Markets have dropped sharply through the first half of this year, but the news isn’t all bad for investors. The lower share prices we've been seeing offer plenty of opportunities for investors looking to buy the dip, or get in at a discount. The trick is to find them.
Jim Cramer, the well-known host of CNBC's 'Mad Money' program, has a few ideas about this situation. In his view, the market turbulence has had the beneficial impact of sorting out the wheat from the chaff and ‘working off the excesses of the past two years.’
Cramer points out that investors should focus on stocks with 'consistent stories that prove they are capable of making a rebound.'
“The hardest-hit names are now trading below where they were at the start of the pandemic — in some cases, well below. These are what I call total giveback stories, and while some of them are dangerous, I admit, others represent amazing buying opportunities down here," Cramer said.
So, let’s follow Cramer’s advice, and take a closer look at his three top recommendations. We’ve used the TipRanks database to pull up their latest details, and we’ll check them out along with recent commentary from some of the Street’s top analysts.
Meta Platforms (META)
The first Cramer pick we’ll look at is Meta Platforms, the newly rebranded Facebook. Last month, in a follow-up to the name change, the company officially updated its stock ticker, taking on the new abbreviation, META. With the ticker change, Meta Platforms has completed its transformation to a holding company, making Facebook, WhatsApp, and Instagram its chief subsidiaries.
Rebranding is no magic bullet, and Meta’s most recent quarterly results, for 1Q22, reflect that. The company showed a definite slowdown at the top line; revenues slipped 17% from Q4. At the same time, revenues rose year-over-year, with the top line of $27.9 billion coming in 7% higher than 1Q21’s $26.1 billion. The company’s net income fell, with diluted EPS dropping y/y from $3.30 to $2.72, a loss of 18%.
Social media depends on user stats, and that’s where Meta has been showing the clearest signs of slowing. Starting last year, growth in monthly average users (MAUs) started to plateau just under 3 billion. In the first quarter of this year, the company reported just 3% growth, to 2.94 billion MAUs.
With this background, we can understand why META shares have underperformed the markets so far this year. Where the NASDAQ has fallen 26% year-to-date, META is down 50%.
Turning now to Wall Street, 5-star Tigress analyst Ivan Feinseth thinks Meta shares currently offer over 170% upside potential. Feinseth rates the stock a Buy along with a $466 price target.
"META has a significant upside driven by the ongoing potential to monetize many of its critical applications and technologies, including Instagram, Messenger, WhatsApp, and Oculus. META continues to invest its balance sheet and cash flow in enhancing shareholder value through innovation, strategic acquisitions, and ongoing share repurchases. We believe further upside in the shares exists," Feinseth opined.
28 other analysts join Feinseth on the bull list and with another 7 Holds and 2 Sells, the stock has a Moderate Buy consensus rating. While the average price target is not as optimistic as the Tigress analyst’s, at $265.86, the figure could still provide gains of 59% over the 12-month timeframe.
Walt Disney (DIS)
The next ‘Cramer pick’ we’ll look at is a company that everyone will recognize; after all, Mickey Mouse is one of the world’s most iconic images and best-known corporate brands. It also represents a stock that has fallen 38% year-do-date.
A look at recent financial releases suggests a simple explanation: Disney’s streaming service, Disney+, is hemorrhaging cash at an accelerating pace. Investors don’t like that from such a heavily hyped product, even in a company that reports solid metrics in other areas and overall profits.
The most recent report, from the second quarter of the company’s fiscal year 2022 (the quarter ending on April 2), puts this in perspective. Disney reported a top line of $19.25 billion, up by 23% from the year-ago quarter, and a 29% year-over-year gain in six-month revenues. Drilling down, the problems began.
First, at the bottom line, diluted EPS came in at $1.08. While this was up 37% year-over-year, it missed the forecast by 9%, disappointing investors. The worse news for investors, however, was the big loss in the Disney+ segment. The company’s streaming service – which can boast access to Disney’s enormous content library and plays host to the popular Star Wars and Marvel franchise universes – lost $887 million in fiscal Q2. This was up from the $290 million loss in the year-ago quarter, and was only partially offset by strong theme park demand and streaming subscriber growth.
Morgan Stanley’s 5-star analyst Benjamin Swinburne, however, believes that investors should hold the course on Disney and avoid panic selling. He sees the current price as a chance to buy in.
“We see an attractive risk/reward at current levels. Led by its Parks & Experience segment and with the benefit of a still young streaming business scaling to profitability, we see 20- 25% adjusted EPS growth over the next three years... The streaming transition of Disney's entertainment content has been highly accretive to revenues but highly dilutive to earnings. We believe it can recover and ultimately surpass prior peak earnings over time, but more importantly that its content is undervalued at current share prices,” Swinburne wrote.
Swinburne uses his comments to back up his Overweight (i.e. Buy) rating on DIS stock, and his price target of $125 indicates potential for a 29% upside over the coming year. (To watch Swinburne’s track record, click here)
For the most part, Wall Street agrees with Swinburne's call on the company; Disney’s Moderate Buy rating is derived from 24 analyst reviews that include 17 Buys and 7 Holds. The average price target, of $139.22, implies a 44% one-year upside potential from the current trading price of $96.76.
Cisco Systems (CSCO)
We’ll wrap up with Cisco Systems, a leader in the field of networking technology, and one of Jim Cramer’s favorite stocks.
Cisco offers a wide range of products, from networking software and security to hardware such as routers and switches for wireless systems to data center networking to optics and transceivers. The company’s customer base is broad-based, as its product lines have found applications in industries from finance to manufacturing to health care to government to education to utilities to retail.
This year, however, CSCO stock has seen a loss of 30%. The company has faced severe headwinds from the ongoing supply chain problems, the COVID lockdowns in China, and even from Russia’s war in Ukraine. Simply put, the shortage in semiconductor chips impacts Cisco’s ability to manufacture products, while supply chain snarls make it more difficult to both acquire raw materials and ship out finished goods. The China situation and the Ukraine war have exacerbated both problems.
One result of all that: Cisco reported $12.8 billion in top-line revenues for its third quarter of fiscal 2022, flat year-over-year and below the $13.3 billion forecast. Earnings did a little better; at 87 cents per share, in non-GAAP numbers, the EPS was up modestly from the 83 cents reported in the year-ago quarter, and a penny higher than the 86-cent estimates.
The real problem came in Cisco’s guidance. For the fiscal fourth quarter, the company is looking at earnings of 76 cent to 84 cents per share, in adjusted non-GAAP figures, which is down from current levels, on top of a 1% to 5% y/y fall in revenues.
While the current picture is gloomy, Oppenheimer 5-star analyst Ittai Kidron sees reason for optimism. He writes, as his bottom line on the stock, “Cisco experienced multiple headwinds in 3QFY22 (supply-chain, Russia/Belarus, China shutdown), which led to decelerating product order growth and weaker than expected 4Q guidance. While we expect more near-term pressure as the company navigates these issues, we remain bullish on Cisco's LT outlook and believe the company would benefit from multiple secular tailwinds (5G, WiFi6, Cloud Security).”
With that outlook, Kidron rates Cisco shares an Outperform (i.e. Buy), and his $50 price target suggests an upside of 16% from current levels.
Overall, Wall Street is taking a go-slow approach on this stock. CSCO has 21 recent analyst reviews, breaking down to 8 Buys, 12 Holds, and 1 Sell – all for a Moderate Buy consensus rating. The share price is currently running at $43.15 and the $51.53 average price target implies a 19.5% upside for the next 12 months.
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