Nobias 3/4/22 Nobias 3/4/22

MSFT with Nobias technology: Is Microsoft’s 12% Year-To-Date Pullback A Buying Opportunity?

Microsoft is on a 20-year annual dividend growth streak. And while the company’s dividend yield is rather low, at just 0.84%, this company has been very generous with its shareholder returns. MSFT’s 5 and 10-year dividend growth rates are 9.4% and 13%, respectively.

Microsoft (MSFT) is widely considered to be one of the world’s highest quality companies.  It is one of just two companies in the world with a AAA-rated balance sheet (Johnson and Johnson (JNJ) is the other). MSFT has the world’s second highest market cap, of $2.25 trillion (behind only Apple’s (AAPL) $2.72 trillion total). Microsoft is a leader in the fast growing cloud market. It has developed a strong presence in the artificial intelligence and cybersecurity spaces as well. Most recently, Microsoft made a $69 billion acquisition of Activision-Blizzard, showing strong aspirations in the gaming space as well (Microsoft owns the Xbox gaming platform and in recent years, they’ve been growing their game developer portfolio rapidly). And, not only is this a growth stock, but also a favorite pick amongst dividend growth investors. Microsoft is on a 20-year annual dividend growth streak. And while the company’s dividend yield is rather low, at just 0.84%, this company has been very generous with its shareholder returns. MSFT’s 5 and 10-year dividend growth rates are 9.4% and 13%, respectively.

Needless to say, this $2t+ company has a lot of good things going for it. However, shares have been caught up in the technology sector sell-off that we’ve seen throughout 2022. MSFT is down 12% on a year-to-date basis. And therefore, we wanted to take a look at what the credible authors and analysts that the Nobias algorithm tracks have had to say about this stock recently. Is Microsoft a buy after its recent dip? Let’s find out.

Billy Duberstein, a Nobias 4-star rated, recently posted a bullish article on Microsoft, where he highlighted the company’s primary growth catalysts as well as its present valuation.  Duberstein began his piece saying, “One of the biggest winners has been Microsoft ( MSFT -1.63% ), up 374% over the past five years, nearly quadrupling the return of the S&P 500.” He continued, noting that, “Microsoft has proved itself a safe and durable grower, and perhaps the best tech stock to own for older investors and those near retirement.” Then, he posed the same question that we have in this article, “However, is it too late to get in on Microsoft's red-hot performance?” Ultimately, his conclusion was: No, it’s not too late.

Duberstein mentioned that MSFT has reinvented itself in recent years, transforming itself from an out-of-favor old-tech stock into a market darling in the growth space under the leadership of current CEO, Satya Nadella.   He wrote, “Nadella had been the head of Microsoft's young but growing cloud computing business, which would usher in a new "cloud first, mobile first" era. Microsoft's Azure cloud computing platform grew by leaps and bounds in short order, and its Office and Dynamics software suite also benefited from the more efficient cloud deployment.”

Duberstein continued, “Nadella then gave Microsoft's prospects a new twist with its "intelligent cloud" strategy, named in 2017, in which artificial intelligence would be infused into all Microsoft's offerings. Integrating AI and machine learning into its cloud and enterprise software, Microsoft made its tools even more automated, productive, and beneficial to customers.” And, regarding the company’s ongoing growth prospects and its valuation, Duberstein said: “Since Microsoft has a number of high-growth products and is currently pursuing even more value-add acquisitions, I think it can sustain 20% or so revenue growth for the next few years at least. And since the company's profit margins are expanding as it grows, earnings should grow even faster. That would bring Microsoft's PEG ratio, or the P/E ratio divided by its growth rate, to a little bit over one. That's not an expensive price at all, provided Microsoft achieves that level of earnings growth.

Julin Lin, a Nobias 4-star rated author also recently published a bullish report on MSFT shares. Lin touched upon the stock’s recent rally (MSFT shares are up more than 30% during the trailing twelve months) and said that he expects to see the company split its stock in the near-term.

In recent years, we’ve seen stock splits from other big-tech names, such as Apple and Tesla (TSLA) inspire strong rallies. And, Lin thinks this is yet another bullish catalyst for MSFT in the near-term. He wrote, “Based on the company’s history of stock splits and the large market cap, I wouldn’t be surprised if we did see a stock split in 2022. Even without a stock split, the stock looks priced for double-digit returns over the next decade.”

Regarding the fundamental impact of a split on the company’s shares, Lin wrote: “A stock split would not create any fundamental value, but the increased liquidity often leads to a rising stock price. It is also possible that the strong performances of stocks following stock splits are not correlated at all, but merely a continuation of the strong price performance prior to the split - after all, stocks need to perform very well in order to justify a stock split.”

But, the potential for a share split isn’t the only reason Lin is bullish.  He said, “Long time investors are already very familiar with the success of Azure, which delivered 46% growth. MSFT’s bread and butter services like Office and LinkedIn continued to deliver solid top and bottom line growth.”   He continued, saying, “What I think investors should instead focus on is the “more personal computing” segment. This segment has arguably been the most boring of the three segments in recent years. MSFT delivered 15% revenue growth, but that growth has not always been consistent.”

And finally, he touched upon the Activision acquisition, saying: “This would be an all-cash deal meaning it would be immediately accretive, but I expect MSFT to extract considerable value over the long term. For starters, there are the typical synergy benefits, but the combination may also bring rise to a new gaming powerhouse as MSFT will be able to invest considerable cash flows above and beyond what ATVI had itself.”

Lin also touched upon the company’s valuation after its recent pullback.  He wrote, “Is MSFT a buy now? Trading at 33x earnings, I could see the stock outperforming the market indices for a long time.” He continued, “Due to the constant innovation at the company, I could see the stock sustaining at least a 25x-30x earnings multiple. Yet with revenues projected to grow double-digit for many years, the stock could deliver double-digit returns from growth alone.”

Ultimately, Lin said, “I rate shares a buy, though note that there may be better buying opportunities elsewhere in the tech sector, albeit at higher risk than MSFT.” However, he noted that MSFT offers unique profitability metrics and a strong balance sheet, which makes it an easy company to accumulate. He concluded his piece saying, “Throw in the 3% earnings yield and the fact that the company has $50 billion of net cash, and one can see the increased certainty in the projected returns.”

Zvi Bar, a Nobias 4-star rated author recently posted a more conservative report, saying that he believes MSFT shares will remain rangebound in the short-term, due to several headwinds holding the stock back.  Bar began his piece by highlighting the strong earnings report that MSFT posted in late-January. He wrote, “The company's results were strong, with revenue of $51.7 billion and diluted earnings per share of $2.48 within the quarter. This is an increase of about 20% to revenue, and 22% to EPS compared to the same quarter one year earlier. Further, both revenue and EPS were above most estimates.” However, he continued, “The numbers were great, and the shares appreciated in response, but have not moved much since then.” Therefore, Bar has arrived at the conclusion that, “Microsoft Corporation's (MSFT) shares appear likely to remain rangebound for the next quarter or two for multiple reasons, including the pending acquisition of Activision Blizzard Inc. (ATVI). Beyond that, it is also the case that Microsoft substantially appreciated over the last two years.”

Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.

In his mind, the stock’s recent pullback seems “reasonable” after, “Shares went through an unreal melt-up that took MSFT from around $290 at the start of October to about $345 in mid-November.” And, he noted, the Activision-Blizzard acquisition adds more downside pressure to the stock due to the potential of heightened regulatory scrutiny. Bar said, “Another downside risk is that Microsoft gets targeted in some way by a government agency. There already appears to be some level of scrutiny from the FTC, and it is possible that this will become a greater issue. Since the market reacted poorly to the proposed acquisition, the risk from the deal should only be so great from here, and it may be priced into the shares already.” Bar concluded his article saying, “I believe MSFT is likely to remain rangebound between its recent lows and the highs it set late last year. This range is reasonably wide, at nearly 20% of the market valuation, with Microsoft sitting sort of in the middle right now. This may be good reason to consider selling short-term covered calls against an existing position on any further strength.”

Looking at the broader aggregated opinion of the authors that the Nobias algorithm follows, we see that 89% of recently expressed opinions were “Bullish” on MSFT shares. And, when looking at the opinions expressed by credible Wall Street analysts (only those with a 4 or 5-star Nobias rating), we see that the average price target being applied to MSFT shares is currently $377.46. Today, MSFT trades for $291.64. Therefore, that $377.46 average price target implies upside potential of approximately 29.4%.

Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long MSFT, JNJ, and AAPL. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.

Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.

Nobias 3/3/22 Nobias 3/3/22

CVX with Nobias technology: Is Chevron Still A Buy After Its 27% Year-to-Date rally?

investors who are fearful of ongoing inflation (especially in the energy markets) are likely looking for potential safe havens. Chevron (CVX) is one of the world’s largest integrated oil companies, it is important to see what the credible authors and analysts that we track with the Nobias algorithm have had to say about the stock recently.

Right now, one of the major headwinds that the broader market faces is rising oil prices. Inflation in the energy space hits just about everyone’s pocket books. It hurts the bottom lines of businesses that have to allocate capital towards energy resources. And, on the consumer side, it hurts bullish sentiment and has historically led to reduced discretionary spending, as higher prices at the pump result in a higher percentage of savings being directed towards energy expenses. Inflation was already a major financial theme heading into February and now we’re seeing the war in Ukraine drive energy prices even higher.

The International Energy Agency (IEA) recently published a report highlighting the potential impacts that the Russian invasion of Ukraine and the global sanctions put onto the Russian economy could have on oil prices. The report read, “An invasion into the Ukraine by Russian troops on 24 February 2022 has as of yet not resulted in a loss of oil supply to the market. Prices nevertheless surged by $8/bbl to $105/bbl following the news, on expectations that sanctions against Russia would cripple energy exports. It is currently unclear what the impact of sanctions will be on energy flows and how long any potential supply losses will last.”

The report continued, highlighting Russia’s oil production, saying, “Russia is the world’s third largest oil producer behind the United States and Saudi Arabia. In January 2022, Russia’s total oil production was 11.3 mb/d, of which 10 mb/d was crude oil, 960 kb/d condensates and 340 kb/d NGLs. By comparison, US total oil production was 17.6 mb/d while Saudi Arabia produced 12 mb/d.”

Finally, the report also touched upon Russia’s oil exports, saying, “Russia is the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia.”  Therefore, it shouldn’t come as a surprise to investors that oil prices have been on the rise in recent weeks.  Just this morning, the price of oil hit a 52-week high.

A recent CNN article highlights the pre-market rise which read, “Brent crude futures, the global benchmark, increased nearly 6% to $110.90 per barrel at 5:30 a.m. ET. US oil futures traded with a slight discount at $109.30 per barrel. In Europe, the price of wholesale natural gas spiked 60% to a record high of €194 ($215) per megawatt hour. That's more than double where it stood last Friday.” And with this in mind, investors who are fearful of ongoing inflation (especially in the energy markets) are likely looking for potential safe havens. Chevron (CVX) is one of the world’s largest integrated oil companies, it is important to see what the credible authors and analysts that we track with the Nobias algorithm have had to say about the stock recently.

Chevron shares have been on quite a run in recent days. The stock is up 11.03 during the last week alone. On a year-to-date basis, CVX is up 27.58%. However, even after this recent rally, when looking at the sentiment expressed by the credible (4 and 5-star rated) authors that we track, it’s clear that the sentiment surrounding this stock remains very bullish.   Right now, 92% of the recent reports published by credible authors have expressed “Bullish” sentiment.

Several recent bullish reports were published by Daniel Foelber, a Nobias 5-star rated author who covers energy markets at The Motley Fool.  In a recent article titled, “7.5% Inflation: 2 Safe Dividend Stocks to Buy Now” Foelber highlights CVX as a potential safe haven for investors looking for shelter in today’s inflationary environment.

Regarding inflation, Foelber said, “One way to invest in businesses that can perform well during inflationary times is to find the industries causing inflation and avoid the ones most vulnerable to it. Higher oil and gas prices are contributing to inflation right now.” He acknowledged that one of the primary reasons that stocks in the energy sector have underperformed for much of the prior decade was because of aggressive capital expenditures and poor cost controls. Yet, it appears that Chevron has changed its ways in recent years. The company is clearly focused, not just on ramping production, but also, on increasing its bottom line.

Regarding CVS’s fundamentals, Foelber wrote, “2021 revenue was up only 15.5% in five years, but net income was up 70%, and free cash flow increased over 200% -- a sign that Chevron is converting more sales into actual profits.” He continued, “A lean business operating in the heart of an industrywide boom should allow Chevron to have another excellent year in 2022. In its fourth-quarter 2021 conference call, management indicated it would stay disciplined and keep capital spending under control so as not to overexpand and leave the company vulnerable during a downturn.”

In a second recent report, Foelbert touched upon recent M&A activity, with CVX showing savvy awareness to pick up beaten down assets during the COVID-19 recession period in 2020, which not only reduced its energy footprint, but also reduced its cost of production.  He said, “In 2020, Chevron reduced its capital expenditures to $8.9 billion as it cut costs to make ends meet. However, Chevron also played some offense by acquiring Noble Energy in an all-stock deal valued at $13 billion -- which included around $8 billion of Noble Energy's debt. Chevron announced the deal in July 2020 and closed it in October 2020.”

Foelber continues, “The deal gave Chevron 92,000 largely contiguous acres in the Permian Basin at the cost of less than $5 per barrel of oil equivalent (BOE) of proven reserves and less than $1.50 per BOE for 7 billion barrels of risked resource. In total, it added 18% to Chevron's total proven reserves as of year-end 2019.”

Regarding cost reductions, he noted, “The deal reduced Chevron's cost of production, something the company has expressed as one of its core strategic goals. Today, Chevron can achieve breakeven positive free cash flow (FCF) at around $40 per BOE, allowing it to operate successfully in good times and bad.”

Lastly, he believed that CVX’s strong balance sheet allowed the company to go shopping while sentiment was poor. He said that this value oriented approach, when it came to the Nobel Energy acquisition meant that “Chevron was able to buy the company at a steep discount to what it would be worth today.”

Foelber mentioned CVX as a top pick in a recent discussion about “ultra safe dividend stocks” to buy during the market volatility during February, saying, “for over 30 years, Chevron has consistently paid and raised its annual dividend, making it one of the few energy stocks on the coveted list of Dividend Aristocrats (members of the S&P 500 that have raised their dividend for at least 25 consecutive years).” He continued, “Chevron raised its dividend in 2020 -- a year where many of its competitors were reducing their dividends. Chevron also raised its dividend in 2021 from $1.34 per share per quarter to $1.40 per share per quarter. A couple of weeks ago, it increased the quarterly dividend yet again to $1.42 per share.” He noted that this dividend growth was more than supported by the company’s fundamentals (due, largely to management’s renewed focus on cost reduction and operational efficiency).

Foelber wrote, “In 2021, Chevron spent just $8.1 billion in capital expenditures and earned a record-high $21.1 billion in free cash flow that it can use to grow the dividend, buy back stock, and reinvest in the business.”   And, while Foelber has been prolific recently with his CVX coverage, we see that he isn’t the only credible author who has recently published a bullish report on the stock.

George Budwell, a Nobias 4-star rated author, recently mentioned CVX in a bullish light in his article titled, “2 Incredibly Cheap Value Stocks to Buy in February”.   This article was written on February 1st, but Budwell showed great foresight, saying, “If crude oil prices do indeed breach $100 a barrel this year as some analysts predict, for instance, Chevron's top line could jump by as much as 19.6% this year, according to Wall Street's most optimistic forecast.” He continued, “That kind of explosive top-line growth would mean that the oil and gas giant's shares are currently trading at under nine times 2022 projected earnings. To put this figure into context, the three-year average price-to-earnings ratio for oil and gas stocks at large is roughly 13.4 at the time of this writing. Therefore, Chevron's stock might be deeply undervalued right now.” And, Budwell said that not only has CVX been quite generous with its dividend recently, but with its buyback as well.

Regarding shareholder returns, he said, “The energy titan also noted during its latest quarterly update that share buybacks this year should range from $3 billion to $5 billion. Depending on how aggressive the company gets with share repurchases, Chevron's bottom-line growth could surpass even Wall Street's most bullish forecast for 2022.”

Budwell noted that all is not well with the company (all equities are risk assets and no stock is ever perfect), writing, “The one drawback with this story is that Chevron is facing some hefty production headwinds in key foreign territories right now.” However, overall Budwell made it clear that he believed shares were cheap and likely to produce “market-beating returns for shareholders this year”.

It’s important to note that all of these reports were published before the most recent leg of CVX’s 2022 really.  Few analysts predicted a war in Ukraine coming into the year and therefore, most full-year price targets for CVX have not baked in the recent uptick in oil prices. With that in mind, we see that the credible Wall Street analysts that the Nobias algorithm tracks are relatively bearish on CVX stock, at least, when it comes to their price targets.

While we see quite a few “Buy” ratings up and down the credible analyst list when it comes to CVX, the average price target being applied to these shares by these individuals and the firms they work for is currently $133.63.  CVX closed the trading session yesterday with a share price of $149.72 and right now, as I write this, shares are up in the pre-market, with futures pointing towards a $151.83 open.

In short, the stock’s current price is roughly 12% above the current average price target being applied to shares by the credible Wall Street analysts that we follow.  However, we also think it’s important to note that unique circumstances in the energy space right now (related to the war in Ukraine) mean that these price targets are largely lagging indicators and we wouldn’t be surprised to see upgrades to CVX price targets in the near-term as the Wall Street community begins to calculate 2022 returns with $100+ oil in mind.

Disclosure: Nicholas Ward has no positions in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/23/22 Nobias 2/23/22

INTC with Nobias technology: Can Intel’s Ambitious Growth Plans Reverse This Stock’s Recent Underperformance Trend?

Intel (INTC), which is widely considered to be a market darling, has fallen off of its pedestal. INTC shares are down 21% during the last year and they’ve drastically underperformed their peers over the last 5 and 10-year periods, posting gains of 30.6% and 78.69%, respectively. Intel recently experienced a management change and the company has embarked upon ambitious plans to return to growth. Therefore, we wanted to highlight the recent opinions expressed by authors/analysts which the Nobias algorithm deem to be credible, with regard to whether or not investors should consider buying into INTC’s recent dip.

The semiconductor space has been one of the most popular places to invest in recent years because of the digitalization of society and the world’s economy. Computer chips are ubiquitous in today’s world. And, as we venture further and further into the digital age (as a society and species) this trend isn’t likely to change anytime soon.

With that said, the VanEck Semiconductor ETF (SMH) has been a wonderful investment vehicle for people in recent years. The SMH is down 12.41% on a year-to-date basis in 2022 as the market rotates out of growth and into more defensive value plays; however, during the trailing 12 months, this fund is up 14.57%, during the last 5 years, the SMH is up 252.51%, and over the last decade, this fund is up 686.28%.

However, not all semiconductors are created equally. Intel (INTC), which was a former leader in this space and widely considered to be a market darling, has fallen off of its pedestal.  INTC shares are down 21% during the last year and they’ve drastically underperformed their peers over the last 5 and 10-year periods, posting gains of 30.6% and 78.69%, respectively.

Intel recently experienced a management change and the company has embarked upon ambitious plans to return to growth. Therefore, we wanted to highlight the recent opinions expressed by authors/analysts which the Nobias algorithm deem to be credible, with regard to whether or not investors should consider buying into INTC’s recent dip.

The Value Portfolio, a Nobias 5-star rated author, recently published an article highlighting several catalysts that Intel has to unlock long-term value.  They highlighted the investments that Intel is making into the foundry business, saying, “Intel has announced IDM 2.0 with an interest to build a foundry business. The company has announced a $20 billion investment into new Arizona factories and a $3.5 billion in New Mexico.”

The Value Portfolio continued, “There's no guarantee of success here, but especially if the company passes TSMC in 2025, it could be a massive business. Evident of this is that TSMC is twice as big as Intel and only offers foundry services. More so, another important part of this business is that there's demand for chips in all nodes, much of the current shortage is legacy nodes. That means the business could generate reliable and growing cash flow.”

However, this ambitious plan to become a leader in the global foundry business does not come without risks.  They touched upon the downside potential of these multi-billion investments saying, “Intel's most substantial risk, in our view, is that the company has fallen behind its largest peers, TSMC and Samsung. The company has set its target of regaining the crown by 2025, however, it's struggled for the last several years, and this is a lofty target. Until the company actually releases 2 nm CPUs in 2024-2025, it remains to be seen whether the company will hit its targets.”

In a recent article, fellow Nobias 5-star rated author, Harsh Chauhan also touched upon the risks involved with attempting to comete with global foundry giant, Taiwan Semiconductor (TSM) saying: “TSMC has a capital expenditure (capex) budget of $40 billion to $44 billion for this year, which points toward a huge increase over its 2021 capital spending of $30 billion. What's more, TSMC's 2022 capital expenses are way higher than Intel's ( INTC 2.12% ) estimated outlay of $25 billion to $28 billion for this year. This doesn't look like good news for Intel, as there was a massive spending gap between the two companies in 2021 as well, given Chipzilla's capital spending budget of $19 billion to $20 billion last year.”

However, the foundry investments that management is making aren’t the only upside catalysts for this beaten down stock, in The Value Portfolio’s eyes.   In their article, they touched upon recent news that Intel was looking to spin off potentially highly valued assets to unlock value for shareholders.  In December of 2021, news broke that Intel was looking to spin off its Mobileye assets.   The Value Portfolio highlighted this news saying: “Intel initially acquired Mobileye in 2017 in a $15 billion acquisition. Since then the company has become an even more dominant force in the self-driving vehicle industry. The company expects 40% more 2021 revenue versus 2020 revenue and continued growth. As a result, Intel has announced the intention to take Mobileye public in mid-2022.

The IPO details are fuzzy, however, analysts see a valuation as high as $50 billion (or 25% of Intel's valuation). Given the company's strong positioning and the significant amount of hype around self-driving valuation, we could see it fetching a higher valuation. This could represent a way for Intel to unlock significant value and earn cash.”   Even though Chauhan acknowledges the risks of attempting to compete in the foundry landscape, he also recently published a bullish article on Intel which touched upon other potential growth markets that Intel could tap into, putting a spotlight on the GPU space within the broader semiconductor market.  GPU chips, or Graphics Processing Units, are semiconductors that benefit from the strong secular tailwinds that exist in the gaming industry.

High growth companies NVIDIA (NVDA) and Advanced Micro Devices (AMD) dominate this space. However, Chauhan believes that Intel can compete for market and potentially generate billions in revenues with its own GPU ambitions.  In his recent article, Chauhan wrote, “Intel's Arc GPUs are equipped with ray-tracing technology. They also sport artificial intelligence-powered resolution upscaling and a proprietary Deep Link technology that Intel says can accelerate many workloads if the computer also features a compatible Intel processor. These features indicate that Intel is serious about making a dent in the discrete GPU market, as its cards are packed with technology on par with rivals.”

With regard to the competitive landscape in the GPU industry, Chauhan wrote, ”According to Jon Peddie Research, Nvidia commanded 83% of this space in the third quarter of 2021, while AMD was left with the remaining 17%. Nvidia has dominated the graphics card market with an iron hand thanks to its robust supply chain and competitive RTX 30 series cards.” Cutting into this duopoly is a daunting task; however, the risks are clearly worth the rewards.   Chauhan continued, “After all, Jon Peddie Research estimates that the discrete GPU market could be worth $54 billion in 2025 as compared to $23.6 billion in 2020.”

Chauhan concluded his piece saying, “In all, Intel seems to be entering the GPU market on a promising note. If the chipmaker can corner even 10% of this market in the next couple of years, it could add billions of dollars to its revenue that may act as a catalyst for the t ech stock in the long run.”   And, while much of the highlights surrounding this company have surrounded its future growth prospects, there are other credible authors that we follow who appear to be bullish on Intel stock because of the value it presents and the shareholder returns that it continues to provide.

The Dividend Diplomats, a Nobias 4-star rated author, recently published an article highlighting two of their favorite dividend paying stocks for the month of February; one of which was Intel.   “Intel has been crushed due to supply chain issues and chip shortages. The short-term outlook for Intel isn’t looking that great; however, the company is taking steps to address this in the long run. Intel recently announced a $20 billion new chip manufacturing facility in Ohio and plans to invest significant dollars in their Arizona facility. The moves will take time to bear fruit; however, in the long run, this will help Intel avoid future shortages by reducing its exposure to the global supply chain.”

When making investments for their family, the Dividend Diplomats said they they look for companies to pass 4 primary screens: a “Price to Earnings Ratio Less than the S&P 500”, a “Dividend Payout Ratio Less than 60%”, and “History of Increasing Dividends.”   Regarding these screens when it comes to Intel shares, the Dividend Diplomats say:
Price to Earnings Ratio: 13.45x. The stock is trading at less than half the valuation of the S&P 500. Check!”
“Dividend Payout Ratio: 41.24%. A very strong payout, perfect ratio. There is still plenty of room to continue increasing its dividend going forward.”

“History of Increasing Dividends: Intel just announced a 5% increase to its dividend. Despite the negative news, Intel still said “hey look at us, this isn’t gong to stop us from increasing our dividend.” After this last dividend increase, the company has increased its dividend for 8 consecutive years. The company’s 5 year average dividend growth rate is just under 6%.”

With that all in mind, they concluded their bullish report noting that they added to their personal position during INTC’s recent sell-off. Overall, when looking at the community of credible authors tracked by the Nobias algorithm (only those with 4 and 5-star ratings) we see that the sentiment lean is decidedly positive, with 90% of recent reports expressing a “Bullish” outlook on shares.

Furthermore, when looking at the credible Wall Street analysts that our algorithm tracks, we see that relative to the stock’s current share price of $47.71, the average analyst share price target attached to INTC shares of $58.38 represents upside potential of 22.36%.

In short, the communities of credible authors and analysts are both bullish on INTC shares, meaning that this is a company that investors looking for exposure to the technology sector may want to consider owning moving forward.

Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long INTC and NVDA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/18/22 Nobias 2/18/22

UBER with Nobias technology: On The Verge Of Profitability, Is It Finally Time To Buy UBER?

Uber (UBER) is a highly followed name in the growth space because of the secular tailwinds that many analysts believe exist in the ride sharing industry. Uber’s IPO made headlines in 2019 due to the immense size of the company’s initial market cap. As you can see in this article, Uber’s $8.1 billion IPO price was one of the largest of all-time. And yet, the stock has been on a relatively bumpy road since then.

UBER’s IPO price was $45/share. Today, shares trade for $34.68. This means that since its IPO date, UBER has produced negative returns for shareholders.  During the COVID-19 pandemic this company struggled in a major way as social distancing trends and regulation hurt the travel sector and led to secular movements like “work from home” and the “urban exodus”, both of which have created headwinds for Uber’s growth.

In March of 2020, Uber’s share price was essentially cut in half, with shares falling from the $40 area to less than $20/share, because of fears associated with COVID-19.  And yet, during its recent Investor Day presentation, Uber management highlighted the fact that its company has continued to grow nicely throughout the pandemic period, with Gross Bookings posting a 27% compounded annual growth rate (CAGR) throughout the 2017-2021 period.

The market remains content to largely ignore this growth, however. UBER shares are down 17.29% on a year-to- date basis. They’ve fallen 41.22% during the trailing 12-months. And, even in more recent times, the stock’s struggles have continued (during the last month, UBER shares are down 9.71%).

In short, this stock has been a perennial under-performer when compared to the major averages. And yet, reading through analyst reports, it’s clear that many individuals and Wall Street firms believe that UBER continues to offer strong long-term growth potential. The stock reported Q4 2021 earnings this week. And therefore, we wanted to take a look at what the credible authors/analysts that the Nobias Algorithm tracks have had to say about the stock recently.

Is this -41% trailing twelve month sell-off a buying opportunity? Many people think of Uber when they think of ride hailing; however, this company has expanded its operations quickly in recent years and is now much more than a ride hailing service.

Danassa Lincoln, a Nobias 5-star rated author, highlighted Uber’s diverse operations in a recent article saying, “Uber Technologies, Inc operates as a technology platform for people and things mobility. The firm offers multi-modal people transportation, restaurant food delivery, and connecting freight carriers and shippers. It operates through the following segments: Rides, Eats, Freight, Other Bets and ATG and Other Technology Programs.”

During the company’s recent quarter, its continued efforts to diversify its operations appears to have paid off nicely.  Within UBER’s Q4 earnings report, its CEO, Dara Khosrowshahi, said: “Our results demonstrate just how far we’ve come since the beginning of the pandemic. In Q4, more consumers were active on our platform than ever before, Delivery reached Adjusted EBITDA profitability, and Mobility Gross Bookings approached pre-pandemic levels. While the Omicron variant began to impact our business in late December, Mobility is already starting to bounce back, with Gross Bookings up 25% month-on-month in the most recent week.”

Nobias 4-star rated author, The Value Pendulum, recently published a bullish article on Uber, bucking the year-to-date sentiment trend.  The Value Pendulum began their piece with an “elevator pitch” for their bullish outlook, saying, “Uber's Q4 2021 financial performance was good, but its management guidance relating to 2024 EBITDA and Q1 2022 gross bookings disappointed investors. But I remain bullish on Uber and reiterate my Buy rating, on the basis that Uber's valuations are undemanding and the company's multiproduct platform has lots of untapped potential with respect to growing cross-platform users.”

The Value Pendulum noted that Uber recently beat analyst estimates during its fourth quarter earnings results, writing: “Uber reversed from an operating loss of -$454 million at the non-GAAP adjusted EBITDA level in Q4 2020 to generate a positive adjusted EBITDA of +$86 million in Q4 2021, as disclosed in the company's recent quarterly media release. In November 2021, Uber had guided for the company to deliver an adjusted EBITDA in the $25-$75 million range for the fourth quarter of last year, so its actual operating earnings exceeded the higher end of management guidance by +15%. Moreover, Uber's Q4 2021 adjusted EBITDA was +28% higher than the sell-side analysts' consensus forecast of $67 million as per S&P Capital IQ data.”

When discussing Uber’s bottom-line beat, The Value Pendulum attributed the company’s success to two primary catalysts.  They said, “Firstly, Uber has managed to scale up its mobility (ride sharing) and delivery businesses to a level that we are able to see the positive effects of operating leverage kick in.” They continued, “Secondly, competition naturally becomes less intense in specific markets which have gone past the initial growth phase, and the focus of Uber and its rivals then shifts from gaining market share to expanding profit margins in these markets. “

The Value Pendulum also highlighted the fact that after their recent sell-off, Uber trades at a relative discount to its peers. Therefore, they believe that mean reversion back up towards the industry standard could be yet another catalyst for upside share price moment.  They wrote, “According to S&P Capital IQ, the market currently values Uber at a consensus forward next twelve months' Enterprise Value-to-Revenue multiple of 2.9 times. In contrast, Uber's peers Lyft and DoorDash trade at consensus forward next twelve months' Enterprise Value-to-Revenue multiples of 3.2 times and 5.0 times, respectively.”  Concluding their article, The Value Pendulum touched upon this relatively attractive valuation status again, saying, “I still rate Uber as a Buy. The company's shares have significant upside potential, taking into account the valuation discount on a historical and peer comparison basis.”

After years of unprofitable operations, it appears that Uber is on the verge of posting consistently positive bottom-line results.  During the Q4 report, the company announced first quarter guidance for EBITDA of $100 million to $130 million.  And, while the analyst consensus estimate across all of Wall Street currently points towards negative earnings-per-share once again in 2022 (right now, the forward consensus estimate is -$0.80/share), that trend is changing as well.

The consensus estimate for Uber’s earnings-per-share in 2023 is currently $0.03/share (which would mark the company’s first profitable year - from an EPS perspective - since its IPO). And, in 2024, analysts expect bottom-line growth to accelerate, rising to $0.76/share.  This rapid growth potential is what has the bulls excited. However it’s important to note that at Uber’s current share price, shares are still trading with a very speculative forward price-to-earnings ratio (relative to the broader market’s forward multiple of approximately 21x) of 47x when looking at those 2024 estimates. That’s a hefty price to pay for earnings potential nearly 3 years down the road. But, bullish analysts aren’t necessarily thinking about what type of cash flows Uber can generate during the next several years, but instead, its potential a decade or more down the road.

Looking at the sentiment expressed by credible authors, it appears that the vast majority of individuals that our algorithm tracks remain incredibly bullish on this long-term potential. 95% of recent articles written by 4 and 5-star authors have included a “Bullish” leaning opinion.  And, when we look at the credible Wall Street analysts that cover UBER stock, we see a similar trend.  The average price target that credible (once again, Nobias 4 and 5-star rated) analysts place on UBER shares is currently $67.80.  Today, UBER’s share price sits at $34.68. Therefore, this price target represents upside potential of approximately 95.5%.

Disclosure: Nicholas Ward has no position in UBER. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/16/22 Nobias 2/16/22

CSCO with Nobias technology: Cisco Shares Are Up 6% Since Their Q2 Earnings Report. Is It Too Late To Buy?

Cisco (CSCO), which has transitioned from a speculative high flier several decades ago into a equintessential cash cow of an “old tech” stock in today’s market, has regained its market darling status recently.  Over the past year, the S&P 500 is up 11.11%. During this same period of time, CSCO shares are up 23.46%.

Throughout 2022, both the S&P 500 and CSCO shares have experienced high single digit weakness; however, Cisco posted fiscal Q2 results last week which caused the stock to rally. Cisco shares rose 6.14% during the past week. The broader markets were down roughly 1.5% during this period of time.  We’re seeing geopolitical headlines (regarding the potential Russia/Ukraine crisis) drive markets lower. However, investors appear to be seeking shelter in the relatively defensive CSCO shares. Can this trend continue? Let’s take a look at what the credible analysts that the Nobias algorithm tracks have recently had to say.

Prior to Cisco’s earnings report Nobias 4-star rated author, Stephen Simpson, published a bullish article on Cisco shares.  Regarding the company’s attempt to accelerate its fundamental growth after struggling for a couple of years during the pandemic period (during its fiscal 2020 and fiscal 2021 years, Cisco’s earnings-per-share total came in at just 4% and 0%, respectively), Simpson said: “Opportunity has never been the issue for Cisco, and it isn’t today – Cisco is targeting attractive growth markets that can easily support revenue growth. That’s particularly true over the next 12-24 months, as spending from enterprise, webscale, and service provider customers on 5G, 400GE, Wi-Fi, security, and other areas of interest to Cisco should be quite strong. The question is whether Cisco can get its large array of ducks in a row and execute on that opportunity.”

Simpson highlighted Cisco’s relatively conservative valuation (unlike many of the speculatively valued technology stocks that we’ve witnessed experiencing precipitous sell-offs in recent months) and noted that this provides relative upside potential to the stock.  He wrote, “Low-to-mid single-digit revenue and modest improvement in FCF margins (around 100bp or so from recent trends) can support a high single-digit long-term annualized return, and the markets Cisco serves should be able to support an even higher growth.”  He concluded his piece saying, “I’m guardedly bullish here. The expectations embedded in the share price today suggest decent upside even if Cisco doesn’t significantly improve itself, but significant upside if execution were to materially improve.”

Anthony Miller, a Nobias 5-star rated author, recently published a report focused on Cisco’s Q2 results.  He highlighted Cisco’s “Company Profile” saying: “Cisco Systems, Inc engages in the design, manufacture, and sale of Internet Protocol-based networking products and services related to the communications and information technology industry. The firm operates through the following geographical segments: the Americas, EMEA, and APJC. Its products include the following categories: Switches, Routers, Wireless, Network Management Interfaces and Modules, Optical Networking, Access Points, Outdoor and Industrial Access Points, Next-Generation Firewalls, Advanced Malware Protection, VPN Security Clients, Email, and Web Security.”

Regarding the company’s top and bottom-line numbers, Miller wrote: “The network equipment provider reported $0.84 earnings per share (EPS) for the quarter, topping the Zacks’ consensus estimate of $0.81 by $0.03, MarketWatch Earnings reports. The business had revenue of $12.72 billion during the quarter, compared to the consensus estimate of $12.67 billion.“  He continued, “Cisco Systems had a return on equity of 30.59% and a net margin of 22.44%.”

With regard to valuation and recent share price movement, Miller said, “The company has a market cap of $239.14 billion, a PE ratio of 20.17, a P/E/G ratio of 2.76 and a beta of 1.00. Cisco Systems has a 12 month low of $44.15 and a 12 month high of $64.29. The company has a current ratio of 1.62, a quick ratio of 1.54 and a debt-to-equity ratio of 0.21. The firm’s 50-day moving average is $58.87 and its 200-day moving average is $57.30.”

During the Q2 report, the company also provided full-year fiscal 2022 guidance. Management believes that Cisco will generate sales growth of 5.5%-6.5% on the year. Management is also calling for non-GAAP earnings-per-share to arrive in a range between $3.41-$3.46, which, at the mid-point, would represent roughly 6.5% growth compared to fiscal 2021’s full-year earning-per-share figure of $3.22.

Cisco management touched upon shareholder returns during the quarter as well.  The company raised its dividend by approximately 3%.  In a separate article, Miller touched upon this dividend raise saying, “The newly announced dividend which will be paid on Wednesday, April 27th. Investors of record on Wednesday, April 6th will be issued a dividend of $0.38 per share. This is a boost from Cisco Systems’s previous quarterly dividend of $0.37. This represents a $1.52 annualized dividend and a yield of 2.69%. Cisco Systems’s dividend payout ratio is currently 55.02%.”

The company said, “Cisco's board of directors has also approved a $15 billion increase to the authorization of the stock repurchase program. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases including the additional authorization is approximately $18 billion.”

Within the company’s earnings report Cisco’s CFO, Scott Herren, touched upon these plans saying: "We delivered healthy margins while continuing to make good progress in our business model shift, with software product revenue growing 9% year over year and the product portions of ARR and RPO growing in double digits. The combination of our dividend increase and additional share repurchase authorization demonstrates our commitment to returning excess capital to our shareholders and confidence in our ongoing cash flows."

Cisco ended Q2 with $21.1 billion of cash on its balance sheet, which helps to support these generous returns. Overall, when looking at the sentiment expressed by the credible authors that the Nobias algorithm tracks (only those with Nobias 4 and 5-star ratings), we see that 95% of recent reports published on the stock have been “Bullish”. Right now, the average price target associated with CSCO shares provided by the credible (once again, 4 and 5-star rated only) Wall Street analysts that our algorithm tracks is $66.50. Today, CSCO shares trade for $57.21. Therefore, the aforementioned price target represents upside potential of approximately 16.2%.

Disclosure: Nicholas Ward is long CSCO. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/14/22 Nobias 2/14/22

DDOG with Nobias technology: DDOG Shares Are Up 20% During The Last Month. Is It Too Late To Buy?

2022 has been a tough year for markets thus far. The S&P 500 is down 8.76% on a year-to-date basis. The Nasdaq has suffered even worse, down 13.4% on the year. However, that doesn’t mean that all tech stocks have been down and out during recent weeks. For instance, Datadog, Inc (DDOG) has rallied roughly 20% during the trailing 30 days. This move came on the heels of the company’s recent Q4 earnings report. We take a look at this stock to see what the credible analysts that cover it have had to say.

Nicole Kennedy, a Nobias 5-star rated analyst recently published an article on the stock which highlighted some of the company’s fundamental data coming into its recent earnings report. When describing DDOG’s operations, Kennedy said, “Datadog, Inc provides monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud in North America and internationally. The company's SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and security monitoring to provide real-time observability of customers technology stack.”

Kennedy wrote her piece on February 9th, a day before the February 10th earnings release. At the time, she noted that DDOG was trading for $151.73. Then, she went on to say: “The company has a debt-to-equity ratio of 0.77, a quick ratio of 3.94 and a current ratio of 3.94. The business’s 50-day simple moving average is $155.94 and its two-hundred day simple moving average is $151.69. The company has a market cap of $47.34 billion, a PE ratio of -1,083.71 and a beta of 1.17. Datadog has a fifty-two week low of $69.73 and a fifty-two week high of $199.68.”

Let's start with a quick summary of Q4. Revenue was $326 million, an increase of 84% year over year and above the high end of our guidance range. We had about 18,800 customers, up from about 14,200 at the end of last year. We ended the quarter with about 2,010 customers with ARR of $100,000 or more, up from 1,228 at the end of last year.

When Datadog reported, it beat those estimates, posting revenue of $326.2 million, which was $34.78 million above Wall Street estimates, representing 83.7% year-over-year growth. The company’s non-GAAP earnings-per-share totaled $0.20 during the quarter, beating analyst consensus estimates by $0.09/share.

During the quarterly report, DDOG management provided Q1 fiscal year 2022 guidance, calling for revenue to come in a range of $334-$339 million, non-GAAP operating income to come in a range of $36-$39 million, and non-GAAP earnings-per-share to arrive in the range of $0.10-$0.12, which was essentially in-line with Wall Street’s $0.12/share consensus estimate.

The company also provided full-year 2022 estimates for sales, calling for them to arrive in the range of $1.51-$1.53 billion (above the $1.4 billion consensus), non-GAAP operating income to come in a range of $160-$180 million, and non-GAAP earnings-per-share to arrive in the range of $0.45-$0.51 (which was below analyst consensus of $0.58/share).  Even though this earnings-per-share guide was below consensus, DDOG shares rallied on the Q4 results, popping more than 20% in the after hours.

During the company’s earnings report conference call, Olivier Pomel, DDOG’d CEO, was quite bullish on his company’s results saying: “Let's start with a quick summary of Q4. Revenue was $326 million, an increase of 84% year over year and above the high end of our guidance range. We had about 18,800 customers, up from about 14,200 at the end of last year. We ended the quarter with about 2,010 customers with ARR of $100,000 or more, up from 1,228 at the end of last year.” He continued: “These customers generated about 83% of our ARR. We had 216 customers with ARR of $1 million or more, which is more than double the 101 we had at the end of last year. The leverage and efficiency of our business model is coming through with free cash flow of $107 million. And our dollar-based net retention rate continued to be over 130% as customers increase their usage and adopted our newer product.”

Analysts seemed quite bullish on DDOG’s retention and growth amongst its higher paying clients; the market was pleased to see the adoption of its services amongst the larger corporations which should continue to have large CAPEX to dedicate towards products/services like DDOG offers over the long-term.

Pomel also announced a partnership with Amazon.com (AMZN) and its Amazon Web Services cloud operations which has the potential to increase the size and scale of DDOG’s services in a significant way.  He said: “We also announced a global strategic partnership with AWS. This is a recognition of our success and growth with AWS and our commitment to further invest to accelerate our joint opportunities. Among the areas of further partnership, we have already integrated Datadog more tightly into the AWS marketplace. We are also working with AWS to build deeper integrations not only for observability, but also for security use cases, and we are also planning to extend our joint go-to-market activities.”

We see that it’s not just DDOG’s management team who’ve been bullish on the stock’s prospects lately.  Tristan Rich, a Nobias 5-star rated author, recently published a piece which highlighted a handful of analyst updates on DDOG shares. Rich said:

Monness Crespi & Hardt raised their price target on shares of Datadog from $160.00 to $220.00 and gave the company a buy rating in a report on Friday, November 5th.

Morgan Stanley raised their price target on shares of Datadog from $164.00 to $200.00 and gave the company an overweight rating in a report on Sunday, November 7th.

Rosenblatt Securities upgraded shares of Datadog from a neutral rating to a buy rating and set a $175.00 price target on the stock in a report on Wednesday, February 2nd.

Needham & Company LLC lowered their price target on shares of Datadog from $236.00 to $190.00 and set a buy rating on the stock in a report on Tuesday.

Finally, Citigroup lifted their target price on shares of Datadog from $188.00 to $225.00 and gave the stock a buy rating in a research note on Friday, November 5th.

Furthermore, Hans Christensen, a Nobias 5-star rated author, published a similar piece, highlighting several more analyst pre-earnings updates. Christensen wrote:

Royal Bank of Canada raised Datadog from a “sector perform” rating to an “outperform” rating and increased their price target for the company from $191.00 to $235.00 in a research note on Friday, November 19th.

JPMorgan Chase & Co. cut shares of Datadog from an “overweight” rating to a “neutral” rating and lowered their price objective for the company from $212.00 to $195.00 in a research report on Tuesday, December 14th.

Mizuho lowered their price objective on shares of Datadog from $225.00 to $200.00 in a research report on Tuesday, January 18th.

Finally, Barclays lowered their price objective on shares of Datadog from $225.00 to $190.00 and set an “overweight” rating for the company in a research report on Wednesday, January 12th.

As you can see, coming into the 2/10/2022 earnings report, many of the large Wall Street firms were bullish on DDOG shares and it appears that this positive sentiment flowed into the earnings report reaction by the market.

Looking at the credible authors and Wall Street analysts that we track with the Nobias algorithm, this positive sentiment remains in place. 75% of the recent reports published by credible authors (those with 4 and 5-star ratings) have expressed a “Bullish” sentiment. And, looking at the credible (once again, only individuals with 4 or 5-star ratings) Wall Street analysts that we follow, we see that the average price target being applied to DDOG shares by this cohort is $210.50. Today, DDOG shares trade for $159.02. Therefore, this average price target implies upside potential of approximately 32.3%.

Disclosure: Of the stocks discussed in this article, Nicholas Ward is long AMZN. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/12/22 Nobias 2/12/22

NET with Nobias technology: Down 50%+ From Its 52-Week Highs, Is It Time To Buy Cloudflare?

Cloudflare is a very interesting company to follow. The stock exists in an industry (edge computing)) that is expected to benefit from strong secular tailwinds for years (if not decades) to come. However, because of these growth expectations the company came into 2022 trading with a very speculative valuation and therefore, NET shares have been caught up in the selling pressure that we’re seeing surrounding speculative growth stocks throughout 2022 (largely driven by an increasingly hawkish Federal Reserve). After posting roughly 200% capital gains in 2021, NET shares are down 20.21% year-to-date thus far in 2022. But, their sell-off actually began in late 2021. NET shares are down a whopping 52.6% from their current 52-week highs of $221.64.

50%+ sell-offs aren’t uncommon to see in the tech sector right now. And while we’ve seen a stark rotation out of growth and into value throughout 2022 thus far, the fact is, this trade won’t last forward (the market always ebbs and flows). Therefore, investors who’re interested in secular growth are currently picking through the recent wreckage to find growth stocks that have experienced irrational sell-offs due to overly bearish sentiment. Is NET one of them? Let’s see what the credible authors/analysts that the Nobias algorithm tracks have had to say about the stock recently.

In mid-November, Nobias 4-star rated author, Nicholas Rossolillo, published a report on shares which offered a cautious take in the short-term, but an overall bullish long-term outlook. With the benefit of hindsight, we see that this article was essentially published at NET’s recent highs. NET’s share price has been cut in half since Rossolillo published this piece. However, in the short-term, the market isn’t always rational and therefore, we still consider Rossolillo’s opinion on the stock valuable to consider when performing due diligence on Cloudflare shares in the present.

Rossolillio began his piece by highlighting NET’s strong 2021 performance - and noting that the stock was speculatively valued (and therefore, carried a high degree of risk).   He said, “Shares of edge computing internet and security company Cloudflare (NYSE:NET) are on an absolute roll this year. As of this writing, the stock is up 220% over the last 12-month period alone -- valuing the young company at a whopping 100 times expected full-year 2021 revenue to enterprise value.”   He continued, saying, “Given such a valuation, suffice to say any investor that makes a purchase right now should be expecting incredibly great things from Cloudflare for many years to come. The third-quarter 2021 update underpins the massive potential the firm still has -- although I'd advise against trying to chase returns at this point.”

In his piece, Rossolillio highlighted the strong growth that NET posted during its Q3 ER.  He said, “Cloudflare posted revenue of $172 million in the third quarter, up 51% year over year and the fifth straight quarter of at least 50% sales growth. In fact, since Cloudflare started reporting as a public company in the autumn of 2019, it's only dipped below the 50% year-over-year sales growth mark a handful of times -- but never reported a quarterly sales rate lower than 48%.”

“But what about profit margins -- or lack thereof,” Rossolillio asked, rhetorically.  He continued to break down the company’s results and the risky nature of the stock, saying, “Free cash flow sank to negative $39.7 million in Q3, down from negative $9.8 million posted in Q2 just a few months prior. Clearly, between a lofty stock premium and persistent losses, investing in Cloudflare isn't for everyone. Shares have been going up in a nearly straight line for months now, but that won't last forever.”

Regarding its speculative valuation, Rossolillio did say that, “If Cloudflare can keep it up, it will earn that sky-high valuation (currently an enterprise value of $66 billion) sooner or later. “As for the fourth quarter of 2021,” he continued “CEO Matthew Prince and the company anticipate revenue to be $184 million to $185 million, up "only" 47% from last year.”

Well, since this piece was published, NET has posted its Q4 results (on February 10th). And, during this report, the company continued along its 50%+ top-line growth trend, posting quarterly sales of $193.6 million, which were up 53.8% on a year-over-year basis (outperforming Prince's prior estimates).

Speculative valuation aside, Rossolillo noted that he maintains a long-term bullish stance on the company.   He concluded his piece saying, “Granted, it's far too soon to declare Cloudflare "the next Amazon," or even the next tech giant. But given its stellar performance even during the pandemic where some of its peers have faltered, I certainly wouldn't bet against Cloudflare.”

On January 18th, Manali Bhade, a Nobias 5-star rated author, published an article titled, “2 Unstoppable Metaverse Stocks to Buy in 2022” in which he highlighted Cloudflare as a strong growth pick.   Bhade wrote, “Edge computing -- in which data and applications are stored and processed at locations nearer to the end-users rather than at centralized server farms -- improves data reliability, efficiency, security, and speed. Those network characteristics will be vital for metaverse platforms and applications. Consequently, we can expect that edge-based content delivery network operator Cloudflare will play a major role in supporting the metaverse.”

Regarding the company’s operations, he said, “Cloudflare's broad network already extends to 250 cities in more than 100 countries. Approximately 95% of the world's population can connect to that network within 50 milliseconds.” “Additionally,” Bhade said, “Cloudflare also offers Zero Trust security solutions: Every user inside or outside the network is validated multiple times before being given access to resources. Such protocols will be essential for protecting the metaverse and those who use it from unscrupulous agents and hackers.”

Cyber security is another industry that is likely to benefit from strong long-term tailwinds, which means that Cloudflare is well situated to benefit from multiple bullish trends.   While Cloudflare is a relatively volatile stock, the company’s growth trajectory has been very reliable.   Bhade echoed similar sentiment to Rossolillo regarding the company’s long-term growth saying, “From 2016 to 2020, Cloudflare's top line grew at a compound average rate of 50% annually.” He also touched upon the expected reliability of these sales moving forward throughout a wide variety of economic conditions, saying, “Currently, 1,260 of Cloudflare's customers are large organizations that spend $100,000 or more on its services annually. Since these large customers account for more than half of its top line, its business model is relatively resilient in the face of changing macroeconomic conditions.”

This is the benefit of strong secular growth - companies like NET that benefit from it are well positioned to continue to take market share and post strong sales growth even during periods (like the 2020 COVID-19 recession) where broader economic growth contracts.   Bhade concluded his article saying, “Cloudflare is technically not a metaverse stock. However, it will have a significant role to play in providing the underlying networking and data services required to make the metaverse a reality. This, coupled with its formidable position in the enterprise market, makes it an attractive pick for retail investors.”

During the full-year in 2021, Cloudflare generated revenue of $656.4 million. Even after its 50%+ correction, this still means that the company is trading with a very lofty price-to-sales multiple (NET’s current market cap is $37.5 billion). However, looking ahead to 2022, it appears that NET is primed to continue along its strong growth trajectory, which, as Rossolillo said, could eventually justify the stock’s valuation.   During its recent Q4 report, NET provided investors with 2022 sales, GAAP income from operations, and income per share guidance.

The company is currently calling for total revenue in 2022 of $927-$931 million. Compared to 2021’s full-year result, this would represent year-over-year growth of 41.5%.  This does represent a slowdown from the 50%+ growth that Rossolillio and Bhade highlighted, but 40%+ growth in today’s economic environment is certainly not shabby.

The company says that it expects to generate income from operations in the $10 million to $14 million range. Net income per share is expected to arrive in the $0.03-$0.04 range. Therefore, management doesn’t expect to see strong profits anytime soon - meaning that this is a hyper growth company which will have to be evaluated based upon sales growth prospects.

With that in mind, NET is certainly not a company that all investors will feel comfortable owning. Even after its massive pullback, it remains a speculative, long-term bet. But, when looking at the recent opinions expressed by the credible authors and analysts that we track with the Nobias algorithm, it appears that the vast majority of individuals who cover this stock remain bullish on the risk/reward prospects that shares present.

Right now, 93% of the opinions that we’ve seen expressed by credible authors carry a “Bullish” sentiment rating.   And, looking at the credible Wall Street analysts that we track (those with Nobias 4 and 5-star ratings), we see that the average price target applied to NET shares is currently $118.57.

Today, NET shares trade for $104.92. Therefore, the average price target represents upside potential of 13%.   This 13% upside pales in comparison to NET’s 2021 rally; however, in today’s market (remember, the S&P 500 is down 7.26% on a year-to-date basis) many investors are likely to continue to be attracted towards secular growth plays that offer double digit upside potential.

Disclosure: Nicholas Ward has no position in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/9/22 Nobias 2/9/22

T with Nobias technology: After Years of Underperformance, Are AT&T Shares Ready To Rebound?

AT&T (T) has been an under-performer for awhile now, in terms of share price performance. T shares are down 1.91% year-to-date, down 15.89% during the last year, down 41.69% during the last 5 years, and down 19.14% during the last 10 years. For comparison’s sake, it’s important to note that the last decade has represented a very strong bull market rally period. The S&P 500 is up 90.26% during the last 5 years and 227.82% during the last decade. In short, AT&T shares have sat out this strong rally, which has disappointed many of its shareholders.

Furthermore, the company recently announced a dividend cut and many question marks still surround the company and its upcoming spin-off of its Warner Media division after its merger with Discovery Communications. In short, for decades this telecommunications company was known for its slow, steady, and predictable earnings growth (and dividends). That has all changed in recent years. And yet, because of its massive share price underperformance, we’ve seen many bullish opinions recently expressed regarding the stock because of the intriguing value that T appears to present.

AT&T reported its fourth quarter/full-year earnings in late January, and Graham Grieder, a Nobias 5-star rated analyst, wrote this article, highlighting the results. Grieder began his piece saying, “Well, the day started pretty good. AT&T reported Q4 EPS at $0.78, which was a beat by $0.03, and revenue of $41 billion, which was a beat of $550 million.”

Regarding the company’s operating segments, he wrote, “While we did see Business wireline revenue fall 5.6%, we did see that offset by Mobility (+5.1%), Service (+4.6%), and Consumer Wireline (+1.4%) revenues. As for WarnerMedia, we saw revenues jump 15.4% to $9.9 billion.”

For the full-year, AT&T produced adjusted earnings-per-share of $3.40, which represented 7% y/y growth, compared to 2020’s $3.18/share total.  This growth was great to see for the bulls; however, the fact is, 2021’s $3.40/share EPS figure was still below AT&T’s pre-pandemic 2019 full-year EPS total of $3.57.

During 2021, we’ve seen many blue chip companies grow to the point where their fundamentals are now above the pre-pandemic levels. AT&T is not in this boat and therefore, investors looking at growth are still largely disappointed.  Grieder touched upon 2022 EPS guidance, saying, “Consolidated EPS is expected to land anywhere from $3.10 - $3.15 per share.” He continued, quoting AT&T’s CFO, Pascal Desroches’ commentary in the Q4 earnings conference calling, saying that the future guidance was being justified by: “This guidance reflects WarnerMedia's declining contributions due to anticipated investment initiatives, a 200 basis point increase in our effective tax rate and no anticipated investment gains. We also expect adjusted equity income contributions from DIRECTV to be about $3 billion for the year. Look for more details on our earnings outlook during our upcoming virtual analyst event.”

Now, it’s important to note that this negative y/y guidance appears to take into account the Warner Media spin-off, which is expected to occur during 2022. Therefore, the results might not be as bad as they first appear (because they’re not apples to apples comparisons). But, the downside with the spin-off for investors is definitely the loss of cash flows which has inspired management to cut AT&T’s dividend.

Grieder quoted AT&T’s CEO, John Stankey, who spent time during the conference call highlighting the company’s forward looking, post spin-off dividend.   Regarding Stankey’s comments, Grieder wrote, “He followed that up with this comment with regards to the dividend after reiterating that the payout would be $8 billion-$9 billion.” He quoted Stankey, who said, "anywhere in that range, even if it's at the low end of that range ... the yield on AT&T's dividend and the restructuring of the business will be in the 95-percentile range of yields of dividend-paying stocks in corporate America."

There are certainly a lot of moving parts in play with AT&T right now. The company is clearly attempting to re-invent itself. It’s cutting its dividend, focusing on its balance sheet, and spinning off its media operations so that it can get back to its core focus on telecommunications.  This makes it hard for investors to analyze the company, which has likely factored into AT&T’s recent all-time low valuation, of approximately 7x blended earnings.

With this in mind, AT&T has transformed from a blue chip dividend stock into a deep value play.  And, it appears that Grieder likes the risk/reward associated with shares moving forward.   To conclude his piece, he said, “After fairly good earnings, and good guidance, the stock tanked on indecision with regards to the spin/split-off. I do think if they would have come out one way or the other the stock would still sell-off, but as investors are being forced to guess as to what the compensation will look like, they would rather take the sure thing which is cash.” He recommended that investors stay patient because of the recent share price weakness, rather than giving into fear and selling at the bottom.

After acknowledging the uncertainty surrounding AT&T shares, Grieder said, “I do remain bullish long-term on AT&T and I do think the stock appreciates from here eventually, but today was a setback that will take some time to repair.”

The Value Investor, a Nobias 5-star rated author, also recently covered AT&T’s Q4 report.  They said, “AT&T had 3.2 million postpaid phone adds and 1 million new fiber subscribers during the year, adding billions in additional revenue. It also added 13 million new HBO Max subscribers showing the strength of a subscription base that'll soon be passed to the Time Warner + Discovery spin-off. The company has shown a continued ability in volatility to grow subscribers.”

The Value Investor also touched upon T’s dividend expectations, saying, “AT&T expects a $8-9 billion annual dividend payout which is a ~40-40% dividend payout ratio. Post Discovery + Time Warner spin-off, it's still expected to have a respectable dividend of roughly 6.5%.” And, potentially most importantly, The Value Investor highlighted what the dividend cut and the future cash flow expectations mean for the company’s balance sheet. They wrote, “The company has announced an initial financial target of reducing net debt to 2.5x adjusted EBITDA by the end of 2023. The company is targeting roughly $95 billion in long-term debt. The company will have roughly $110 billion in post-spin-off debt indicating an intention to pay off ~$7.5 billion worth of debt per year.”

Looking forward, The Value Investor touched upon their bullish opinion surrounding cash flow potential saying, “From 2022 to 2023, the company should be able to generate roughly $43 billion in FCF. The company has earmarked roughly $15 billion for debt paydown and $17 billion for dividends. That already implies a high single digit shareholder yield. The company hasn't said how it'd spend the other $11 but it could repurchase several % of shares annually.”

And therefore, they concluded their report with a bullish stance, saying, “The company will spend roughly 40% of the FCF on debt reduction and 40% on dividends for the next two years. That'll enable it to consistently improve its financial position. The company can still buy back shares; however, whatever it does with its FCF, it has a unique ability to generate substantial long-term shareholder rewards.”

The Value Pendulum, a Nobias 4-star rated author, recently posted an article at Seeking Alpha which highlighted HBO/HBO Max subscriber growth.  This growth is very important for the eventual value of the Warner Media/Discovery Communications spin-off. We just saw Netflix sell off precipitously because of missed subscriber growth guidance. Therefore, investors are going to want to see strong results for Warner Media’s properties moving forward.

The Value Pendulum said, “As part of the company's Q4 2021 financial results announcement released in late-January 2022, AT&T disclosed that it has 73.8 million HBO & HBO Max subscribers worldwide as of December 31, 2021. This was higher than the company's prior management guidance for 70-73 million HBO & HBO Max subscribers in 2021.” They continued, “In terms of growth, T's HBO & HBO Max subscribers increased by +21.7% YoY and +6.3% QoQ, respectively in the fourth quarter of last year. Specifically, AT&T achieved net new HBO & HBO Max subscriber additions of approximately 13.1 million for full-year 2021, and it highlighted at its Q4 2021 earnings call this growth in subscribers for 2021 was "more than any year in HBO's history."

With regard to a direct comparison to Netflix, The Value Pendulum wrote, “In the recent fourth quarter of 2021 (calendar year), Netflix added 8.3 million net new subscribers to bring its global subscriber base up to 221.8 million as of end-2021, while AT&T added 4.4 million net new HBO & HBO Max subscribers worldwide over the same period.” However,” they continued, “it is a different story when one focuses solely on the domestic market. T managed to grow its domestic HBO & HBO Max subscriber base by +1.6 million in Q4 2021, while Netflix boasted relatively lower net new subscriber additions of +1.2 million for the US and Canada markets in the recent quarter.”

In short, it appears that HBO’s business remains strong in the U.S. (which is where the streaming players typically generate their highest revenue per user) and therefore, this could allow AT&T’s media spin-off to begin trading on the right foot once the 2022 spin-off occurs.   While so much of the market’s focus lately has been on the AT&T/Discovery deal, the fact is, telecommunications remain the backbone of this company’s operations.

With that in mind, a recent report published by Daniel Jones, a Nobias 5-star rated author, highlights the slow and steady growth that AT&T’s communication segments produced in 2021.  “First and foremost,” Jones wrote, “I am a huge fan of the Connected Devices portion of the business.” When discussing this business segment, he said, “That growth is beginning to slow, but it is positive nonetheless. In the latest quarter the company reported, it had 90.98 million Connected Devices in operation. This compares to the 87.50 million reported one quarter earlier and it is up from the 75.97 million the company had in the third quarter of its 2020 fiscal year. It will be intriguing to see whether growth is slowing down now or whether it can ultimately pick up.”

Jones continued, highlighting AT&Ts Connected Devices segment, saying, “Growth here has been even slower than it has been on the Connected Devices front, but it is a key portion of the business. At the end of the latest quarter, the subscriber count under the Postpaid category came out to 80.25 million. This was up marginally from the 79.06 million seen one quarter earlier and compares to the 75.97 million generated the same time last year.”

Jones concluded his piece with cautious optimism, saying: “Right now is an exciting time to be watching AT&T. The company continues to push on to reinvent itself and there seem to be plenty of opportunities for investors to buy in for the long haul. As I detailed in a prior article, shares of the business are likely significantly underpriced. But of course, valuation can change based on market conditions and based on the conditions of the company in question. And this latter point is something that we have to reassess each and every quarter. If some bad news develops on any of the aforementioned items, it could serve to torpedo what currently looks like a great investment opportunity. On the other hand, this data could reaffirm the conglomerate as an excellent prospect for value-oriented investors for the years to come.”

Looking at the credible authors and analysts that the Nobias algorithm tracks, there is a strong bullish lean when it comes to AT&T shares. Right now we see that 93% of recent commentary by 4 and 5-star rated authors has included “Bullish” sentiment. Furthermore, the average price target being applied to AT&T shares right now amongst the Nobias 4 and 5-star rated Wall Street analysts is $32.75.

Today, AT&T shares trade for just $24.13. This means that the average price target mentioned above represents upside potential of approximately 35.7%. And, that doesn’t include the company’s high dividend yield. In short, when looking at the Nobias community’s collective opinion on this stock, it appears that strong total returns moving forward are likely. Without a doubt, AT&T has been a poor stock to own for quite some time. But, it’s clear that the credible authors/analysts that we track likes the risk/reward proposition here with shares trading so cheaply.

Disclosure: Nicholas Ward is long T. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/7/22 Nobias 2/7/22

PYPL with Nobias technology: PayPal Shares Crashed Nearly 23% Last Week. Is This A Buying Opportunity?

Last week, PayPal (PYPL) shares fell 22.90%. This performance pushed the stock’s year-to-date performance down to -33.14%. PayPal’s ongoing sell-off means that its shares are trading down 59.35% from their 52-week highs. In short, this former market darling has fallen off of its pedestal and in this piece, we wanted to see why that is and what the credible authors and analysts tracked by the Nobias algorithm have had to say about the stock recently.

PayPal’s sell-off last week spawned from its Q4 earnings report. The company beat Wall Street’s expectations on the top-line, posting $6.92 billion in revenue, representing 13.1% year-over-year growth. PayPal missed consensus estimates on the bottom-line, however, posting non-GAAP earnings-per-share of $1.11, missing analyst estimates by $0.01/share.

But, it doesn’t appear to be this bottom-line miss that caused PayPal’s steep sell-off, but instead, the company’s updated guidance. PayPal is expecting full-year 2022 revenue to grow at a 15-17% pace and for its full-year EPS to arrive in the $4.60-$4.75 range.

The mid-point of this new EPS range is just 1.5% above the $4.60/share EPS figure that PayPal produced in 2021. In short, now that PayPal’s expected growth rate has fallen from the 15-20% range which is what analysts have been calling for throughout the last 3-6 month period to the low single digits, the premium attached to PYPL shares has been slashed.

When looking at recent research reports published by credible authors of PayPal, the majority of them came out before the recent Q4 report. Therefore, they don’t include knowledge of this recent guidance change. But, PayPal’s recent sell-off began weeks ago, so they did include knowledge of the stock’s recent negative trend. And, when looking at the published analysis, we saw a clear bullish lean here.

In short, the vast majority of the credible analysts/authors that we follow appear to be interested in buying the PYPL dip.  For instance, Daniel Foelber, a Nobias 5-star rated author published an article in early January highlighting PYPL as a top growth stock that could rebound in 2022.

He said, “PayPal isn't growing as fast as it used to. But it's also a much more stable and profitable business. PayPal stands to be a long-term winner as e-commerce grows and the financial system becomes increasingly decentralized. A year or two of slowing growth when the underlying business is stronger than ever isn't a good enough reason to sell. Down around 40% from its high, PayPal looks like a great stock to buy now.”

Royston Yang, another Nobias 5-star rated author, highlighted his bullish stance on PayPal after the stock’s recent pullback in a recent article as well.   Yang put a spotlight on PayPal’s longer-term financial trends, sort of echoing the sentiment that Foelber expressed, with regard to the importance of looking past short-term issues to see the broader picture.

Yang wrote, “PayPal had strong financials even before the onset of the pandemic. From 2016 through 2020, its revenue nearly doubled from $10.8 billion to $21.4 billion. Operating leverage helped the company triple its net income over the same period.” He continued, saying, “Its momentum continued into 2021 with the top line climbing 20.3% to $18.5 billion in the first nine months of the year. Net income jumped 27.8% year over year to $3.4 billion.”

In short, even though PayPal disappointed during its Q4 quarter and forward looking guidance, the fact is, over a longer period of time, this stock has been a big winner for investors and bullish analysts believe that this trend can hold true moving forward once short-term growth concerns are overcome.

Prosper Junior Bakiny, a Nobias 4-star rated author, recently posted a bullish report on PayPal where he called the stock his “Top Fintech Stock to Buy in 2022”.  Bakiny touched upon the company’s recent weakness, which is largely based upon poor expectations of future growth; however, he believes that COVID-19 seasonality explains some of this 2021/2022 slowdown.  He said: “In 2020, PayPal's business experienced abnormal growth as customers shifted their habits at the onset of the pandemic. Indeed, PayPal itself referred to its second and third quarters of 2020 as some of the strongest recording periods in the history of the company in terms of financial performance.

However, consumer habits were bound to revert to something more resembling pre-pandemic norms eventually, and that's what happened last year. Given this factor, it's not surprising that PayPal's business didn't look as strong last year as it did in 2020. The fintech juggernaut wasn't the only one to experience this pandemic-induced dynamic.” And, Bakiny says, even though PYPL’s share price performance during 2021 was far from stellar, “Last year wasn't a complete dumpster fire for PayPal”.  He continued, providing a couple of potentially bullish catalysts for the stock moving forward.

Bakiny began by saying, “First, in the third quarter of 2021, PayPal announced that users of its peer-to-peer payment app Venmo would be able to pay for transactions on Amazon's main U.S. website with Venmo.” “Second,” he said, “PayPal acquired Japan-based buy now pay later (BNPL) company Paidy last year for $2.7 billion in cash; the transaction closed in September. BNPL allows consumers to submit payment for goods after buying them, often with no fees or interest.”

Bakiny quoted PayPal’s CEO, Dan Schulman, who recently spoke about this acquisition, saying, "This [acquisition] will accelerate our momentum in Japan, a strategically important market and one of the largest e-commerce markets in the world."

Ultimately, Bakiny believes that investors who can look past the short-term weakness and instead, focus on long-term growth opportunities here, will be rewarded. He concluded his report saying, “But zooming out helps offer perspective: PayPal has outperformed the broader market in the past two years, three years, and five years. Thanks to the opportunities it is pursuing through Venmo, its BNPL ventures, and others, PayPal is setting itself up to remain a leader in the fast-growing fintech market for many years to come.”

Another potentially fast growing market that PayPal could enter is the crypto space.  Stjepan Kalinic, a Nobias 4-star rated author, recently broke down PayPal’s balance sheet in early January, explaining why he believes that PayPal has the financial wherewithal to invest heavily into the crypto space, should management desire to do so.   At the end of Q3, he said, “PayPal Holdings had US$8.95b of debt, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$13.3b in cash, so it has US$4.35b net cash.”

Kalinic continued, noting that the company had $41.7 billion of liabilities on its balance sheet; however, he concluded, “Of course, PayPal Holdings has a market capitalization of US$220.4b, so these liabilities are manageable.”   Ultimately, Kalinic said, “Although PayPal Holdings' carries some debt, it is clearly positive to see that it has net cash of US$4.35b.The cherry on top was that it converted 130% of that EBIT to free cash flow, bringing in US$5.0b.Overall, it seems PayPal passes our debt risk checks. If the company decides to pursue the crypto strategy, it looks like it can certainly afford it.” And, looking at the updated financials from PayPal’s Q4 report, it appears that the balance sheet strength that Kalinic highlighted remains in place.

As of its most recent report, PayPal had approximately $5.2 billion in cash, $4.3 billion in short-term investments, and $800 million in accounts receivable. Overall, the company reported $75.8 billion in assets. This compares favorably to the $54 billion in total liabilities that PayPal reported, which included $8.05 billion in long-term debt.   And speaking of crypto currency, Keith Speights, a Nobias 4-star rated author, recently published an article highlighting 3 equities which he believes could produce returns greater than Bitcoin in 2022. One of those stocks was PayPal.

Regarding his bullish stance on PayPal, Speights said, “The shift to digital payments definitely ranks as an unstoppable trend. PayPal Holdings is a top leader in digital payments with 75% of the top 1,500 retailers in North America and Europe supporting its digital wallet. This makes PayPal an unstoppable stock, in my view.” Like Bakiny, Speights noted that PayPal continues to suffer from strong 2020 comparisons. He wrote, “Granted, PayPal didn't look unstoppable last year. Its shares plunged 19% during a bull market for most stocks. A big part of the problem was that the company's revenue growth slowed compared to 2020.”

However, he sees several strong growth opportunities for the stock ahead, echoing some of the sentiment already expressed above, “PayPal's buy now, pay later programs should fuel growth. Amazon.com now supports Venmo for online purchases. New features on the PayPal app (including support for trading Bitcoin and a few other cryptocurrencies) are attracting users. PayPal could bounce back significantly this year. And over the long run, the stock should truly be unstoppable.”

Overall, 90% of the reports that our algorithm has tracked regarding PYPL shares include “Bullish” opinions. And, when looking at the credible (4 and 5-star rated) Wall Street analysts that we follow, we see that the average price target attached to PYPL shares is currently $198.6. Today, PYPL trades for $115. This $218.40 fair value estimate is well below PayPal’s current 52-week high of $310.16; however, relative to PayPal’s current share price, it still represents upside potential of 73%.

Disclosure: Nicholas Ward is long PYPL. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/4/22 Nobias 2/4/22

FB with Nobias technology: Meta Platforms Just Fell 26%. Is This A Buying Opportunity?

Meta Platforms (FB) just broke a record…and not the kind of record that you want to see as a shareholder. After reporting negative subscriber growth for the first time during its fourth quarter earnings report on February 2, 2022 and offering disappointing guidance when it comes to future growth, FB shares posted the worst single session performance of all time, related to the amount of market capitalization that it lost.

Meta shares plunged more than 26% on Thursday, erasing more than $220 billion of market value.  And yet, while these losses are impressive, the fact of the matter is, Meta remains highly profitable (the company produced more than $39 billion in net income during 2021, which was up 35% on a year-over-year basis). The market is fearful of slowing growth, but FB just posted $117.9 billion in full-year revenue, which was up 37% compared to 2020’s result. The company generated $12.5 billion of free cash flow during Q4 alone, pushing its full-year 2021 free cash flow figure up to $38.4 billion. And, at the end of its fiscal 2021, Meta Platforms has $48 billion of cash/cash equivalents on its balance sheet.

After its massive sell-off, at $237.76/share, FB is now trading for less than 17x forward earnings estimates (right now, the consensus Wall Street estimate for FB’s 2022 earnings-per-share is $14.17).   In short, this company is trading at a significant discount to its own historical average (FB’s 5-year average price-to-earnings multiple is 26.8x) and the broader market’s forward P/E ratio as well (the S&P 500 is trading for approximately 19x forward earnings estimates after its recent dip).

Has this growth stock transformed into a value stock? Should investors consider buying this dip? We start by looking at what the credible authors and analysts that the Nobias algorithm tracks have had to say. Nicholas Rossolillo, a Nobias 5-star rated author published an article in mid-January which highlighted one of the major catalysts driving the negative momentum in high growth stocks like Meta Platforms: rising interest rates.  He explained, “Higher interest rates lower the future value of cash flows, which in turn lowers the present value of a stock. Since high-growth companies are expecting the biggest increases in future profitability, they can be extremely sensitive to changes in interest rates. With the Fed indicating it might hike rates four times this year, 10-year Treasury yields have gone from as low as 1.4% last month to nearly 1.8% today.”

At a high level, the sentiment regarding rising rates and its impact of equity valuations has caused investors to rotate out of growth stocks and into more defensive, value oriented names. This has done a lot of damage to the share prices of stocks like FB. However, Rossolillio believes short-term share price weakness here represents an attractive opportunity for long-term investors.   He said, “Bouts of extreme volatility are gut-wrenching, but if you bought any of these three stocks or another high-growth name, stay focused on their long-term potential. Assuming business momentum continues, sharp sell-offs like this most recent one are totally normal for all growing companies.”

Moving from the macro to the micro, Richard Saintvilus, a Nobias 5-star rated author, recently posted an article highlighting the consensus expectations that Wall Street had for Meta’s Q4 results.   He said, “For the three months that ended December, the Menlo Park, Calif.-based company is expected to earn $3.84 per share on revenue of $33.38 billion. This compares to the year-ago quarter when earnings came to $3.88 per share on revenue of $28.07 billion. For the full year, earnings are projected to rise 38% year over year to $13.92 per share, while full-year revenue of $117.66 billion would rise 36.9% year over year.”

FB beat Wall Street’s estimates on the top-line, posting Q4 revenue of $33.67 billion (up 20% y/y), but the company missed the consensus estimate for EPS, posting Q4 GAAP EPS of $3.67.  But, as I said, the sell-off here wasn’t really about the Q4 sales or earnings, but instead, the fact that FB lost roughly 500,000 global users during the 4th quarter, which is not something that investors are used to seeing. Furthermore, the company guided for Q1 revenue of $27-$29 billion, which was well below the $30.27 billion consensus.

This guidance equates to year-over-year growth estimates of 3-11%; the threat of single digit sales growth here has certainly changed the sentiment surrounding this stock.  Yet, reading through recent reports on Meta Platforms, it appears that all is not lost for this company. Yes, it looks like social media related growth may be slowing, but as several Nobias 5-star rated authors have recently pointed out, the metaverse remains a tremendous growth opportunity for this company.

Manali Bhade, a Nobias 5-star rated author, posted a bullish piece on Meta Platforms on January 7th, highlighting her belief that the company’s transition into the metaverse could be a significant growth catalyst moving forward.   In her piece, Bhade touched upon FB’s solid 2021 performance, noting that FB continues to post strong fundamental growth and maintains one of the strongest balance sheets in all of Silicon Valley. However, looing ahead to 2022 and beyond, she’s even more bullish.

Bhade wrote, “Things, however, may improve significantly in 2022, especially now that Meta is focused on rebranding itself as a frontrunner in the $30 trillion metaverse market (estimated market value at end of the next decade according to Matthew Ball, Epyllion's CEO).

In the past few years, the company has been strengthening its portfolio for this opportunity with a spree of acquisitions such as leading immersive virtual reality hardware player Oculus VR, game studio BigBox VR, and maker of free-to-play game creation and sharing tool Unit 2 games. Coupled with Meta's prowess in social networking, a huge and engaged customer base, and increasing capital expenditure investments (in data centers, servers, network infrastructure, artificial intelligence, and machine learning capabilities), the company is well poised to be a winning play in 2022.” Bhade concluded her Meta Platforms analysis saying, “Against the backdrop of a robust advertising business, healthy financials, and a reasonable valuation, Meta seems to be an attractive pick for 2022.”   It appears that investors who are bullish on augmented reality, virtual reality, and ultimately, the metaverse, are going to have to be patient.

During Q4, Meta Platform’s Reality Labs segment, which is responsible for these industries, posted net losses of $3.3 billion. This Q4 result pushed Reality Lab’s full-year net loss up to approximately $10.2 billion.  However, it’s worth noting that many analysts, including those bullish on FB shares, have already built in these high expenses into their valuation models.

For instance, in late December Rossolillo called Meta one of his “3 Top Large-Cap Growth Stocks to Buy for 2022” and noted the company’s ability to use present cash flows and its strong balance sheet position to fund its aspirations in the metaverse.

Rossolillo said, “It will take time for the ramped-up spending to pay off, but even so, Meta will be highly profitable next year. Trailing-12-month free cash flow was $35.8 billion, good for a free cash flow profit margin of 32%, with an additional $58 billion in cash and short-term investments on balance as of the end of September. Suffice to say Meta can continue to invest aggressively for the foreseeable future to promote steady double-digit percentage growth. In spite of myriad bad press, the social media giant will be more than just fine as it starts work on the next iteration of online experiences.”

Harsh Chauhan, another Nobias 5-star rated author, also recently highlighted Meta Platform’s metaverse aspirations and his belief that the company is in the pole position in the race when it comes to this revolutionary technology.  He said, “Meta plans to increase its investment in this area in the long run, so it won't be surprising to see it dominate a market where it already has a head start.”   Chauhan continued, “For instance, Meta leads the VR headset market by a huge margin. Counterpoint Research estimates that Meta's Oculus VR headset controlled 75% of the market in the first quarter of 2021, recording a massive increase from its market share of 34% in the prior-year period.”

Putting a spotlight on the potential size of the augmented/virtual reality market in the relative near-term, Chauhan wrote, “Counterpoint Research estimates that AR/VR headset shipments could jump to 105 million units in 2025 from an estimated 11 million units last year.”   Chauhan says that Meta is working on its next generation virtual reality headset, which is “projected to hit the market in 2023.” He also notes that Meta recently entered into a partnership with Ray-Ban parent EssilorLuxottica to develop smart glasses.

The smart glasses space is a potentially large market for FB to enter; Chauhan wrote, “This could unlock another opportunity for Meta as Mordor Intelligence expects the smart-glass market to generate almost $8 billion in revenue by 2026 compared to $3.9 billion in 2020.”

Without a doubt, this company has a lot going on. FB is trying to better monetize video content on its social media platforms, it’s trying to maintain its global user base and it’s trying to develop revolutionary technology which could usher the world into the next internet age.  And, with this in mind, even after its recent pullback, it appears that the vast majority of authors and analysts that we track remain bullish on the stock.  85% of opinions expressed by credible authors recently have been bullish.  And, looking at the 4 and 5-star Wall Street analysts that we track, the average price target being applied to FB shares is $398.33.

After the poor guidance and the drop in share price, we wouldn’t be surprised to see analysts coming out of the woodworks with downgrades in the coming days and weeks. However, the current average price target represents upside potential of approximately 67.5%, so even if there are widespread downgrades, it appears as if FB has a very wide margin of safety attached, trading with a sub-market multiple.

Disclosure: Nicholas Ward is long FB. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 2/1/22 Nobias 2/1/22

SBUX with Nobias technology: Down 24% from 52-Week Highs, Is Starbucks A Buy?

Starbucks (SBUX) has long been one of the top performing consumer discretionary names in the entire stock market.  Over the last decade, SBUX shares are up north of 310%, which beats the S&P 500’s performance during this same period of time by a wide margin (the SPDR S&P 500 Trust ETF (SPY) is up 244.70% during the trailing 10-year period).

However, in recent years, SBUX has underperformed its sector, as well as the broader market, as we’ve seen a change in leadership (in 2018, Starbucks’ founder, Howard Shultz, stepped down from his CEO position) and concerns surrounding slowing growth as this $100+ billion company matures.

Right now, many analysts fear that SBUX’s market position in the U.S. is largely saturated, which means that the company’s growth prospects come primarily from international markets - namely China.  SBUX has made a big bet on China over the last 5 years or so, and while this bet has been largely successful thus far, the potential of regulatory pressure from Chinese leadership is always going to be a threat for foriegn companies.

What’s more, as the company matures and its growth rate slows, we’ve seen a bit of a re-rating of the stock’s valuation in the post-pandemic period as well. SBUX has always been known for its premium valuation, trading for more than 30x earnings for much of the last decade, because of its reliable growth, strong cash flows, and generous shareholder returns. But, with the threat of a hawkish Fed and rising interest rates on the docket, we’ve seen Starbucks get lumped up with the speculative growth stocks that have sold off in recent weeks.

Starbucks shares are down 16.45% on a year-to-date basis, underperforming the S&P (which is down roughly 7.5% at the moment) by a wide margin.  This negative year-to-date performance has resulted in SBUX’s trailing twelve month performance coming in at -3.86% (once again, trailing the broader market, which is up 19.87% during this same period).

This recent sell-off has resulted in SBUX’s forward price-to-earnings multiple falling to roughly 28x, which is a level that we haven’t seen since the depths of the COVID-19 crash in March of 2020.  And therefore, with these multi-year lows (in terms of valuation) in mind, we wanted to take a look at what the credible authors and analysts that are Nobias algorithm tracks have had to say about the stock recently.  SBUX shares are down 24% from their 52-week highs. Are shares a buy here?

Geoff Considine, Ph.D, a Nobias 4-star rated author, recently published an article on Investing.com titled, “Despite Underperforming In 2021, Starbucks' Outlook Is Bullish”.  He began the piece, highlighting the industry wide headwinds that Starbucks continues to face - “inflation, supply-chain constraints, rising wages” - and then continued to say that the company has two major threats that are fairly specific to its current business model/operations that it must overcome to return to growth/good favor with investors.

Dr. Considine wrote, “The first is the increasing traction of labor unions and the company’s efforts to dissuade workers from joining unions. The second is maintaining growth in China in the face of growing competition from Chinese firms. With 5,000 Starbucks locations, China is the company’s largest market outside of the US and represents the highest potential growth opportunities.”

Considine mentioned that when performing equity analysis he often relies on consensus data, noting that, “E-Trade calculates the Wall Street consensus by combining the views of 23 ranked analysts who have published ratings and price targets for SBUX over the past 90 days. The consensus rating is bullish and the consensus 12-month price target is 28.7% above the current price.” He continued, saying, “Investing.com calculates the Wall Street consensus based on the views of 35 analysts. The consensus rating is bullish and the consensus 12-month price target is 26.9% above the current share price.”  This factors into his bullish stance - in short, looking at the consensus data, he believes that SBUX’s recent sell-off is “unwarranted”.

So, even though he acknowledges that “Starbucks has underperformed over the past 12 months, largely due to the high growth expectations that were reflected in the share prices.” And that, “The shares have declined more than the broader market, not least due to discounting of growth stock earnings as interest rates rise.” Dr. Considine says, “I am maintaining my overall bullish rating on SBUX” largely due to the divergence between consensus estimates and the current share price and the ongoing growth potential for Starbucks in the Chinese market, which he says, “continues to be compelling”.

Another recent article published by Dee-Ann Durbin, a Nobias 5-star rated author, highlights recent China weakness as a primary catalyst for SBUX’s poor share price performance.  Durbin said, “Starbucks had a strong holiday season in the U.S. but weaker sales in China as it’s ended the second year of the pandemic.”

Durbin noted that during Starbuck’s most recent quarter, same-store-sales growth in the U.S. came in at 18%, showing strong growth as the U.S stores bounce back from the pandemic period; however, Durbin was quick to point out that ongoing lockdowns in China led to same-store-sales figures of -14% in that region.

The U.S. is a much larger region for Starbucks and therefore, the strong growth that the company produced domestically allowed for strong overall growth.  Durbin wrote, “Starbucks’ revenue rose 19% to $8.1 billion in its fiscal first quarter. That was ahead of Wall Street’s forecast for revenue of $7.89 billion, according to analysts polled by FactSet. Overall same-store sales growth of 13% was in line with expectations.”

And, during the recently fiscal Q1 conference call, Starbucks’ CEO, Kevin Johnson said that he believes that the recent China issues are going to prove to be transitory, saying: “In our other lead market, China, the zero-COVID policy there contributed to significant disruption to store hours and transaction volume. Net new store growth and performance remained strong, yet overall revenue and profitability came in below expectations. While we believe that these dynamics are temporary, we are focused on appropriately navigating the evolving macro dynamics and balancing long-term investments in the business.”

Chinese same-store-sales aren’t the only issue that SBUX is combating at the moment. Even with overall sales on the rise, as Considine pointed out, raw material costs and wage inflation is leading to lower margins for the company and therefore, potential trouble when it comes to bottom-line growth.  SBUX missed earnings expectations during its most recent quarter, producing $0.72/share in non-GAAP EPS which was $0.08/share below Wall Street’s estimate.  And, right now, the consensus earnings growth estimate for SBUX in 2022 is just 5%.  This mid-single digit growth figure is well below the double digit annual growth that SBUX investors have become used to over the last decade or so.

Durbin touched upon the wage inflation issue saying, “In October, the company said it was raising workers' pay to ensure a steady workforce amid labor shortages. The company said all of its U.S. workers will earn at least $15 — and up to $23 — per hour by this summer. Workers can also get a $200 recruitment bonus to help attract new employees.”

However, this hasn’t been enough to stem the tide of rising calls for unionization.  Durbin continued, “But the announcement didn't pacify some workers, who are calling for more say in the way the company's stores are run. Two Starbucks stores in Buffalo, New York, recently became the first Starbucks stores to unionize in decades, setting off a wave of union activity at other stores across the country. As of this week, 54 stores in 19 states have filed for union elections, according to Workers United, the union organizing the effort.”

Therefore, it appears that wage inflation and the threat of unionization remains in place for SBUX management to contend with and this must be addressed before the company is going to be able to show margin improvements.

However, even with these headwinds in place, the recent sell-off that SBUX has experienced and the uniquely low valuation that shares are trading at today continue to create bullish sentiment around shares, according to the Nobias algorithm.  80% of the recent opinions that we’ve analyzed from credible authors have come in with a “Bullish” lean. And, the current average price target being applied to SBUX shares by the credible Wall Street analysts that we track is $116.46.

Today, SBUX shares trade for just $95.94, meaning that this $116.46 price target equates to upside potential in the 21% area.  $116.46 is still well below SBUX’s current 52-week high of $126.32. SBUX closed the trading session on 12/31/2021 at $116.97. Therefore, the average price target here - and the 21% upside potential associated with it - essentially calls for SBUX to regain the losses that it has experienced throughout 2022 thus far.

Such a rebound doesn’t seem like it is out of the realm of possibility, especially if broader sentiment changes around the growth stocks which have experienced weakness throughout 2022 because of a hawkish Fed.   Looking past 2022 headwinds and forward to 2023 earnings growth consensus, the analyst community is currently projecting that SBUX posted EPS growth of 18%.  This implies that the market believes that the company’s 2022 headwinds will prove to be temporary (just as Johnson said).  And, if this is indeed the case, buying into this 24% sell-off could result in strong long-term gains.

Disclosure: Nicholas Ward is long SBUX. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/28/22 Nobias 1/28/22

MSFT with Nobias technology: Down Nearly 10% From All-Time Highs, Is Microsoft A Buy?

Microsoft is currently the world’s second largest company (in terms of market capitalization). This $2.25 trillion company is in many investors’ portfolios because its diverse operations, strong balance sheet, and reliable cash flows allow investment managers who hail from many different schools of thought to own MSFT shares.

MSFT is one of only 2 companies in the world with a AAA-rated balance sheet (the other is Johnson and Johnson). For reference, this means that MSFT’s credit is considered to be of higher quality than the United State’s government’s (the U.S. government’s credit rating is AA+ after a 2011 downgrade). With that in mind, investors who focus on high quality defensive assets tend to own MSFT.

Microsoft is also a leader in several of the strong secular growth markets in the technology space (such as the cloud, data storage, artificial intelligence, digital security, and gaming). This means that growth oriented managers have been known to flock towards MSFT as well.  And lastly, Microsoft is known to return billions upon billions of dollars to its shareholders every year, in the form of a reliably growing dividend (Microsoft has increased its dividend for 20 consecutive years and sports a 10-year dividend growth rate of 13%). This means that even income oriented investors are often attracted to this high growth tech stock.

Needless to say, the company’s $2 trillion+ market cap hasn’t happened by accident. MSFT has been one of the top stocks in the market for years now (during the last 5 years, Microsoft shares are up 368.62%, which is well above the 93.02% gains that the S&P 500 has posted during the same period). And yet, recently, we’ve seen shares sell off alongside the broader markets during recent weeks.

Microsoft shares are down 9.67% during the last month on the heels of Microsoft’s recent Q2 earnings report and breaking news that the company was attempting to make it largest M&A deal ever (by acquiring gaming company, Activision Blizzard (ATVI) in an all-cash deal valued at approximately $68.7 billion). Therefore, we wanted to take a look at what the credible authors and analysts that we track with the Nobias algorithm have to say about this company and its stock to see whether or not this roughly 10% dip is something that investors should consider buying.

When Microsoft reported its Q2 fiscal 2022 earnings on January 25th, the company beat Wall Street’s estimates on both the top and bottom lines.  Microsoft posted quarterly revenues of $51.7 billion, which were up 20% on a year-over-year basis. On the bottom-line, MSFT beat estimates as well, posting diluted earnings-per-share of $2.48, which represented 22% year-over-year growth.

During the company’s earnings report, Microsoft’s CEO, Satya Nadella, said: “Digital technology is the most malleable resource at the world’s disposal to overcome constraints and reimagine everyday work and life. As tech as a percentage of global GDP continues to increase, we are innovating and investing across diverse and growing markets, with a common underlying technology stack and an operating model that reinforces a common strategy, culture, and sense of purpose.”

During Q2, MSFT saw double digit sales growth across all of its major operating segments. The company’s Productivity and Business Processes segment posted revenue of $15.9 billion which represented 19% y/y growth. The company’s Intelligent Cloud segment revenue came in at $18.3 billion, up 26% y/y. And, Microsoft’s Personal Computing segment posted sales of approximately $17.5 billion, up 15% y/y.

The company ended the quarter with more than $125 billion in cash and cash equivalents on its balance sheet, compared to just $48.2 billion of long-term debt. And, Microsoft noted that it returned $10.9 billion to shareholders during the quarter in the form of dividends and buybacks, which was 9% more than it did during the second quarter a year before.

So, from an operational standpoint, the results were seemingly all positive. And, Nobias 4-star rated author, Anthony Di Pizio noted that these strong results make Microsoft one of his favorite defensive stocks to “buy in tough times ”.   He said, “In a difficult market, owning diversified companies can help to protect against excessive downside. Microsoft operates a portfolio of globally recognized businesses that perform well in different environments, so when one is struggling due to external factors like economic uncertainty, others often pick up the slack.”

Di Pizio appeared to be bullish on Microsoft’s recent Activision Blizzard acquisition, saying, “Microsoft's gaming business is especially interesting because the company recently acquired developer Activision Blizzard, which is best known for its Call of Duty series.

On the business diversity front, this acquisition adds yet another arrow to Microsoft's quiver.” “But,” he says, “the company's largest segment by revenue is actually cloud services, driven by its Azure platform.” And, Di Pizio appears to be bullish here as well, noting, “Microsoft Azure offers over 200 products and 40 solutions, including a platform to build advanced technologies like artificial intelligence and machine learning. Azure is used by 95% of the Fortune 500 companies.” He mentioned that during Microsoft’s fiscal year in 2022, the company is expected to post sales of $196 billion and earnings-per-share of $9.22.   He continued, saying that these two figures represent compounded annualized growth rates of 17% and 26%, respectively, since the start of fiscal 2020.

In other words, Microsoft’s business has managed to continue to grow at a strong double digit clip throughout the COVID-19 recession period, which factors into his favorable outlook on shares during times of high market volatility.   And, overall, it appears that Di Pizio is not alone in this bullish stance.

This week the Nobias algorithm spotted Joseph Bonner of the investment firm Argus, who is rated as a Nobias 5-star analyst, establishing a $371/share price target on MSFT shares. With this new price target taken into account, the average price target being applied to Microsoft from the credible analysts that we track (only those with Nobias 4 and 5-star ratings) now comes in at $363.57.

Today, MSFT shares trade for $308.26, which means that this average price target represents an upside potential of approximately 17.9%.  92% of the credible authors that we track express bullish opinions on MSFT shares as well.   All in all, looking at the outlooks and opinions analyzed by the Nobias algorithm, it does appear as though Microsoft’s recent pullback represents an intriguing opportunity to accumulate shares.

Disclosure: Nicholas Ward is long MSFT. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/25/22 Nobias 1/25/22

NVAX with Nobias technology: After A Poor Performance During 2021, Can Novavax Rebound This Year?

Throughout the COVID-19 pandemic period the vaccine producers have been in the spotlight. Shares of Pfizer (PFE), BioNTech (BNTX), Moderna (MRNA), and Johnson and Johnson (JNJ) have all had a regular place in the healthcare spotlight because of their vaccines. Pfizer and BioNTech have been the biggest winners here, with their shares up 51.51% and 47.47%, respectively, during the trailing twelve months. Moderna and Johnson and Johnson haven’t fared so well, trailing their peers, the healthcare sector, and the broader market, with trailing twelve month gains of just -0.05% and 1.55%, respectively. However, there is another company working hard on COVID-19 vaccines (which is usually outside of the spotlight). And, its shares have performed the worst, by far, compared to the stocks mentioned during the last year or so. After posting returns of approximately 3000% during 2020, Novavax (NVAX) shares have fallen 38.12% during the past year. With this major underperformance in mind, we wanted to take a look at what the credible authors and analysts that the Nobias algorithm tracks have had to say about the stock. Could this relative underperformance be creating a buying opportunity?

In general, Vaccine stocks have suffered in recent weeks, because there is a growing concern surrounding the long-term viability of the vaccines against the ever mutating COVID-19 virus. George Budwell, a Nobias 4-star rated analyst recently published an article highlighting his favorite 2 COVID-19 growth stocks for 2022. To begin the piece, he highlighted the uncertainty surrounding the potential longevity (and eventual end) of the COVID-19 pandemic, saying: “In brief, immunologists and epidemiologists alike have started to float the idea that the highly infectious omicron variant might ramp up natural immunity to the virus around the globe, sparking the end to the pandemic phase of the outbreak and marking the beginning of the endemic phase. The endemic phase is expected to be characterized by seasonal outbreaks in COVID-19, much like the flu.”

So, what does this mean for the vaccine makers?  Budwell wrote, “the endemic phase won't result in a complete drop-off in demand for COVID-19 products. If anything, this next stage of the outbreak ought to result in sustained, albeit lower, demand for these life-saving products in the years ahead.”

Budwell named Novavax as one of his top 2 COVID-19 picks, but he was quick to highlight the concerns surrounding the stock which have led to its relative underperformance.  He said, “Investors appear to [sic] concerned that Novavax's novel coronavirus vaccine will enter the U.S. market too late to compete effectively against the mRNA juggernauts from Pfizer and Moderna.”

Budwell favors Novavax, in part, because of the ongoing vaccine hesitancy that we continue to see in the U.S. (and in other markets as well).  He wrote, “The fact is that there is still a large contingent of Americans who would prefer a more traditional protein-based vaccine like the one from Novavax, compared with a novel mRNA vaccine.”  And overall, he believes that NVAX shares are simply too cheap.

Budwell concluded his article writing, “The biotech's stock is now trading at less than 3 times Wall Street's most pessimistic 2022 sales forecast. What's more, the company could have another blockbuster product on the market at some point in the near future with its flu vaccine NanoFlu. And if Novavax's shares fail to rebound soon, this novel vaccine maker might simply get bought out by one of the many big pharmas that missed the boat on the COVID-19 vaccine opportunity.”

Budwell isn’t the only credible author that we track who believes that NVAX shares are cheap.  Nobias 5-star rated Taylor Carmichael recently published an article at The Motley Fool which also highlighted a bull case for NVAX shares.  Regarding valuation, Carmichael said, “One, the stock is downright cheap right now. Novavax sports a forward price-to-earnings (P/E) ratio of 3.39, while Moderna is three times as expensive at a P/E of 10.63. I expect these ratios to come into alignment once Novavax starts shipping 2 billion doses of the COVID vaccine this year.”  He continued, citing manufacturing delays, not drug quality, as the reason for NVAX’s recent underperformance.

Carmichael wrote, “Novavax's vaccine candidate had outstanding results in phase 3 trials. Some observers have called it best-in-class. But the stock's been hammered while Novavax has tried to scale up manufacturing while assuring regulators that the vaccine doses from the plants are just as pure as the ones used in clinical trials.”  He expects these delays to end in the near-term, saying, “Now, authorities around the world are signing off on its vaccine candidate. Novavax expects to file with the Food and Drug Administration this week. As the biotech ships more and more vaccine doses out into the world, the stock will resume its epic run upward.”

Faisal Humayun, a Nobias 5-star rated author, is also bullish on NVAX’s manufacturing capabilities moving forward, highlighting the company’s long-term plans in this regard in a recent article.  Humayun said, “From a manufacturing perspective, the company already has a capacity of 150 million doses per month. Novavax also has licensing agreements in India, South Korea and Japan. This boosts their overall manufacturing capability.”

Humayun also said that Novavax is working on several combo vaccines, including one that will protect patients from both COVID-19 and the flu. Humayun continued, “From a long-term perspective, Novavax is building a strong pipeline of vaccines. Clinical trials are ongoing for Covid-19, seasonal influenza and combination vaccines. The company has also initiated trials for a combination of NanoFlu and respiratory syncytial virus (RSV) vaccine.”

Carmichael is also bullish on the future of the company’s vaccine portfolio, in large part, because he thinks that the safety profile of the NVAX vaccine may allow it to quickly gain market share once it’s approved.  Carmichael said, “The first-round mRNA vaccines are highly safe (definitely safer than staying unvaccinated). Nonetheless, there's a tiny risk that an mRNA booster in young people might cause heart inflammation, specifically myocarditis and pericarditis. The Novavax vaccine doesn't seem to have this risk and might win market share on this basis alone.”

Lastly, he also believes that “Novavax has a commanding lead over Moderna in flu vaccines” and therefore, the longer-term prospect of a combo COVID-19/flu vaccine would be a big winner for this company in the event that the pandemic turns endemic and the world requires annual boosters.

Adria Cimino, another Nobias 5-star rated author, recently published an article on NVAX where she too highlighted the importance of vaccine approval and rollout for this company’s near-term prospects.  Cimino noted that the “European Commission authorized the vaccine in late December” and therefore, “Novavax said doses will start arriving in Europe this month.”   She continued, saying, “Novavax has signed an advance purchase agreement with the European Union for the delivery of as many as 200 million doses through next year.”

Cimino mentioned that the pricing of these doses is unknown; however, if the NVAX vaccines contracts land in the ~$20 area (which is the price point where Cimino says that its rivals often sell their vaccines) then this EU delivery could represent sales of approximately $4 billion.  She noted, “That's huge for a biotech company's very first commercialized product.”

And, that’s just in the EU. The U.S. is another major market for NVAX and like Carmichael said, bullish investors believe that NVAX will receive emergency use authorization in the U.S. in the near future.  Cimino wrote, “Early in the vaccine race, the U.S. awarded Novavax $1.6 billion in funding for its program. As part of the deal, the company would produce 100 million doses for the U.S. So, if authorized, Novavax's vaccine will get its chance to enter the U.S. market”

With bullish sales/earnings prospects in mind, Cimino wondered whether or not it was possible for NVAX shares to reach some of the highest price targets that are currently being applied to shares on Wall Street, which generally hover in the $300/share area.

Today, NVAX trades for $82.92, which means a $300 target represents upside potential of roughly 260%.  In an attempt to justify that massive rally, Cimino said, “let's do some math.” She continued, saying, “The current earnings per share estimate for Novavax this year is $25.71. If the stock were to rise to $300, it still would be reasonably priced in relation to that level of earnings. Novavax would have a price-to-earnings ratio of about 11. By comparison, Moderna today is trading at about 14 times trailing-12-month earnings.” With that in mind, she concluded that a major rally from here is certainly possible.

Cimino wrote, “As always, biotech stocks that depend heavily on one product remain high-risk. Any disappointment could crush the shares. But if Novavax successfully manages this next chapter in its vaccine story, it's possible this biotech stock could reach analysts' highest forecasts.” NVAX’s 52-week high is $331.68 - a level that the shares reached back in February of 2021. And looking at the credible Wall Street analysts that the Nobias algorithm tracks, it appears that they believe the stock can return to these prior highs.

Right now, the average price target being applied to NVAX shares by the credible analysts that we track is $335.33. This represents upside potential of approximately 300%. However, it is important to note that the credible authors that we track are slightly less bullish.

70% of the reports published by credible authors that we follow are bullish; however, the other 30% of opinions which lean bearish continue to remain focused on the lack of U.S. approval and ongoing market share concerns.

It’s clear that NVAX has upside potential, but without U.S. approval of its COVID-19 or the combo vaccines that it’s working on in its pipeline, the stock’s growth story remains speculative. But, all equities are risk assets and overall, the majority of both the authors and analysts that we track appear to believe that the risk/reward scenario applied to NVAX shares after its recent sell-off is an attractive one.

Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long JNJ and PFE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/21/22 Nobias 1/21/22

BABA with Nobias technology: Can Alibaba Shares Overcome Regulatory Pressures and Continue Their 2022 Rebound?

BABA ended 2021 on a down note, closing the year near its current 52-week low of $108.70. This ~$109 level was roughly 60% below BABA’s 52-week high price of $274.29. This significant sell-off continues to drive interest from dip buyers who are brave enough to attempt to time the bottom. And yet, the negative momentum that the stock has experienced during the last year or so remains largely in place, meaning that contrarian investors continue to struggle with this stock.

We’ve covered Alibaba several times in recent months at Nobias Finance; however, the stock continues to be one of the most reported on names, by both Wall Street analysts and the credible authors that we track who cover the equity space, because of its large size and the volatility that its shares continue to experience.

BABA ended 2021 on a down note, closing the year near its current 52-week low of $108.70.  This ~$109 level was roughly 60% below BABA’s 52-week high price of $274.29.  This significant sell-off continues to drive interest from dip buyers who are brave enough to attempt to time the bottom. And yet, the negative momentum that the stock has experienced during the last year or so remains largely in place, meaning that contrarian investors continue to struggle with this stock.

In today’s piece we wanted to take another look at the BABA narrative to see if anything significant has changed, with regard to the macro hurdles that the company faces and/or the outlook on the Nobias community (which, in the past, has been very bullish on BABA).  To start things off, we’ll take a look at a recent report published by Billy Duberstein, a Nobias 4-star rated author, which covers the ongoing pressure that Chinese regulators are putting on this company.

Duberstein said, “The market remains focused on the activity of Chinese regulators and the company’s attempts to get out of regulatory spotlight. In case Alibaba is able to get back to “business as usual” without the constant pressure from regulators, its shares will get immediate support. However, it remains to be seen whether Alibaba will have this opportunity in 2022. He continued, “China has firmly decided to curb the power of tech companies, and the country does not look worried about financial consequences of its moves.” With this in mind, he notes that one of the latest headlines directly related to regulatory pressures was the catalyst which caused a recent BABA sell-off.

Duberstein touched upon reports that Alibaba was interested in selling its interest in Weibo to a state owned media enterprise, which sparked fear amongst investors that ongoing pressure was still being put onto the eCommerce giant by the Chinese Communist Party.  Duberstein said, “According to the report, Alibaba wants to sell its stake in Weibo to reduce its influence in the media sphere. The company aims to become less powerful in this important market segment due to the pressure from Chinese authorities, who have been focused on limiting the power of Chinese tech companies this year.”

In a separate article by Duberstein published at The Motley Fool in late December, he continued to discuss the bearish regulatory hurdles that BABA faces saying, “On Sunday, Gan Lin, the chief of China's Anti-Monopoly Bureau, said that his unit would step up enforcement of anti-monopoly rules and regulations. While much progress has already been made, Gan claimed that some businesses in China's new tech economy have faced "insufficient punishment" for anti-competitive behaviors.”  He continued, “This likely wasn't what Alibaba or Chinese technology investors wanted to hear, as Alibaba has already been through so many regulatory assaults over the past year. Many likely hoped the campaign would be coming to an end by now, but Gan's comments seemed to throw cold water on that thought.”

Chris Lau, a Nobias 4-star rated author, published an article at Baystreet in early January which put a similar spotlight on the regulatory issues that BABA faces.  Like Duberstein, Lau highlighted the recent Weibo issue, as well as the billion dollar contributions that BABA has pledged to make to the Chinese Communist Party’s “Common Prosperity” plans, as recent punishments that Alibaba has faced due to alleged anti-competitive behavior. Lau also said that “Beijing reportedly halted its cloud partnership [with Alibaba]. The government said that Alibaba did not tell China’s communications regulator about the Apache Log4j2 vulnerability.”

Lau wrote, “The CCP never forgets those who speak against it.”  And therefore, it’s unclear as to when, or even if, the regulatory headwind will be lifted from BABA’s shoulders.  Lau said, “In the year ahead, the government will weaken Alibaba’s dominance. This will give competitors in the e-commerce, video, and cloud markets a chance to take market share. Investors are expecting revenue growth to slow to around 20% Y/Y. BABA stock reflects the dramatic slowdown.”  And therefore, with these seemingly artificial pressures being put onto BABA, it’s very difficult for investors to evaluate the company (due to uncertainties surrounding its medium-to-long-term fundamental growth outlook).

Tyler Bundy, a Nobias 4-star rated author, recently published an article at Bezinga which included technical analysis of BABA shares.  In his piece, Bundy points out that Alibaba shares are “nearing resistance in what traders call a downward channel. The stock has been unable to cross the pattern resistance in the past which has led to a downward trend. If the stock can cross above this resistance line it may see a change in trend and could begin to form an upward trend.”

He continued, saying, “The Relative Strength Index (RSI) has been climbing higher the past month or so and sits at 60. This shows buyers have been moving back into the stock and signals a reversal may be happening.” He concluded the report saying, “The price has been moving in this downward trend for months and now looks like it may be starting to turn around. If the price can cross back above the pattern resistance, it may be a hint the stock is seeing a reversal and could begin to start climbing for a period of time.”

Thus far in 2022, BABA shares are performing well. As of January 19th, they’re up 8.26% on a year-to-date basis. So, it appears that the technicals that Bundy points out have merit.  Furthermore, it’s not just a technical story at play here. ValueInvestingNews, which is a Nobias 4-star rated author, recently published a report which highlighted the fact that famed value investor, Charlie Munger, who is famous for his fierce focus on company fundamentals and attractive margins of safety, recently added to his Alibaba position.

Anusuya Lahiri, another Nobias 4-start rated author, recently published two pieces at Bezinga, both of which highlight recent bullish calls made by Wall Street traders.  In this article, Lahiri points out that Benchmark analyst, Fawne Jiang, re-interated a “Buy” target on BABA shares with a $235 price target (which implied upside potential of roughly 94% on January 6th when the call was made).  And in this article, Lahiri highlights a bullish outlook on BABA shares by Stonehorn Global Partners CEO Sam Le Cornu.  She quoted Le Cornu as saying, "Based on valuations and the earnings outlook, we see that it's a buying opportunity."

Overall, when looking at the data collected by the Nobias algorithm, it appears that the credible authors that we track continue to agree with the bulls when it comes to BABA shares.  86% of recent articles published by credible individuals (those with 4 and 5-star ratings) have expressed a “Bullish” sentiment.  And, when looking at the credible Wall Street analysts that we track (once again, those with Nobias 4 and 5-star ratings) we see an average price target of $207.14 being attached to BABA shares.

Today, after the stock’s strong year-to-date rally, BABA trades for $123.23. Therefore, with this $200/share price target in mind, we’re talking about upside potential of approximately 60%.  Needless to say, the tug-of-war between the bulls and the bears here, largely driven by macro uncertainties related to Chinese regulatory pressure on Alibaba’s business which might limit its ability to grow, continues to rage on.  And, there doesn’t appear to be a clear end in sight here.  However, the credible authors and analysts that we track appear to be willing to stomach this regulatory risk because of the relatively cheap valuation being applied to shares.

Disclosure: Nicholas Ward has no BABA position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/19/22 Nobias 1/19/22

UNH with Nobias technology: Can United Healthcare Stock Overcome The Omicron Variant?

United Healthcare (UNH), which is a leader in the managed care and insurance industry, has become known for its top notch performance within the broader healthcare space.  During the last decade, UNH shares have posted capital gains of 782.28% (drastically outperforming the S&P 500, which was up 232.96% during this same period of time).  Not only is UNH known for strong share price appreciation, but reliable shareholder returns as well.  UNH currently offers investors a dividend yield of 1.26%, boasts a 12-year annual dividend growth streak, and 5 and 10-year dividend growth rates of 18.7% and 24.8%, respectively.

During 2011, UNH paid shareholders $0.61/share in dividends. In 2021, UNH paid shareholders $5.60/share in dividends. In other words, we’ve seen this company’s dividend increase by nearly 820% during the last decade alone, which is a very rare feat, indeed.  And yet, because of recent Omicron concerns and the broader sell-off that we’ve seen in the major averages, UNH shares have sold off over the last month or so.

Currently, United Healthcare is trading at a 9.4% discount to its recent 52-week highs.  Anyone who takes a look at UNH’s long-term stock chart will see a fairly consistent uptrend in share price and therefore, in light of this recent near-double digit weakness, we wanted to take a look at what the credible analysts that we track with the Nobias algorithm have had to say about UNH shares lately.

Komal Nadeem, a Nobias 5-star rated author, recently co-published a bullish report regarding near-term revenue growth expectations from “big managed care companies” like UNH.  Nadeem noted that Wall Street analysts are actually bearish on many of the companies in this space in the short-term, saying, “Industry analysts expect a majority of the largest publicly traded U.S. health insurers to see fourth-quarter 2021 earnings decline sequentially”.  However, he notes that several companies within the space are well situated to produce growth.

As we said in the introduction, United Healthcare already reported Q4 results. Nadeem highlighted them in his piece, pointing towards the company’s relative strength, compared to peers.  He wrote, “UnitedHealth Group Inc., the largest managed care insurer in the U.S. based on total assets, reported results ahead of the rest of the industry. The company logged adjusted net EPS of $4.48 in the period, compared to $2.52 in the prior-year period, and saw revenues jump tp [sic] $73.7 billion from $65.5 billion a year earlier. Its medical care ratio for full year 2021 came in at 82.6%, up from 79.1% a year earlier. UnitedHealth said the medical ratio rose due to higher COVID-19 costs and the repeal of the health insurance tax.”

Mark Reilly, a Nobias 4-star rated author, also recently published an article which was centered on UNH’s recent quarterly results.  He began by saying, “The Minnetonka-based company posted earnings of $4.07 billion, or $4.26 per share, up from $2.21 billion, or $2.30 per share in the same period a year ago. Excluding one-time impacts, adjusted earnings were $4.48 per share. Reuters reports that analysts had expected adjusted per-share earnings of $4.31.” Not only did UNH beat on the bottom-line, but the company beat Wall Street’s expectations on the top-line as well. That $73.7 billion revenue figure that Nadeem quoted as $880 million above the consensus estimate for UNH’s revenue stream coming into the quarterly results.

Regarding the company’s insurance operations, Reily highlighted data which pointed towards strong continued growth.  He said, “The company saw double-digit revenue growth in both its core UnitedHealthcare insurance business — which added 2.2 million new members during 2021 — and its Optum health-services unit, which topped 100 million consumers for the first time and boosted its revenue per consumer by 33%.”  And, looking forward, he pointed towards UNH’s recent guidance update, in which the company’s management team “is forecasting another double-digit year in 2022, reaffirming its forecast for revenue between $317 billion to $320 billion next year and adjusted earnings between $21.10 and $21.60 per share.”

John Reese, a Nobias 5-star rated author, also recently published a bullish article on United Healthcare which focused on “Validea's Patient Investor model” - which is an investment strategy centered around the strategy employed by famous investor Warren Buffett - and an upgrade that UNH shares received because of their strong Q4 results.

Reese said, “This strategy seeks out firms with long-term, predictable profitability and low debt that trade at reasonable valuations.”  He noted that United HealthCare recently received an upgrade using the Validea system, saying, “The rating according to our strategy based on Warren Buffett changed from 86% to 93% based on the firm’s underlying fundamentals and the stock’s valuation.”   And, it appears that the Validea Patient Investor model isn’t the only algorithm which highlights bullish sentiment surrounding UNH shares.

Looking at the data collected by the Nobias algorithm, we see that 94% of the recent opinions expressed by credible authors (those with 4 and 5-star ratings) have been “Bullish”.  Looking at the average price target assigned to UNH shares by the credible Wall Street analysts that we track (once again, only those with Nobias 4 or 5-star ratings) we see a $514.50 figure.  Today, after its recent sell-off, UNH trades for $461.17. This share price represents upside potential of approximately 11.5%, relative to that Nobias credible analyst average price target of $514.50.

Disclosure: As of 1/22/2022, Nicholas Ward has no UNH position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/17/22 Nobias 1/17/22

PG with Nobias technology: During Troubling Times, Investors Flock Towards Procter and Gamble

During volatile times in the market, investors often seek cover in the consumer staples space. Why? Well, because regardless of what is going on in the world, companies in this sector sell products which are considered essential for everyday life. Therefore, even during economic downturns and financial crises, they tend to generate relatively strong sales and earnings outcomes.   And, when it comes to the consumer staples space, one of the most popular stocks is Procter and Gamble.

This company has gone through some fairly aggressive restructuring over the last 5 years or so, as management has focused on selling out of low margin and slow growth brands, and using the proceeds to either re-invest in its best products and/or invest in new, faster growing markets to meet the 21st century consumers needs.

Right now, the company dividends its business up into 5 primary segments…P&G’s “Beauty” segment, which includes products in the hair care, skin care, and personal care industries, makes up approximately 19% of the company’s sales and 22% of the company’s earnings. According to the company, the notable brands from P&G’s “Beauty” segment are Head and Shoulders, Herbal Essences, Pantene, Rejoice, Olay, Old Spice, Safeguard, Secret, and SK-11.

P&G’s “Grooming” segment, which includes products related to shaving, makes up approximately 9% of the company’s sales and 10% of the company’s earnings. According to the company, the most notable brands from the “Grooming” are Braun, Gillette, and Venus.

P&G’s “Health Care” segment, which includes products related to oral care and personal health care (primarily over the counter medicines) makes up approximately 13% of the company’s sales and approximately 12% of the company’s earnings. According to the company, the most notable brands from P&G’s “Health Care” segment are Crest, Oral-B, Metamucil, Neurobion, Pepto Bismol, and Vicks.

P&G’s “Fabric and Home Care” segment, which includes products related to fabric care (primarily related to laundry) and home care (primary related to air and dish care, as well as cleaning products) makes up approximately 34% of P&G’s sales and approximately 31% of the company’s earnings. According to P&G, the most notable brands within the “Fabric and Home Care” segment of its portfolio are Ariel, Downy, Gain, Tide, Cascade, Dawn, Fairy, Febreeze, Mr. Clean, and Swiffer.

And lastly, the 5th major segment of P&G’s business is “Baby, Feminine, and Family Care”, which represents approximately 25% of the company’s sales and earnings. According to P&G, the most notable brands within this portion of its overall product portfolio are Luvs, Pampers, Always, Always Discreet, Tampax, Bounty, Charmin, and Puffs.

The strength of PG’s brand portfolio is what has allowed it to generate such reliable results over the long-term. Proctor and Gamble isn’t known for fast growth in the market; however, the stock has increased its annual dividend for 65 consecutive years. This makes PG a “Dividend King”, meaning, a company with a 50+ year annual dividend increase streak.

According to The Dividend Champions List, there are only 39 U.S. companies that currently have annual dividend increase streams of 50 or more years. This puts P&G into a rare company.  Nobias 4-star rated author posted this article about the Dividend Kings in August of 2021 for those interested in learning more about the cohort.

With all of this in mind, it’s interesting to see that PG shares are holding up relatively well during the recent macro sell-off in the markets, only down 1.6% from their all-time highs. The historical trend of investors seeking a safe haven with Proctor and Gamble shares appears to be repeating itself. And therefore, we wanted to take a look at what the credible analysts that we track with the Nobias algorithm have recently had to say about the company, to see whether or not this relative strength is warranted.

Demitrios Kalogeropoulos, a Nobias 4-star rated author, recently published an article at The Motley Fool, which highlighted “3 New Reasons to Love Procter & Gamble Stock”. Kalogeropoulos began his bullish piece highlighting PG’s recent top-line earnings beat, saying, “Investors had been looking for P&G to post just a 3% sales uptick, which would have come on top of the prior year's 8% spike. Instead, the company reported 6% higher organic sales, with each of its five core divisions growing year over year.” He continued, saying that while PG is dealing with supply chain and inflation related issues up and down its product lines, the company has been able to manage these trends relatively well.

Kalogeropoulos wrote, “P&G did face challenges around rising costs. In fact, gross profit margin dove by 4 full percentage points due to soaring prices for raw materials like plastics and higher freight costs. Yet the company offset those pressures with savings in other parts of the business and by hiking prices. It also helped that consumers are still spending aggressively on premium products like Tide Pods.”

Lastly, he said that he believes that data points towards Procter and Gamble taking market share from its peers in the consumer staples space, and this should enable the company to generating strong cash flows throughout 2022. He said, “The cash flow forecast received an upgrade, which means P&G has more resources it can invest in the business even while spending aggressively on dividends and stock buybacks. Management now expects to return between $17 billion and $18 billion to shareholders through these channels in 2022, up from the prior goal of $15 billion to $16 billion.”

Daniel Foelber, a Nobias 5-star rated author, recently published an article which highlights his “3 Favorite Dividend Stocks to Buy During 2022” and Procter and Gamble was on his list. Regarding the company, he wrote: “What makes P&G unique isn't just its dividend but the way it generates cash to support that dividend. P&G's business is about as recession-resilient as it gets. Demand for DayQuil, Crest toothpaste, Tide laundry detergent, Dawn dish soap, Olay lotion, Pantene shampoo, Gillette razors, Pampers diapers, and Charmin toilet paper doesn't ebb and flow with the broader economy like other industries. During an economic slowdown, consumers tend to cut their discretionary spending on things they don't need. P&G makes products that people need, and therefore, consistently posts organic growth.

For investors that value a dividend they can trust above a riskier higher yield, P&G is as good as it gets in the U.S. stock market.” In recent months, we haven’t seen a credible author nor analyst publish a bearish report on PG. With that in mind, it shouldn’t come as a surprise that overall, when looking at all of the opinions posted regarding PG by credible authors, 93% of the reports expressed “Bullish” sentiment. And, when looking at the average price target applied to PG shares by the credible Wall Street analysts that we track (those with 4 or 5-star ratings) we see a $172.00 figure. Right now, PG shares trade for $162.62, meaning that this average price target represents upside potential of 5.7%.

Disclosure: As of 1/22/2022, Nicholas Ward has no PG position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/14/22 Nobias 1/14/22

NFLX with Nobias technology: Netflix Shares Have Fallen 25% Since Mid-November. Is Now The Time To Buy?

Netflix (NFLX) was one of the best performing stocks over the last decade, up nearly 3,800%. The stock was a major winner of the pandemic period in 2022 as well, due to the stay-at-home economy driving tens of millions of households into the Netflix streaming universe. However, these strong results have made year-over-year growth comparisons difficult throughout 2021, causing NFLX shares to underperform.  During the past year, the S&P 500 was up 22.79%. Netflix shares were up only 4.96% during this same period of time.

Much of this relative underperformance is due to a recent sell-off, which Netflix shares falling down some 25% since hitting all-time highs in the middle of November.  With this significant sell-off in mind, we wanted to take a look at what the credible authors and analysts that we follow here at Nobias have had to say about NFLX shares to see whether or not this is a dip that investors should consider buying.

Demitrios Kalogeropoulos, a Nobias 4-star rated author, recently touched upon Netflix’s 2021 underperformance and his bullish outlook for 2022 in an article at The Motley Fool.  Kalogeropoulos said, “Sure, the subscription streaming video leader isn't growing as quickly as it was during the early phases of the pandemic, or even before COVID-19 placed new premiums on at-home entertainment. But the business is still outpacing industry peers even as it shows off its new profitability strengths.” While it’s true that NFLX shares didn’t perform up to expectations during the last 12 months or so, the fact is, the company remains a strong growth stock.

Kalogeropoulos highlighted the company’s recent performance and near-term outlook, saying, “Sales are up 20% through late September but rose just 16% in the most recent quarter. That 16% pace is a potential worry for investors since Netflix aims for at least 20% annual gains. The company hasn't issued an official 2022 forecast yet, but most Wall Street pros are predicting a 15% increase ahead.” As dominant as Netflix appears to be in the streaming space, Kalogeropoulos points out that, “The company only accounts for about 6% of TV screen time in the U.S. and could easily push that number higher as it bulks up the content portfolio in niches like animated films, hit series like Squid Game, and video games.”

On the bottom-line, we’ve seen a slowdown of growth as well.  During the last 5 years, from 2017-2021, Netflix has produced annual earnings-per-share growth of 191%, 114%, 54%, 47%, and 76%, respectively.  Obviously the company won’t be able to average this ~100% annual growth in perpetuity. As Netflix matures, its growth rate will fall. Yet, the recent sell-off in the stock seems to point towards the fact that investors aren’t happy to pay the same premium that they paid for 50%-100% growth in the past for the lower growth that Wall Street expects to see moving forward (right now, the consensus earnings growth rates for Netflix in 2022 and 2023 are 20% and 30%, respectively).  However, it is important to note that there are highly respected analysts that believe NFLX has higher growth potential in the near-term.

Benjamin Rains, a Nobias 5-star rated author who posts articles at Zacks, recently said, “Looking ahead, Zacks estimates call for Netflix’s adjusted FY21 EPS to soar 77% on 19% higher sales that would see it pull in $29.70 billion. The company is then expected to follow that up with 24% higher earnings in 2022 and 14% stronger revenue to reach $33.95 billion.” Even so, the stock is going through a re-rating period as the market attempts to establish new expectations for NFLX shares. Netflix is currently trading with a blended price-to-earnings ratio of 48.7x.

The stock’s forward price-to-earnings ratio (based upon the current analyst consensus estimate for 2022’s full-year earnings-per-share of $13.06) is 40.25x.  Moving forward, due to Netflix’s recent focus on cash flows (now that the company has reached massive scale on the global stage), the stock’s EPS growth has the potential to push the forward P/E ratio down even further. However, this still means that NFLX trades for roughly twice the price of the broader market (the S&P 500’s current forward P/E ratio is in the 21x area).  Yet, as Rains points out, the stock’s current valuation is the lowest that it has seen in roughly a decade and therefore, he believes that the shares offer strong upside potential.

Rains said, “Netflix’s fall has pushed it well below oversold RSI levels (30 or under) at 23. The drop, coupled with its impressive EPS growth outlook, has NFLX trading at decade-long lows at 40.3X forward 12-month earnings. Along with its discounted valuation, Netflix trades 25% below its current Zacks consensus price target.” Kalogeropoulos also noted that rising cash flows could be a bullish catalyst for the stock in the coming years, saying, “Cash flow is another factor that will likely push Netflix shares back toward all-time highs. Co-CEO Reed Hastings and his team are targeting positive cash generation this year for the first time since Netflix embarked on its transition to streaming video.”

He continued, “Cash flow might easily approach 15% of sales over time, CFO Spencer Neumann has estimated. Those resources will allow the company to spend more than even rivals like Disney (DIS) could hope to manage. It will also likely fund aggressive stock-purchase spending in 2022 and perhaps a big dividend payment further down the road.”

Kalogeropoulos shed light on a recent quote from Neumann which showed that NFLX’s international growth is far from over:  "We think we have a super long runway here," Neumann told investors in September, "to address ... upwards of 1 billion pay TV households ... around the world." Right now, Kalogeropoulos said, Netflix only has 222 million subscribers.

Rains broke down the company’s recent subscriber growth figures in a recent report saying, “Most recently, NFLX topped third quarter earnings and user estimates to close the quarter with 9% more users at 213.6 million. Executives projected similar YoY user growth in the final quarter of 2021 to end the year with 222.1 million global users.” He concluded his bullish piece saying, “But for growth at scale, combined with spiking earnings and cash returns, Netflix is in a class of its own.”  This is why Kalogeropoulos believes that Netflix could grow to a market cap of $300 billion during 2022, which would represent significant growth compared to its current market cap of approximately $230 million.

Kalogeropoulos’s colleague at The Motley Fool, Neil Patel, who is a Nobias 5-star rated author, has also recently posted a bullish note on NFLX shares. Patel said, “I think it's completely realistic for Netflix to reach $700 a share by the end of 2022.”  Right now, Netflix shares trade for $525.69, which means that this ~$700 target represents upside potential of greater than 33%.  Patel said, “The pandemic caused major production delays in 2020, leading to a lighter content slate for Netflix at the beginning of this year. Therefore, it shouldn't surprise anyone that membership growth in the first half of 2021 was weak.” But, he noted that the company’s production is “largely back up and running” which means that new hit shows are likely on the way.

Developing content is expensive business. But, as Patel points out, Netflix has financial capability to produce shows for a global audience that its peers cannot match.  Patel wrote, “Luckily for Netflix, it has deep pockets and will end 2021 having spent $17 billion in cash on content. Management expects the current three-month period to be the strongest fourth-quarter content offering ever, something that will help bring new customers to the service.”

Along these lines, he quoted the Netflix leadership team from the Q3 Shareholder Letter which read, "Assuming no new COVID waves or unforeseen events that result in large-scale production shutdowns, we currently anticipate a more normalized content slate in 2022, with a greater number of originals in 2022 vs. 2021.”  Patel also touched upon the company’s potential to hit longer term subscriber growth targets. As he points out, this should help to drive the share price higher.  He said, “When it comes to Netflix, Wall Street unsurprisingly fixates on one data point above all else: subscriber growth. This drives the stock price. Having fresh shows and movies on tap for 2022 will help expand the user base, which supports revenue and profit growth.”  He continued, “After a couple of lumpy years, I think it's fair to assume that Netflix can add 25 million subscribers in 2022.”

This would push its global subscriber count up to nearly 250 million.  And, while 25 million additional subs would mean that NFLX’s growth rate would be slowing, Patel said, “Even a more mature Netflix can provide outstanding returns for shareholders in 2022.”  Overall, when looking at the community of credible authors that the Nobias algorithm tracks, we see that 87% of recent articles published have expressed bullish opinions.

Since the start of 2022, 6 out of the 7 articles published by Nobias 4 or 5-star rated authors have offered “Bullish” outlooks.  And, when looking at the blue chip Wall Street analysts that we track (4 and 5-star rated individuals) we see that the average price target placed on NFLX shares is currently $677.82.  This isn’t quite as high as Patel’s $700 near-term target; however, it is roughly 28.9% above the stock’s current share price.  Currently, Netflix’s 52-week high is $700.99. The stock hit that high in November of 2021. With that in mind, a retracing to those levels offers significant upside to bullish investors from today’s levels.

Disclosure: Of the stocks discussed in this article, Nicholas Ward is long DIS. However, he may take advantage of the recent sell-off that NFLX shares have experienced recently and add NFLX shares to his personal portfolio in the near future. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/11/22 Nobias 1/11/22

NVDA with Nobias technology: Has The Taper Tantrum Created A Buying Opportunity For Nvidia?

Nvidia has been one of the top performing stocks in the market during the last 1, 5, and 10-year periods (where it has posted returns of 96.4%, 927.75%, and 7,642.2%, respectively).  The company is a semiconductor stock that offers unique leadership and exposure to secular growth stories in the gaming, the artificial intelligence, the data storage, and the metaverse markets.  With this in mind, NVDA has been a favorite growth stock for investors for years; however, shares are down more than 22% from their recent 52-week highs.

It’s clear that NVDA has been caught up in the speculative growth stock sell-off that has occurred in recent weeks due largely due to fears of ongoing supply chain issues as well as economic policy from central banks which might lead to lower multiples being placed on risk assets. But, now that this 20%+ sell-off has occurred, the question remains: is this a dip worth buying? Are Nvidia's best days behind it? Or, will investors who accumulate shares into this period of negative volatility be rewarded?  To answer these questions we took a look at recent reports published by the credible authors and analysts that the Nobias algorithm tracks.

Harsh Chauhan, a Nobias 5-star rated analyst, touched upon NVDA’s recent weakness in a late-December article where he highlighted the stock’s strong 2021 returns (overall), the bearish catalysts that the company continues to face, and his outlook for the stock during 2022 and beyond.  He began his piece by saying, “One of the reasons for the stock's recent dip is probably the U.S. Federal Trade Commission's (FTC) move to block Nvidia's proposed acquisition of British semiconductor company Arm Holdings. Another reason may be the global chip shortage that is likely to continue well into 2022 and potentially hurt Nvidia's sales, as it may not get enough components to manufacture its graphics cards that are used in several applications ranging from personal computers (PCs) to data centers to cars.”

Not only does the stock have ongoing operational headwinds in play, but Chauhan also notes that the stock’s high valuation is likely to put hurdles ahead of ongoing growth.  He stated, “The biggest challenge that Nvidia faces going into the new year is justifying its rich valuation, for which it will have to sustain its impressive pace of growth. The chipmaker is trading at nearly 84 times trailing earnings, which is way above its five-year average earnings multiple of 56 and the S&P 500's earnings multiple of 28. What's more, Nvidia is trading at 28 times sales as compared to the S&P 500's multiple of 3.19.”

Since Chauhan’s piece was published, NVDA shares have continued to fall. This means that their valuation multiple is lower today than the figure that Chauhan stated. Today, NVDA shares trade with a blended price-to-earnings ratio of 62.54x and a forward price-to-earnings multiple (based upon the current consensus earnings estimate for 2022 of $5.15/share) of 51.6x.

Now, this still represents a stark premium relative to the S&P 500’s forward earnings multiple in the 21x area. And, therefore, to maintain this type of premium valuation, a company needs to post strong growth. NVDA did this during its most recent quarter.  With regard to recent growth, Chauhan noted, “Nvidia recorded 50% year-over-year revenue growth in the third quarter of fiscal 2022 thanks to the gaming and data center businesses along with a 60% spike in earnings per share.”  However, looking ahead to the coming quarters, Chauhan notes that weakness in the PC space could continue to serve as a potential headwind for the stock in the coming quarters.  He wrote, “For instance, PC sales are expected to take a hit next year.

The downtrend is expected to begin in the current quarter itself, according to IDC. The research firm expects a 3.4% drop in PC shipments this quarter thanks to supply chain constraints and high logistics costs.” He continued, “IDC sees the PC market declining close to 5% in 2022, which is likely playing on Nvidia investors' minds, as 45% of Nvidia's revenue in the third quarter of fiscal 2022 came from selling the graphics cards used in gaming PCs.” However, it might not be as simple as PC weakness hurting shares, because, as Chauhan notes, the high-end gaming PC market, which NVDA dominates with its GPU chips, is expected to remain strong throughout 2022.  He said, “The overall computer graphics market is expected to grow by $7 billion next year and hit $138 billion in value, according to a third-party estimate. Gaming PCs are expected to hit $37 billion in revenue in 2022, and Nvidia is in a solid position to corner most of this market given its 80%-plus share.”

Furthermore, the GPU’s that Nvidia produces are useful in the data center space as well.  Chauhan wrote, “The data center business, which produced 41% of Nvidia's Q3 revenue and clocked 55% year-over-year growth, can get even better in the new year thanks to the deployment of new hyperscale data centers.”  He continued, “According to a third-party report, the hyperscale data center market could achieve an annual growth rate of 20% through 2027, creating the need for more data center accelerators that Nvidia sells. As it turns out, the demand for GPUs used as data center accelerators is increasing at an annual pace of 42% and could hit an estimated size of $20.6 billion by 2027.”

Therefore, it appears that fears surrounding short-term supply chain issues and weakness in the overall PC space might have sparked an irrational sell-off of NVDA shares. While it’s true that there could be a sales/earning slowdown in the short-term, Chauhan remains very bullish on the stock’s growth potential over the medium-to-long term.  He concluded, “All this indicates why investors shouldn't be concerned about the short-term price fluctuations in Nvidia. It can continue to remain a top growth stock in 2022 and beyond, especially considering that its earnings are expected to reach an annual growth rate of over 39% for the next five years.” Chauhan believes that NVDA remains a stock that long-term investors should buy and hold and he isn’t the only Nobias 5-star rated analyst who has recently posted a bullish opinion on shares.

Nicholas Rossolillo, another 5-star rated author, recently said that Nvidia was one of his top performing stocks in 2021 and while he expects volatility to continue in the short-term, NVDA shares remain one of his favorite long-term investments.  Regarding NVDA’s operations, Rossolillo said, “The company's pioneering work in artificial intelligence (AI) -- everything from advanced data center hardware to self-driving car training to healthcare and robotics applications -- could keep Nvidia's growth going strong for many years to come. For years, Nvidia has been talking about this coming wave of innovation, and has been steadily piling billions of dollars into research and development every year (at one of the highest rates among tech giants as a percentage of revenue).” He also touched upon the ongoing bull/bear tug-of-war between NVDA and regulators regarding its proposed ARM Holdings purchase, which, he notes, may not be allowed to come to fruition because of anti-trust concerns.

The $40 billion ARM Holdings deal appears to be a key cog in NVDA’s long-term growth aspirations; however, as Rossolillo notes, it’s not necessary for NVDA to continue to succeed.  He said, “No worries, though [regarding the deal possibly being shut down by regulators] -- Nvidia is itself now a top silicon designer, it's gradually expanding its reach into new areas of the semiconductor world, and it's building an incredible software division atop its best-in-class hardware. It doesn't need ARM to continue its march higher.” Rossolillo touched upon NVDA’s speculative valuation and said that he expects there to be “serious volatility” in the short-term; yet, he concludes, “Nvidia is redefining the semiconductor industry, and I believe it will be one of the best stocks to own throughout the 2020s. I'm happy to be along for the ride.”

Manali Bhade, a Nobias 5-star rated author, also recently noted that NVDA shares have the potential to be a big winner over the coming decade.  Bhade wrote, “The company's high-end GPUs are already in huge demand in the gaming industry, mainly for their ability to render ultra-realistic graphics. Besides GPUs, the company also has a data center-focused Grace central processing unit (CPU) and Bluefield data processing unit (DPU) in its hardware portfolio. These next-generation hardware technologies stand to play a meaningful role in the evolution of the metaverse.”

And, it’s not just about hardware dominance to Bhade; NVDA’s growing software capabilities also plays a role in her bullish outlook.  She continued, “Nvidia is also offering a scalable software platform called Omniverse for creators and engineers to virtually collaborate and create physically accurate 3D simulations of real-time objects, which will be a powerful tool for developing the metaverse. The platform already has immediate applications in areas such as enabling virtual collaboration among 3D designers working on different software platforms, and remote working. Nvidia also sees significant use cases for the Omniverse in creating digital twins (digital simulations) for urban planning, warehouse optimization, and the automotive industry.”

Bhade also likes the company’s recent profitability metrics, as well as its balance sheet.  She said, “The company's trailing-twelve-month (TTM) revenues were up 64.3% year-over-year to $24.3 billion, while TTM net income has soared by 114.5% year-over-year to $8.2 billion. The company has a strong balance sheet with $19.3 billion cash and $11.8 billion debt.” All in all, Bhade echoed the bullish sentiment that we’ve seen throughout most recent reports…

In short, the credible authors and analysts that we track alike seem to largely agree upon the fact that NVDA shares are expensive in the short-term; however, the stock’s long-term growth prospects have the potential to more than justify current premiums over time.

With that being said, looking at the recent reports published by credible authors that the Nobias algorithm tracks, we see that 88% of recent reports have expressed a “Bullish” opinion.  And, when looking at the credible Wall Street analysts (4 and 5-star rated) that our algorithm tracks, we see that the average price target being applied to NVDA shares right now is $344.75. NVDA shares currently trade for $265.75, meaning that this average price target represents upside potential of approximately 29.7%.

Disclosure: Nicholas Ward is long NVDA.

Disclosure: Nicholas Ward is long NVDA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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Nobias 1/7/22 Nobias 1/7/22

AMZN with Nobias technology: Are Amazon's Investments Setting It Up For Future Growth?

Amazon (AMZN) was one of the biggest winners of the pandemic period during 2020. When business shut down, social distancing regulations were put into place which bolstered the world-from-home and stay-at-home economies, and ultimately, consumers changed their lifestyle and spending habits, Amazon’s sales and earnings soared.

The eCommerce industry, which Amazon dominates domestically, saw significant growth during 2020. And, the pandemic accelerated cloud-related spending, which bolstered the Amazon Web Service’s volumes as well. All of this led to the company posting total returns of nearly 78% during 2020.

However, last year, during 2021, this positive momentum tailed off in a major way. Last year, AMZN shares were up just 2.65%. This means that Amazon was the worst performing F.A.N.G. (Facebook, Amazon, Netflix, Google) stock of 2021.

Amazon shares also underperformed many other popular big-tech stocks, which aren’t a part of the original F.A.N.G. cohort, such as Apple (AAPL), Adobe (ADBE), Microsoft (MSFT), Oracle (ORCL), and Salesforce (CRM).   What’s more, this perennial out-performer underperformed the broader market by a wide margin as well (the S&P 500 was up approximately 27% during 2021).

It’s true that the massive growth that AMZN experienced during 2020 made it tough for the company to beat its COVID-19 comparisons. Right now, the analyst consensus earnings-per-share estimate for AMZN’s full-year sits at $40.95, which is 2% below the company’s 2020 full-year bottom-line result of $41.83. And to some, the stagnant earnings growth that AMZN produced during 2021 might justify the stock’s relative underperformance. However, it’s also important to note that stocks are generally priced upon expectations regarding their future cash flows and with that in mind, the analyst community is much more bullish on AMZN’s 2022 and 2023 prospects.

Right now, estimates for AMZN’s consensus earnings growth rates during 2022 and 2023 are 26% and 47%, respectively. In other words, Wall Street expects to see Amazon’s growth reaccelerate in the coming years, back up to the levels that helps the stock become one of the best performing equities in the entire market over the prior couple of decades. So, with these strong consensus future growth expectations in mind, we wanted to take a look at AMZN shares and the recent reports on the stock that the credible authors and analysts that our algorithm tracks have published to see if Amazon’s lackluster 2021 performance has created a buying opportunity for longer-term investors.

John Ballard, a Nobias 5-star rated author, recently published a report at The Motley Fool, calling Amazon his “Top Stock For 202 2”. Ballard’s piece was published on 12/28/2021 and the began highlighting a somewhat contrarian stance, saying that because of its ”dominant position in e-commerce, cloud computing, and its growing advertising business” and AMZN’s recent ~27% relative underperformance (compared to the S&P 500) he expects to see the stock bounce back nicely in 2022.

Ballard wrote, “History shows that better returns usually follow when great companies see their stock prices underperform.” With regard to the stock’s recent sales figures, Ballard said, “The online juggernaut reported 15% revenue growth in the third quarter and expects to report top-line growth between 4% and 12% to close out the year. Those numbers are not what investors are used to seeing from the e-commerce leader.” However, he notes that these poor year-over-year growth figures only appear to be weak because of the fantastic growth results that they’re being compared to from the 2020 period.

Ballard brought up the fact that other major retail names, such as Walmart (WMT), Target (TGT), and CostCo (COST), all of which have outperformed AMZN in recent quarters.  However, he believes that this sentiment being shown by the market might be short sighted.  Regarding these retail competitors, Ballard wrote, “But one important advantage Amazon has over these retailers is more cash. It is currently investing aggressively to expand its warehouse capacity and build an unrivaled global transportation fleet to take greater control of its supply chain. CNBC recently reported how Amazon has spent the last few years making its own cargo containers to bypass the bottlenecks at the ports in California.”

“Despite those investments,” Ballard continued, “Amazon ended the third quarter with $79 billion of cash and short-term investments sitting in the bank.” Ballard points out that at the end of their most recent quarters, Walmart had $16.11 billion of cash/cash equivalents on its balance sheet. CostCo had just $13.48 billion.  In other words, Amazon has unique resources which should allow it to win competitions involving CAPEX.

Amazon has already increased its warehouse, fulfillment center, and logistical capacity by roughly 100% during recent years.  And, as Ballard says, because of its continued investments, “Amazon may be on the verge of applying greater pressure than ever before on its biggest rivals.”

When Amazon invests heavily in its operations, it hurts it’s free cash flow results. However, Ballard believes that these short-term investments have the potential to result in strong long-term results for AMZN investors.   He said, “Amazon's free cash flow was a negative $2.2 billion through the first nine months of 2021. That's due to a 78% increase in capital spending this year, climbing to $38.9 billion. This might look bad, but it points to profitable growth since Amazon is capable of generating a high return on invested capital.”   With the strong future growth potential created by the company’s strong capex spending in 2020 and 2021 in mind, Ballard remains very bullish on Amazon’s share price trajectory.

Adria Cimino, another Nobias 5-star rated author, recently said that her New Year’s Resolution was to “Buy More Amazon” shares.  Why? Well, because of many of the same reasons that Ballard highlighted.  Cimino, too, sees the company’s near-term investments as a boon for longer-term results. In her article, Cimino pointed out that over time, not only have Amazon’s sales and net income grown at a very reliable rate, but so has its return on invested capital.   In short, this company, which is known for its cutting edge innovation and efficiency, is becoming even better at putting capital to work in a profitable manner as its business scales.

Cimino noted that at the end of 2020, Amazon's return on invested capital result was up to 18.45%. This was more than double the ~8% result that the company posted during 2018.  Like Ballard, she notes that the company’s near-term results may suffer because of ongoing investments related to the pandemic and the global supply chain issues that continue to wreak havoc in the manufacturing, production, and shipping industries.

Cimino said, “The company even said the fourth quarter would bring "several billion dollars of additional costs." That's as Amazon deals with issues impacting the sector as a whole -- such as supply chain problems and higher shipping costs.”   However, she says, “Many of these problems are temporary.” And therefore, once they’ve abated, the investments that Amazon has made should truly separate this company’s operations from its peers.

“At the same time,” Cimino continued, “Amazon emphasized it would limit the impact on customers and partners that sell goods on the platform. And this is why I'm confident about the success of Amazon's business down the road. The company aims to keep its audience happy -- and that should keep customers and sellers coming back. It's also important to remember that e-commerce isn't going away. Worldwide retail e-commerce will rise more than 16% to $4.92 trillion this year, according to an eMarketer forecast. Amazon, as a leader, stands to benefit.”

Cimino also pointed out that the market share and efficiency gains that the company is expected to make in the online retail space aren’t the only reasons to be bullish on AMZN shares. She said, “Finally, Amazon's cloud computing business is another reason to be optimistic about future growth. Amazon Web Services (AWS) is the world's leading player, and its sales climbed 39% in the third quarter.” In conclusion, Cimino wrote, “As for Amazon's market performance, the stock has progressively climbed more than 1,700% over the past decade. Gains haven't happened overnight. Instead, they've accompanied Amazon's accomplishments. Everything Amazon is doing today -- along with the strength of AWS -- makes me confident this trend will continue over the long term. So I'm not worrying about the current rough patch. Instead, I'll look for opportunities to buy more of this great long-term stock.”

Priti Ramgarhia, a Nobias 5-star rated author, recently posted an article at Nasdaq.com which highlighted data pointing towards bearish Q4 results. Ramgarhia began her piece by highlighting the large hiring plan that Amazon has recently laid out, largely centered around growth in its Austin, Texas and Phoenix, Arizona Tech Hubs, which should support its long-term growth. However, in the short-term, Ramgarhia points towards website traffic data which is worrisome in the short-term.   Using data from Semrush, she points out that Amazon’s website recorded a 26.53% decrease in global visits in November compared to the same period last year. Also, a quarter-to-date comparison showed a decrease of 28.58% compared to Q4 2020, and the year-to-date website traffic decline stands at 5.09%.”

Once again, this is a part of the narrative surrounding the tough 2020 comparisons that Amazon continues to deal with as it reports 2021 results. The bad news is, this data points towards negative growth on a year-over-year basis, once again. However, the good news is, the company’s 2022 results will be up against these relatively tepid 2021 comparisons, which should allow the company to return to growth.

Looking at the overall community of credible authors that the Nobias algorithm tracks, a clear trend is developing: the vast majority of these individuals appear to be willing to look past Amazon’s near-term headwinds and instead, focus on the stock’s long-term growth potential. 87% of the reports posted by the credible authors that we track have included “Bullish” sentiment. Looking at the credible Wall Street analysts that we track (only those with 4 or 5 star ratings), the average price target currently being applied to AMZN shares is $4147.22. Right now, Amazon shares trade for $3251.08. Relative to the average price target above, this current share price points towards upside potential of approximately 27.6%.

Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long AMZN, APPL, MSFT, GOOGL, FB, ADBE, and CRM. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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SQ with Nobias technology: Are Block Shares A Buy Down 51% From Their All-Time Highs?

On November 29th, 2021, Jack Dorsey, who co-founded Twitter stepped down from his CEO position at Twitter to focus on running Block (which was then called Square), the financial technology company that he also founded and served as CEO.

Dorsey’s dual-CEO position was always viewed as out of the ordinary and he (as well as the companies that he led) were often criticized (the bears’ argument was that he could not possibly dedicate the time, energy, and passion that each company deserved to them because his attention was divided).  Shortly after Dorsey dedicated himself solely to Square, the company changed its name to Block.  In the company’s press release regarding the name change/rebrand, Block said: “The change to Block acknowledges the company’s growth. Since its start in 2009, the company has added Cash App, TIDAL, and TBD54566975 as businesses, and the name change creates room for further growth. Block is an overarching ecosystem of many businesses united by their purpose of economic empowerment, and serves many people—individuals, artists, fans, developers, and sellers.”

Many people believe that Block is also meant to stand for blockchain, due to Dorsey’s outspoken belief that the blockchain technologies and crypto currencies are the future of global finance.  One might have thought that Dorsey’s intense focus on Block would have been bullish for shares. However, since he stepped down from his Twitter CEO position, Block shares have fallen approximately 33.5%.

Without a doubt, Dorsey is an incredibly talented individual. And, with crypto currency being all the rage these days in the fintech space, there are a myriad of individuals who agree with his long-term bullish outlook. But, even so, the sentiment surrounding SQ shares remains very negative (the stock is trading just above its 52-week low).  Therefore, we wanted to take a look at the recent articles and reports published by the credible analysts and authors that are tracked by the Nobias algorithm to see whether or not this significant dip is one worth buying?

Neil Patel, a Nobias 5-star rated author, recently touched upon Block’s name change/re-brand, saying that the company’s name change represents a “renewed focus”. Patel wrote, “Not only does the name of this booming fintech business implicitly reference blockchain technology, which is the foundation for cryptocurrencies, but company founder and Chief Executive Officer Jack Dorsey hasn't been shy about voicing his support for Bitcoin (CRYPTO: BTC) in particular. He thinks it can be the native currency of the internet.” He continued, “Bitcoin is already a major part of Block's business. Not only did the company purchase $50 million worth of Bitcoin in the fourth quarter of 2020 and another $170 million in the first quarter of last year, but Block also offers individuals ways to interact with the cryptocurrency.”

Block offers individuals a way to store and transact with Bitcoin with its Cash App.  Patel points out that during Block’s latest quarter, the company generated $42 million in gross profit from Bitcoin trading.  He said, “This figure has soared from just $2 million two years ago, and it seems likely to head higher in the future as Bitcoin becomes more mainstream.” However, he also points out that Block’s total gross profit during its most recent quarter was $1.1 billion, meaning that its Bitcoin trading profits still represent a very small portion of its gross profit pie.  But, to bullish investors, this represents a long-term growth opportunity. For instance, thus far, unlike its competitors, Cash App does not offer trading/investing with other non-Bitcoin crypto currencies. It’s unclear as to whether or not Cash App will adopt other popular digital currencies in the short-term or not (Dorsey makes it clear that he’s a huge believer in Bitcoin as a leader in the crypto currency space). But, without a doubt, this remains a large opportunity for Cash App and Block overall.

Patel also mentions two other interesting long-term opportunities for Block, with its renewed blockchain technology focus.  He highlighted the company’s TBD and Spiral initiatives, which set Block apart from many of its legacy big-finance peers.  He wrote, “TBD was launched in the second quarter of 2021 and is an open developer platform built to make it easy to create decentralized finance (DeFi) applications. These usually are built on top of a programmable blockchain that enables smart contracts such as Ethereum. TBD's aim is to build DeFi apps, such as a decentralized exchange, for Bitcoin.”

Regarding Spiral, he said, “The Spiral initiative, originally called Square Crypto, was launched in 2019 with the stated goal to "improve the Bitcoin ecosystem by contributing to free and open-source projects." Projects like the Lightning Development Kit and the Bitcoin Development Kit are trying to improve Bitcoin's user experience, which can be intimidating and a serious roadblock to mass adoption.”

Since he stepped down at Twitter, Dorsey’s focus on Block has been fiercely focused on increasing the functionality and practicality of Bitcoin and the cryptocurrency market overall. It’s clear that Dorsey believes crypto is the future of finance and he wants to ensure that this company is well situated to take advantage of this.  Patel said, “It's probably not a stretch to say that Bitcoin is quite literally the future of Block. For shareholders in this thriving fintech business, accepting this fact is critical to understanding the stock and where it's headed.”

While it’s true that Block’s focus on Bitcoin separates itself from its peers and provides the company with interesting upside potential, it also means that SQ’s share price is likely to be more correlated with the performance of Bitcoin itself, which has been relatively poor during recent months.  This is the point that Ryan Downie, a 5-star Nobias author, recently made in his article on Block.   Downie said,“Shares of Block (NYSE:SQ), formerly Square, dropped 22.5% in December, mostly due to Bitcoin's (CRYPTO:BTC) falling price. Relatively poor performance of growth stocks and other high-valuation stocks contributed to the losses as well.”

For comparison’s sake, during the last month, Bitcoin’s price has fallen 17.16% and the S&P 500 is down 0.47%. In short, it’s clear that SQ shares are more closely tracking BTC instead of the S&P 500, during the recent past, at least.   But, as Downie points out, Block has a long way to go before it’s able to translate its Bitcoin related revenues into Bitcoin related profits, which will ultimately fall to its bottom line and result in earnings-per-share improvement.  He said, “Bitcoin now represents nearly 50% of overall revenue, but only 4% of gross profit.” And, this is a problem for many investors, due to the fact that SQ shares trade with an elevated price-to-earnings multiple, in relation to the broader market as well as its peers, and therefore, the company is going to need to see its Bitcoin bets pay off in a major way (in terms of continued gross profit growth) for the company’s operations to justify its valuation, even after its recent sell-off.

Right now, the S&P 500 is trading for roughly 21x consensus forward earnings estimates. The overall price-to-earnings ratio of the Financial Select Sector SPDR ETF (XLF) is just 11.44x right now. Block, on the other hand, trades with a blended price-to-earnings ratio of 83.5x and a forward price-to-earnings ratio of $76.5x (based upon the current consensus 2022 earnings-per-share estimate of $1.85).

The analyst community on Wall Street expects to see SQ post EPS growth of 10% in 2022 and 54% in 2023. These estimates represent strong growth prospects; however, to justify a 77x P/E ratio, Block will have to maintain this double digit growth rate for quite a long time.

Because of SQ’s speculative valuation, Downie makes it clear that there could be a bumpy road ahead for the company and its shareholders, largely due to the company’s new Bitcoin related focus.  He wrote, “There's still a lot of technological, functional, and regulatory uncertainty around Bitcoin and cryptos. Even if they are completely commonplace in 10 years, we don't know exactly what that world will look like. Sometimes the most influential early movers are supplanted by new arrivals who perfect what others invented. That's unfortunate for the real pioneers of disruption. With all that uncertainty, crypto investors are quick to get squeamish, and the markets are highly speculative.”

Furthermore, Downie concluded his piece saying, “Still, Block's fortunes will ultimately be tied to crypto and the blockchain for the foreseeable future. The company seems to be making big bets on digital currencies and tokens. That could prove a very shrewd long-term move for an up-and-coming fintech giant, but it's going to create volatility for shareholders in the meantime.”

Richard Bowman, a Nobias 5-star rated analyst, posted an article highlighting his fair value calculation of Block, primarily using a discounted cash flow methodology, which pointed towards the belief that SQ shares are incredibly undervalued after their recent sell-off.

At one point in his piece, Bowman said, “Block offers an exciting and growing portfolio of services to consumers and sellers, and is arguably better positioned to disrupt the banking sector than any other company.” This speaks towards the tremendous growth potential that the company has due to its rather unique focus on blockchain technology.  However, Bowman notes that when using a traditional price-to-earnings ratio to evaluate SQ shares, they do appear quite expensive, having recently traded with a triple digit P/E multiple.  But, this can be misleading, he says, due to the strong growth potential that Block has moving forward.

Bowman uses the discounted cash flow method, which looks at 10-year estimations, even longer-term estimates to arrive at the stock’s terminal value, and then eventually arrives at SQ’s Total Equity Value in the present, which Bowman’s system says is $130 billion (he breaks his formula down in detail in the article linked above).  Then, he wrote, “To get the intrinsic value per share, we divide this by the total number of shares outstanding.” This led Bowman to the conclusion that Block’s fair value (on December 31st, 2021) was $281.66.

At the time, SQ was trading for roughly $158/share, which meant that shares were trading at a 44% discount to his fair value estimate. Since 12/21/2021, SQ’s sell-off has continued. Today, shares trade for $141.54. This means that relative to Bowman’s fair value estimate, SQ trades with an approximate 50% discount.

Looking at the average price target that the Nobias rated 4 and 5-star Wall Street analysts, we see that the credible individuals that we track, in aggregate, are even more bullish than Bowman. The average price target amongst these credible analysts for SQ is currently $292.75.  This means that at today’s $141.54 share price, SQ is trading at a 51.7% discount.  And, the community of credible authors (4 and 5 star rated individuals) is also quite bullish, with 86% of opinions that our algorithm has tracked coming in with a “Bullish” sentiment.

With all of this in mind, it appears that SQ’s recent dip does represent an interesting buying opportunity; however, it is very important to note that most reports that we read highlighted the stock’s speculative nature and there appears to be consensus that SQ shares will continue to experience abnormally high volatility moving forward (meaning that this is likely not a suitable investment for those with weak intestinal fortitude/risk appetite).

Disclosure: Nicholas Ward is long SQ. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.

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