Based in the Pacific coast city of Vancouver, Canaccord is Canada’s independent investment brokerage. The firm has global reach, with offices in 10 countries including the US, UK, Germany, Hong Kong, and Singapore. Canaccord is licensed to list companies in 10 different stock exchanges around the world, in all the markets’ main sectors.
To support the firm’s investment operations, Canaccord employs 140 stock and financial analysts, experts in their fields, to produce and publish up-to-date research materials on thousands of publicly traded companies.
Today, we’ll look at three stocks recommended by Michael Walkley, a 5-star analyst from Canaccord rated 65 overall in TipRanks’ database of over 5,600 Wall Street analysts. Let’s see what he has to say about these three small-cap tech companies, and why he gives them the thumbs up.
Inseego, a NASDAQ-listed company valued at $216 million, specializes in IoT mobile solutions, developing mobile systems – modems and routers – that connect devices to networks. Inseego is making the transition to the new 5G networks, using the new connection technology to speed up intelligent IoT solutions in the device-to-cloud realm. In an October 21 statement, CEO Dan Mondor said, “Earlier this year, we introduced the first commercially available 5G NR mobile broadband hotspot, and now dozens of companies have adopted Inseego 5G solutions to power a new wave of applications.”
In its most recent Q3 earnings report, INSG showed revenues of $62.72 million, beating the forecast by 5.4%. A solid performance, but the year-over-year gain underscored both the importance of IoT in today’s tech sector and the profit potential for successful transition to 5G. Inseego’s revenues were up a robust 23.8% from the year-ago quarter.
However, earnings were less of a bright spot. INSG’s EPS was negative, showing a loss of 4 cents per share. The forecast had been for a 3-cent loss. The earnings loss was key for investors last week, and INSG has lost 14% since the quarterly release.
Canaccord’s Walkley sees the current low price as a buying opportunity, bolstered by the growing shift toward 5G. Inseego’s status as an early hardware provider will give the company a solid foundation going forward. Walkley writes, “Given the growing global 5G opportunity, we believe Inseego has strong global customer engagements for its growing 5G product portfolio... We believe Inseego will deliver very strong 2H/2020 and C2021 growth as global carriers launch 5G networks… We anticipate strong revenue growth in 2H/20 and beyond with expanding margins as the 5G opportunities ramp and the overall business scales…” His price target, $8.50, suggests a powerful upside of 82% for the stock.
Inseego has three recent analyst reviews, and all are Buys, making the Strong Buy consensus unanimous. The stock sells for a low $4.58 per share, and the average price target, $7.17, implies an upside of 57%. (See Inseego stock analysis on TipRanks)
IoT is a hot sector these days, and the next stock on our list is another player in it. Adesto’s niche is distinct from Inseego’s; Adesto produces embedded systems and application-specific semiconductor chips for IoT devices. The company does not offer its components on the open market, selling instead to original equipment manufacturers who assemble products for end-users.
Adesto’s customer base, over 5,000 strong worldwide, are companies engaged in building the coming 5G networks. They rely on Adesto’s advanced chips to run their devices and provide memory space. The company’s niche is essential, always a boon for small tech company, and has helped propel IOTS to a 63% year-to-date share price gain.
IOTS’s recent earnings were as bright as the stock’s 2019 gains. Adesto reported a profit of 3 cents per share, beating the forecast of 2 cents and coming in far ahead of the year-ago quarter, when the company posted a loss of 4 cents per share. It was the fourth quarter in a row that IOTS has beaten the earnings estimates. Revenues were solid, at $32.03 million, 3% better than the forecast and 45% better year-over-year.
Walkley started his review of IOTS by noting the earnings report, writing, “Adesto reported Q3/19 results with revenue of $32.0M consistent with our estimate and guidance with solid growth and outlook across all segments of the business. Non-GAAP gross margin of 50.7% was also in line with guidance, while operating expenses were below the lower end of the guidance range…” He went on to state the bottom line for his Buy rating on the stock: “Our positive investment thesis is based on our expectation that strong IoT endpoint growth over the next several years will require low-power and long-battery-life solutions that should benefit Adesto’s portfolio and its differentiated memory solutions.” Walkley’s $11 price target on the stock shows confidence in a 55% upside from current levels.
Looking at the analyst consensus, Walkley’s estimate may be a bit conservative. IOTS has 5 recent "buy" ratings, for a unanimous Strong Buy consensus, and the average price target is $12.40 – giving the stock a 74% upside from the current price of $7.12. (See Adesto stock analysis on TipRanks)
Our third stock is another IoT company. Digi focuses on embedded and external communications solutions for both wired and wireless systems, as well as USB-based products. As a legacy of the company’s history, Digi also produces a line of multi-port serial boards. The company’s current line of products is based on the 4G platforms in widespread use.
Looking ahead, Digi is planning for expansion. The company announced last week that it has signed an agreement to acquire IT infrastructure provider Opengear, in a deal worth $140 million in cash up front. Digi’s CEO Ron Konezny says of the acquisition, “Joining forces with Opengear gives customers an expansive, high-value, technology portfolio that is hardware enabled and software defined.” Final closure of the transaction awaits regulatory approval.
Walkley believes that the Opengear deal, if approved and implemented, has potential to generate over $40 million in adjusted by the end of 2021. He writes, “We believe this transaction complements Digi’s Products & Services segment by adding a portfolio of products for the out-of-band services market, and we believe the technologies are similar to Digi’s offerings and the companies can move to a common platform to drive even further synergy opportunities.”
Turning to DGII’s current situation, Walkley is equally optimistic. In his recent report on the stock, the top analyst takes a Buy position, saying, “We maintain our belief Digi will post strong double-digit growth for its IoT solutions business over the next several years and achieve its 3-5 year target of $50M to $100M in annual recurring revenue.” His $21 price target implies potential for 41% upside to the stock.
Overall, analysts are upbeat on DGII. Three have given reviews in recent weeks, and all rated it a "buy," making the consensus another unanimous Strong Buy. At $14.77, DGII stock is priced at a bargain -- the $19 average price target suggests an upside of nearly 30%. (See Digi stock analysis on TipRanks)
