These 3 “Strong Market” stocks are flirting with the bottom

Investor concerns have yet to subside, with concerns given some added impetus last week when Fed Chairman Jerome Powell made it clear that the central bank is not done raising interest rates – and that the next two years they are going to hit. In some ways, this is good news, as it clearly signals that the central bank will focus on fighting the high inflation weighing on the economy, but it also dramatically increases the risk that the Fed’s moves could trigger a recession.

The immediate result was a sudden drop in stocks across the board, but the unintended consequence may be new opportunities for investors. With markets falling, it may just be time for investors to fish for the bottom.

So, let’s take a look at some stocks that are languishing in recession. Using the TipRanks platform, we’ve gathered details on three stocks that are down more than 50% so far this year – but still boast a strong Buy rating from Street analysts – and upside potential starting at 80% or better. Let’s take a closer look.

RingCentral (RNG)

We’ll start with RingCentral, a technology company focused on communications as a service. RingCentral offers software packages designed to solve the communication problems common in the modern office environment. The company’s software products enable the routing of phone lines, video calls, screen sharing, call forwarding and other telecommunications functions through the desktop computer system. The system is also compatible with popular applications such as Google Docs, Salesforce and Outlook and is accessible via desktop devices, tablets and smartphones.

As one can imagine, RingCentral has done well during the quarantine periods of the COVID crisis. Cloud-based office software saw a general boom at the time, and the exuberance pushed those stock prices very high. Since then, as businesses have reopened physical locations, these services have receded in importance. they are still useful and in demand, but investors have retreated from them as the office environment has normalized.

That explains why RNG shares are down 77% so far this year, even as the company’s revenue and profits have continued to grow. In its most recent quarterly report, for 2Q12, revenue rose 28% year over year to $487 million. On the earnings side, non-GAAP diluted EPS rose from 32 cents to 45 cents, a 40% year-over-year gain.

These impressive results were driven by strong subscription growth, which rose 32% year over year to a new total of $463 million. The company’s annualized monthly recurring subscriptions, equivalent to annualized recurring revenue (ARR), rose 31% to $2 billion.

This results in a stock that investors should pay more attention to – according to MKM Partners analyst Catharine Trebnick.

“We believe RingCentral offers investors high visibility, multi-year consistent revenue growth in a large underpenetrated market with a solid competitive position, and a strong multimodal communications platform with a value proposition tailored to capture growth from hybrid work. anywhere business transformation. While RingCentral has multiple developers, we believe that augmenting its solution with Microsoft Teams will be substantial. We believe RingCentral is one of the best-positioned companies to capture this growth with its compelling go-to-market strategy, supported by its strong track record of channel execution,” said Trebnick.

In Trebnick’s view, this warrants a Buy rating, and the $80 price target indicates her confidence in a one-year upside potential of 87%. (To watch Trebnick’s record, Click here)

Like many cutting-edge tech companies, RingCentral has gotten a lot of street attention and has 18 analyst reviews on record. These include 14 buys over 4 holds, for a strong buy consensus. The shares have an average price target of $80.56, suggesting a ~88% one-year gain from the current share price of $42.79. (See RNG Stock Prediction on TipRanks)

Zuora (ZUO)

Let’s stick with business software and take a look at Zuora. This company creates software systems that allow businesses to better launch and manage their subscription services. From customer tracking to automating billing, collections and offers, to sorting subscription data metrics, Zuora streamlines busy work so enterprise customers can focus on their core missions. Among Zuora’s partnerships are major names such as Mastercard, PayPal and IBM.

Over the past two years, Zuora has seen its top line earn slow, steady gains. The company recently released results for the second quarter of fiscal 2023 – the quarter ended July 31 – and reported a 14% year-over-year profit, which reached $98.8 million.

However, the company has a net loss and is burning cash. In the end, Zuora reported a non-GAAP EPS loss of 3 cents per share. That wasn’t as deep as the 5-cent loss forecast and was an improvement from the 4-cent loss reported in the previous quarter. The company’s EPS losses have fluctuated over the past two years, ranging between 1 and 4 cents per share.

In terms of cash burn, Zuora reported $4.8 million in net cash used in operations during fiscal 2Q13, compared to $2.6 million in the year-ago quarter. Free cash flow was deeply negative at $7.6 million. This compared slightly to negative FCF of $4.4 million in fiscal F2Q22. At the same time, the company still has plenty of cash on hand, with $448.6 million in liquid assets as of July 31 of this year.

ZUO shares have fallen sharply in recent months, and the stock is down 58% year-to-date. However, the stock has attracted positive attention from Wall Street analysts, who see the low price as an attractive entry point.

Among the bulls is Joseph Vafi, a 5-star analyst at Canaccord Genuity, who notes that Zuora has taken a strategic initiative, starting 18 months ago, to improve performance — and that it’s paying dividends for the company.

“The company is having success with large businesses and closed seven deals with an ACV (annual contract value) of more than $500,000, up from six in the first quarter. We are also seeing continued momentum with SI partners, who impacted over 70% of business transactions in the second quarter. In addition, deals originating from SI partners in the second quarter were double compared to last year. Finally, the company experienced its lowest rate of return since going public in 2018, reflecting a more resilient customer base,” Vafi commented.

In this top analyst’s view, this stock deserves a Buy rating, and the $20 price target implies a strong upside of 155% over a one-year horizon. (To follow Vafi’s history, Click here)

So, that’s Canaccord’s view, what does the rest of the Street make of ZUO’s prospects? Everyone is on board, as it happens. The stock has a Strong Buy consensus rating, based on 3 consensus buys. ZUO is selling for $7.83 and the average target of $17 suggests a 117% upside from this level. (See ZUO Stock Prediction on TipRanks)

SiTime Corporation (SITM)

Last is SiTime, an interesting company in the high-tech world. SiTime provides a set of highly specific, absolutely vital services – the development and manufacture of MEMS timing products for electronic systems. Embedded on a silicon chip, these modules include clocks, oscillators and resonators. SiTime offers products that draw lower power and maintain high performance and availability. The company’s products are essential for maintaining stable signals and connections in networked systems.

On August 3, SiTime reported its 2Q12 results – and the stock fell 35%, a drop that accounted for much of its current year-to-date loss of 62%. The fall in share value came as the company cut its guidance for the second half of 22, cutting growth forecasts from 50% to 35%. Management cited high customer inventory in the cut, noting that it will slow future sales.

For the past quarter, SiTime reported adjusted earnings of $1.11 per share, beating the consensus estimate of $1.01 by a 10% margin. Total revenue for the quarter was $79.4 million, up 78% year over year. The company’s recent track record of such strong earnings has tended to focus on cutting guidance.

Raymond James analyst Melissa Fairbanks takes all this into account when she writes: “While the challenges associated with weakening consumer spending were expected, the speed and magnitude of the impact on SITM was somewhat of a surprise – just three months ago, the company had raised its full-year revenue growth target to “at least 50% annually” but has now returned to its original target of 35%, a sign of how quickly demand signals have changed. The good news is that underlying demand signals in key industries – cloud, EV, high-performance IoT – remain strong over the long term, and sharp weakness in lower-end products is accelerating the mix shift towards higher value precision timing solutions, providing a natural increase of margin over time.

“Net,” the analyst summed up, “while our estimates are down in the near-term, we believe the fundamental position remains unchanged, with SITM poised to capture a majority share of the precision timing market amid strongly growing TAM.”

These comments come with an Outperform (i.e. Buy) rating and a $240 price target, which suggests a strong upside potential of 117% for the stock over the next 12 months. (To follow the history of Fairbanks, Click here)

Overall, all 4 recent analyst reviews for this stock are positive, giving SiTime the strong buy consensus. The stock is selling for $110.75 and its average price target of $216.25 suggests a ~95% upside potential over the next year. (See SITM Stock Prediction on TipRanks)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.

Disclaimer: The views expressed in this article are solely those of the selected 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.

Leave a Reply

Your email address will not be published. Required fields are marked *