As the saying has it, “as goes January, so goes the year,” and if that is to play out in 2023 too, then the omens are good for the stock market.
According to Ari Wald, Head of Technical Analysis at Oppenheimer, the S&P 500 “reversed its 2022 downtrend last week.”
And the good news is that over the coming months, Wald expects the “strength to continue.” While Wald is calling for the S&P to hit 4,400 by the end of the year, he anticipates it will first “overshoot” to 4,600 in 1H23.
Wald also has bad news for the naysayers, who might think the rally is not sustainable. “While market bears have pointed to optimistic sentiment as a contrarian argument against continued gains, we don’t see such frothiness in our work,” he explained.
Meanwhile, Wald’s stock expert colleagues at Oppenheimer are taking a cue from his encouraging analysis and have homed in on two names that they consider as 'top picks' for 2023. Are other Street pundits on the same page? Let’s take a closer look.
The first Oppenheimer pick we’ll look at is RLJ Lodging, a real estate investment trust (REIT). The company operates in the hotel industry, specifically the luxury, high-margin variety. RLJ owns 97 hotels, boasting 21,400 rooms, spread across 23 states and all are located in markets the company considers having “attractive long-term growth prospects.” The company’s premium-branded hotels include Courtyard by Marriott, Hilton Garden Inn, and Embassy Suites, amongst others.
It’s no secret, hotels were badly affected by the Covid-19 pandemic, and RLJ took a big hit, posting losses for the first time in over a decade in 2020. However, since the reopening, things have been getting back on track, and this was evident in the company’s latest earnings report – for 3Q22.
Revenue climbed by 36% year-over-year to $318 million, beating the Street’s forecast by $7.72 million. As a sign business is close to reaching pre-Covid levels, the company generated pro forma RevPAR (revenue per available room) of $137.09 in the quarter, amounting to 94.5% of 2019 levels. FFO (funds from operation) reached $0.40, also trumping Street expectations for $0.38.
Looking ahead to the coming year, Oppenheimer analyst Tyler Batory considers RLJ his “top pick in the lodging REIT sector for 2023.”
“We estimate the company will have the fastest revenue growth in the space this year at 13%,” Batory expounded. “This will be driven by its exposure to urban markets and favorable comps. We think urban markets should be outperformers in 2023 given increasing international demand, continued recovery in corporate travel, and strong trends from leisure/group business. We also think the company has a competitive advantage given its financial flexibility allows it to pursue multiple capital allocation avenues at the same time.”
These comments underpin Batory’s Outperform (i.e., Buy) rating while his $17 price target suggests the shares will climb 35% higher over the 12-month period. (To watch Batory’s track record, click here)
Elsewhere on Wall Street, the stock receives 2 additional Buys and 1 Sell, all coalescing to a Moderate Buy consensus rating. The forecast calls for one-year gains of ~15%, considering the average target stands at $14.50. As a bonus, the company pays regular dividends that currently yield 1.64% annually. (See RLJ stock forecast)
The next Oppenheimer-backed name we’ll look at is HashiCorp, a company involved in the ongoing digital transformation. Operating as an infrastructure software company, HashiCorp helps other firms operate in the cloud. The automated offerings – with an emphasis on open-source products - can help both large and smaller companies across all sectors speed up the time it takes to get a product ready for commercial use, lower operating expenses, and generally improve the workflow. Essentially, HashiCorp helps its clients take on a more consistent operating model.
The company is relatively new to the public markets, having IPOd at the tail end of 2021, and like the majority of tech stocks, it suffered badly in 2022’s bear; the shares are down 62% since the public debut.
That hasn’t stopped the company from showing some strong growth whilst beating expectations, as was the case in the most recent financial statement – for the third quarter of fiscal 2023 (October quarter). Revenue climbed by 52% year-over-year to $125.3 million, coming in ahead of the Street’s call by $14.16 million. Adj. EPS stood at -$0.13, a better showing than the -$0.31 anticipated by the analysts. The outlook was promising too; for FQ4, the company expects revenue between $123 - $125 million compared to consensus at $119.97 million, while adj. EPS is expected in the range between -$0.23 and -$0.21 vs. the Street at -$0.26.
Assessing HashiCorp’s prospects, Oppenheimer analyst Ittai Kidron has added the stock to his 'top picks' for 2023.
Explaining his bullish stance, the 5-star analyst said: “HashiCorp has established itself as a mission-critical partner for customers looking to shift to multi-cloud architectures. With the transition to the cloud still gaining momentum and HashiCorp enjoying a commanding brand/market share position, we see a long-tailed growth opportunity that can sustain HashiCorp's strong growth. Expansion into security and networking offers incremental upside, in our view... Coupled with an attractive valuation, we see HCP as a core long-term holding,” Kidron opined.
Kidron conveys his confidence with an Outperform (i.e., Buy) rating to go alongside a $42 price target. Investors could be pocketing gains of 30.5%, should Kidron's forecast hit the mark over the next 12 months. (To watch Kidron’s track record, click here)
Overall, HashiCorp has attracted a total of 10 analyst reviews recently, including 7 Buys and 3 Holds for a Moderate Buy consensus rating. HCP shares are priced at $32.18 and have an average price target of $37.63, giving the stock ~17% upside on the one-year time frame. (See HashiCorp stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
