high. The indexes are up 25% for the year.
The gains have not come easy. Stocks are gaining for now, while the Fed continues to hold interest rates low and inflation has jumped to a 30-year high. Cash is simply not a good investment, as savings’ real yields are turning negative and rising prices are eating away at purchasing power. Even Treasury bonds – long considered a safe haven investment – are only yielding 1.5%, just one-quarter of the annualized inflation rate.
This leaves stocks, and especially those stocks with a growth-oriented reputation or potential, as the only game in town for investors seeking a strong upside.
We’ve used the TipRanks platform to look up two such stocks. A look at their details, along with commentary from the Wall Street analysts, should tell why they are such compelling buys.
Arcus Biosciences (RCUS)
We’ll look first at Arcus, a clinical-stage biotech company, developing new molecules to act in combination therapies in the treatment of cancer. The company’s drug candidates are immunotherapy products; four leading candidates are subjects of 12 active research tracks, ranging from early Phase 1 to Phase 3/Pivotal studies.
The research pipeline includes four small molecule drug candidates; etrumadenan, ad dual A2aR/A2bR antagonist; quemliclustat, a CD73 inhibitor; domvanalimab, a TIGIT mAb; and zimberelimab, PD-1 mAb. The drug candidates are being evaluated in multiple, overlapping clinical trials, in various combinations with each other. The clinical trials are testing the therapeutic agents against a variety of cancers, including non-small cell lung cancer (NSCLC), colorectal cancer (CRC), castrate-resistant prostate cancer (CRPC), and pancreatic ductal adenocarcinoma (PDAC).
Arcus is pursuing several of these tracks in partnership with larger pharmaceutical companies. Collaborators include Taiho, which has an option to commercialize Arcus’ products in Japan, and Gilead, with whom Arcus announced a 10-year partnership beginning last year.
That partnership with Gilead has brought Arcus its major recent catalyst. The company’s stock has been rising all year (up 83% year-to-date) on the strength of its research pipeline – but last week, it jumped over 20% when Gilead announced that it was moving to exercise its development and commercialization rights on several of Arcus’ experimental medications. The announcement came 8 months earlier than expected and shows Gilead’s confidence in Arcus’ pipeline. Arcus stands to receive option payments from Gilead, up to $725 million.
Among the bulls is Leerink analyst Geoff Porges who sees the Gilead announcement as a substantial de-risking event for RCUS stock.
“We had expected Gilead to opt in to all three medicines by mid-2022, and instead they have moved earlier and more decisively to accelerate the development of all of them by year end. Assuming the opt in transactions close around the turn of the year, Gilead will assume financial and operational control of the development of the drugs rapidly and is likely to significantly expand the number of pivotal trials and the breadth of the combinations being explored. We believe the announcement is further validation for RCUS and their management team,” Porges noted.
To this end, Porges rates RCUS an Outperform (i.e. Buy), along with a $100 price target. This figure implies an upside of 110% for the next 12 months.
Are other analysts in agreement? They are. Only Buy ratings, 7, in fact, have been issued in the last three months, so the consensus rating is a Strong Buy. Given the $67 average price target, shares could rise ~41% in the next year.
Walker & Dunlop (WD)
The second stock we’ll look at is Walker & Dunlop, the fourth largest commercial real estate lender in the US. Specifically, the company invests in multifamily residential properties. Based in Bethesda, Maryland, the company boasts over 80 years’ experience in real estate, and saw a total of $41 billion in transaction volume in 2020.
The current inflationary environment has been pushing up both rents and property values this year, and WD shares have benefited as a result. In the last 12 months, the stock has gained an impressive 97%.
Early this month, Walker & Dunlop released its Q3 report, showing strong, forecast-beating growth in revenues and EPS. At the top line, the company reported $346.3 million revenue, up 40% year-over-year (yoy), on a transaction volume of $18.5 billion. The transaction volume was a company record, and up a robustly impressive 120% from the year-ago quarter. WD’s EPS came in at $2.21, for a 33% yoy gain. For the first three quarters of 2021, Walker & Dunlop saw sustained growth, with the 9-month transaction volume reaching $41.1 billion, up 53% yoy, and revenues reaching $852 million, for a smaller – but still strong – yoy gain of 16%.
For the last several years, Walker & Dunlop has been steadily raising its dividend – even during the pandemic crisis. The company currently pays out 50 cents per common share, and the annualized rate of $2 gives a yield of 1.3%. While lower than current bond yields, the WD dividend is reliable, and the company’s pattern indicates a likely increase in the first quarter of next year.
Jefferies analyst Ryan Carr points out that the company scale and market share have combined with the inflationary trends in the housing markets to solidify the company’s position and prospects in his niche.
“The CRE and multifamily origination market has thrived YTD, particularly as significant home price appreciation and domestic migration trends have supported robust rental volumes… WD boasts a competitive advantage to disproportionately benefit from these favorable trends, while we believe the company’s size, scale, & expanding capabilities from M&A will further drive market share expansion (from 9% to ~11% by 2023),” Carr opined.
Carr’s upbeat outlook leads him to put a Buy rating on WD stock, and his price target, of $190, implies an upside of 25% for the year ahead.
All in all, other analysts echo Carr’s sentiment. 4 Buys and no Holds or Sells add up to a Strong Buy consensus rating. With an average price target of $172.50, the upside potential comes in at ~14%.
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