Stifel sees the S&P 500 at 4,400 by the end of the year. Here are 2 stocks to play the rebound

The big question on investors’ minds right now is, where will inflation go? And the relevant watch question, for everyone, is, how far will the Fed raise interest rates in response? The possible answers run the gamut from President Biden’s gleeful talk of “zero percent inflation” to market predictions of a full-blown economic recession.

Count Stifel’s market strategist Barry Bannister among the bulls. He is not convinced by the doomsayers and sees the recent drop in inflation as a sign that the worst is behind us.

“We see much lower inflation in the second half of 2022 and no US recession until the third quarter of 2023, which we believe supports 4,400 for the S&P 500 at the end of 2022, led by ‘Big Tech.’ Investors fear recession as Fed focuses on inflation. That and seasonality add to the risk, but we don’t foresee any recession in the US until Q3 2023, which is beyond investors’ historical horizon,” Bannister said.

Given Stifel’s bullish outlook in the near term, it’s no surprise that Bannister’s colleagues among the firm’s stock analysts are picking stocks that will work with this bullish sentiment. We used the TipRanks platform to call out the details for two Stifel picks that show Buy ratings and 90% or better upside potential over the next year.

Morphic Holdings (M OR F)

We’ll start by looking at Morphic Holding, a clinical-stage biopharmaceutical researcher working with integrin proteins to create new small molecule therapeutic agents for a variety of conditions. The company uses its proprietary development platform, MInT, to investigate integrin proteins, a class of proteins involved in multiple biological functions. Morphic is following this research path to develop treatments for autoimmune disorders, cardiovascular and metabolic diseases, various cancers and fibrosis.

The company’s research pipeline is primarily in preclinical stages, with four tracks currently in preclinical development. The lead drug candidate, however, MORF-057, is much more advanced and is undergoing Phase 2 clinical trials in humans. This new drug is being tested in the treatment of ulcerative colitis and represents an important potential advance. Current approved treatments are given intravenously, but MORF-057 is given orally. this will be greatly appreciated by patients.

The company is currently enrolling in the EMERALD-1 trial, a Phase 2a study of MORF-057. This trial is a continuation of previous, successful Phase 1 studies. This trial is planned to include up to 35 patients. In addition, the company says it is on track to initiate the Phase 2b EMERALD-2 trial, a double-blind, placebo-controlled study planned for an additional 35 patients, in 4Q22. The peak data is expected in the 1st half of the 25th century.

Morphic approaches these clinical trials with two major advantages: a revenue stream and a strong cash runway. The company has partnered with major pharmaceutical companies and has received partnership payments from them. In recent 2Q12, Morphic received a $57.7 million payment from AbbVie, with such a partnership imminent, bringing quarterly revenue to a total of $60.2 million and giving the company positive Q1 earnings ( EPS 68 cents per share ). In terms of cash, Morphic had $397.6 million on hand as of June 30 this year, giving the company enough capital to support operations over the next 11 quarters, through 2025.

On another positive note, the company announced an advancement of its current collaboration agreement with Janssen Pharmaceuticals, including a focus on a “high-potential integrin target antibody activator.”

Stifel analyst Alex Thompson points out that the main advantage of Morphic’s lead candidate is that it shows potential as an oral dose to replicate the action of an approved IV drug in the treatment of ulcerative colitis and Crohn’s disease. Patients with these conditions, who are familiar with the discomfort of repeated IV treatments, will be watching this development closely. Thompson goes on to say, noting the progress of Phase 2 trials, “For the stock, we recognize that we’re in somewhat of a catalytic vacuum until we get more clarity on the timing of Ph2a, although at $398MM at the end of Q2, MORF is well capitalized and expects to have runway in 2H25 — likely well beyond Ph2b data, in our view.”

Thompson’s comments support a Buy rating, while his price target, set at $44, suggests ~51% upside potential over the next 12 months. (To follow Thompson’s history, Click here)

Like Thompson, Wall Street analysts are bullish on this stock, giving it 6 consensus reviews in recent weeks, along with a strong average price target of $63.83. Shares are trading at $29.21 and have ~119% upside potential. (See MORF stock prediction on TipRanks)

Terran Orbital Corporation (LLAP)

Now let’s switch gears and go from biotechnology to space technology. Terran Orbital is a pioneer in the manufacture of small satellites for the US aerospace and defense industries. The company’s solutions are end-to-end, including design, production, launch planning, mission operations and orbital support. Terran Orbital works to meet the needs of military, civilian and commercial customers. Terran is based in Florida and operates a 660,000 square foot facility near Cape Canaveral and a 60,000 square foot facility in Irvine, California.

Terran Orbital has 23 successful satellite missions under its belt, most recently deploying the CAPSTONE mission, a NASA-sponsored lunar pathfinding mission in support of the space agency’s Artemis program. In July, the CAPSTONE spacecraft was successfully shifted into a lunar transfer orbit.

This is just one example of Terran’s satellite business. The company reported $25 million in bookings for 2020, expanding bookings to $40 million in 2021. Currently, Terran has several contracts in the pipeline for commercial and government customers, including NASA and the Pentagon. The rest of the company’s revenue has expanded from $68 million last year to more than $200 million so far this year.

This stock is new to the publicly traded markets, having gone public in March of this year through a SPAC transaction with Tailwind Two Acquisition. The merger closed on March 25th and the LLAP ticker began trading on March 28th. The SPAC merger brought Terran Orbital total gross proceeds of $255 million. Like many SPACs, the stock has suffered badly this year and is down 68% since its debut.

However, 5-star analyst Erik Rasmussen, in his coverage of this space stock for Stifel, is impressed by Terran’s potential and charts a bullish path forward for the company.

“We see Terran’s leadership in the design and manufacture of small satellites and its technical capabilities around the Earth Observation constellation as key differentiators and view their strong backlog (3x year-end) as support for our estimates. As Terran scales revenue, gains traction with its synthetic aperture radar (SAR) satellite business, and as the company makes progress toward profitability, we believe the stock offers an attractive entry point as market conditions facilitate and will it should re-rate to a higher multiple over time,” Rasmussen wrote.

Rasmussen places a Buy rating on the stock and the $8 price target implies a 90% gain over the next 12 months. (To follow Rasmussen’s history, Click here)

While there are only 2 analyst reviews recorded for LLAP, both are positive, giving the consensus rating of Moderate Buy unanimous. Shares of LLAP are trading at $4.21, but the average price target of $8.50 suggests ~102% one-year upside potential. (See LLAP 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.

Denial of responsibility: The views 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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