Wrapping up the first month of 2021, a few things are coming clearer, some facts and trends that will define the coming year.
The clarity on the political front appeared to buoy sentiment, as the Democrats gained a slim majority in Congress following the Georgia runoff elections. The Biden Administration will be able to cater to its progressive base, now that it rests on majorities – however thin – in both Houses of Congress.
Second, the end of the corona crisis may be heaving into sight. The vaccination programs are proceeding, and while it’s not as fast as was first hoped, the numbers of vaccinated people will only increase, and that’s a good thing.
Which brings us to the third point, and perhaps the most important. Some of the major ‘blue states’ have started easing their lockdown policies – notably, California and New York. This bodes will for the economy as a whole, and gives markets a sense that, with a vaccinated population and a reopened business sphere, we may get back to normal by the last month of 2021.
And that has the best analysts on Wall Street looking for stocks to buy. But which stocks exactly? We’ve opened up the TipRanks database to find out. They’re a fascinating blend of tech-related companies. Let's take a closer look.
We’ll start in the semiconductor industry. The chip companies are looking at a whirlwind combination of related headwinds and tailwinds in the year ahead. They faced serious production declines during the ‘corona year,’ as reduced demand and stay-at-home policies kept fab plants idle – and now, everyone, it seems, needs semiconductor chips. The PC and gaming console sectors are ramping up, and their demand is rising, but the automotive industry can’t get enough chips to keep their own factories running at capacity. As for the chip companies, they are doing their best, but getting their production facilities back to full speed to meet growing demand may take as long as 6 to 9 months.
With that in mind, we can expect that the chip with the largest existing networks will be best able to meet the challenges. Intel, which has for years been ranked among the three largest chip companies in the world, is clearly in that league.
The company finished 2020 with $77.9 billion in total revenue, up 8% year-over-year and the fifth consecutive year of record sales. The company generated $35.4 billion in cash from operations, of which $21.1 billion was free cash flow, and was able to return $19.8 billion to its shareholders.
Intel managed that even as its stock price was highly volatile during the year. The company consistently beat expectations in 2020, but production bottlenecks and weakened demand put headwinds in the way of share appreciation.
Covering Intel for Needham, 5-star analyst Quinn Bolton, rated by TipRanks as the #1 Wall Street analyst, believes that Intel has better days ahead.
Noting the company’s progress, Bolton wrote: “We believe Intel will outsource some advanced manufacturing to TSMC, thereby reducing its capital intensity, improving free cash flow and improving shareholder returns. Further, we think Intel plans to protect its share in DCG from AMD by competing more on price while regaining its technological leadership with 7nm. While likely a drag on GM, we believe Intel's recent success in improving its GM through divesting lower-margin businesses and gradually improving 10nm cost savings can help partially offset the GM pressures from more competitive pricing. Lastly, we believe a low valuation relative to peers suggest upside in INTC shares.”
Bolton’s belief in a strong year ahead is clear from his Buy rating and $70 price target on the stock. At current levels, that target implies an upside of ~31% for the year ahead. (To watch Bolton’s track record, click here)
Granted, not everyone is as enthusiastic about the chip giant as Bolton. INTC has a Hold consensus rating based on 11 Buy ratings, 12 Holds and 8 Sells. The average price target, however, stands at $62.31 and implies ~16% upside from that level. (See INTC stock analysis on TipRanks)
Next up, HubSpot, has made its name in tech as an innovator, specifically for its inbound marketing software products. HubSpot has made the lives of SEO optimizers, social media marketers, CRM experts, and content managers easier with products ranging from web analytics to software integration. The company has operated since its 2006 founding on the freemium model, by which customers can access basic services without charge, while keeping the option of buying a paid subscription for higher-level services and regular upgrades.
2020 was a good year for HubSpot, as the company is perfectly positioned to gain from an increase in remote office work and telecommuting. The company saw its revenue hit $228.4 million in 3Q20, the last quarter for which numbers are available, for a 32% year-over-year gain. That figure was driven by subscription revenue of $221.1 million, which was also up 32% yoy.
The #2 analyst in TipRanks database, Brent Bracelin of Piper Sandler, cast his eye on HubSpot, and the cloud software sector generally.
Of the cloud business, at the macro level, Bracelin says, “Coming off a record year for cloud software driven by an unprecedented digital awakening that propelled sector-wide valuations, including a doubling of our 2020 top picks, the 2021 setup gets trickier. Robust digital tailwinds are reflected in near peak valuation multiples with the road to recovery and cyclical rotation fears tempering further upside.”
Turning to HubSpot, the analyst lists the company as one of his ‘highest conviction cloud stocks for 2021.’
“HubSpot has a long runway to sustain high growth considering it has just 3% penetration (95K+ customers) across a global customer TAM in excess of 3 million," Bracelin opined. "Untapped cross-sell opportunity across new CMS and Sales Hubs give us an upward bias to consensus estimates of 22% growth next year."
To this end, Bracelin rates HUBS shares an Overweight (i.e. Buy), along with a $488 price target. This figure suggests a 39% upside for the coming year. (To watch Bracelin’s track record, click here)
Bracelin is certainly not the first analyst with an optimistic outlook for the software player, as TipRanks analytics showcasing HUBS stock as a Strong Buy. With an average price target of $411.93, analysts see ~18% growth for the stock. In total, the stock has received 12 Buy ratings vs. 4 Holds. (See HUBS stock analysis on TipRanks)
Last but not least is Peloton, the upscale maker of network-connected home exercise equipment. The company’s exercise bikes can be used independently, but the big sell is their online connectivity – users can link to each other, to classes, to instructors, or just download music and other content to make stationary spinning easier on the mind. Peloton has successfully integrated the world of smart apps with home exercise equipment.
Creating a niche – defining the customer and developing a product that meets that customer’s needs – can be a path to success if done well, and Peloton has executed well. The company’s success can be seen by the share performance in 2020; up an impressive 434%.
The share gains have paralleled the company’s revenues – sales have grown in the five consecutive reported quarters since the September 2019 IPO. The most recent, 3Q20, was the company’s first of fiscal year 2021, and saw revenue beat expectations. The top line showed at $757.9 million, up an impressive 232% year-over-year. The company bumped up its 2021 revenue guidance to $3.9 billion.
While sales and share performance are strong, Peloton has been struggling with supply and delivery issues. The company’s growth has been far faster than was previously expected, and Peloton has experienced difficulties maintaining the supply chain to its manufacturing facilities and delivering customer orders efficiently.
In a move that may address the supply and delivery matter, Peloton announced a $420 million deal to acquire Precor, a supplier of exercise equipment in the gym and hotel market. The move will give Peloton access to Precor’s existing manufacturing facilities in North Carolina and Washington State. These facilities total 625,000 square feet, and will give needed bulk to Peloton’s logistic capabilities.
Oppenheimer analyst Jason Helfstein, rated #3 overall by TipRanks, sees two main points leading to further success: first, Peloton’s ability to scoop up new subscribers from gym cancellations, and second, the Precor merger.
“[We] project ~9% churn rate in overall US gym memberships, with Peloton acquiring 600K Connected Fitness Subscribers ahead of the company's pre-COVID forecast. The 600K subscribers represents 12.6% of an estimated 4.4M gym membership cancellations… In our view, investors will focus on the acquisition alleviating supply constraints in the near-term. However, we see real value in the transaction creating upmarket/up-selling possibilities for Peloton, as Precor has 124K connected fitness devices across 11K facilities worldwide," Helfstein commented.
Helfstein rates PTON shares an Outperform (i.e. Buy), and sets a $185 price target that suggests a ~28% one-year upside. (To watch Helfstein’s track record, click here)
All in all, with 22 recent analyst reviews, breaking down to 19 Buys, 2 Holds, and 1 Sell, Peloton has a Strong Buy rating from the analyst consensus. Meanwhile, the average price target of $157.58 leaves room for ~9% growth from the current share price of $144.96. (See PTON stock analysis 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.
