Volatility is back on Wall Street. Following a meteoric rise, fears that valuations have grown too high have put pressure on stocks. With the upcoming presidential election, ongoing pandemic and flaring U.S.-China tensions only adding fuel to the fire, investors are trying to gauge where the market goes from here.
Even though many economists believe the Fed’s low interest rate policy fueled the market’s historic five-month rally, Morgan Stanley’s chief cross-asset strategist Andrew Sheets is singing a different tune.
Sheets argues that the market’s charge forward wasn’t necessarily driven by the Fed’s actions. Rather, the run-up came as a result of better-than-expected economic data. “As much as the steady rise of markets seems disconnected from the conditions in the real economy, I’d argue that actually they’re more closely related. And going forward, that is a double-edged sword,” he explained. “This improvement, rather than any new policy that central banks have been enacting, might be the real story of this summer’s strength.”
In other words, should the data slow, stocks might sink even if interest rates stay low. That said, if the trend continues to improve, stocks could continue climbing higher.
Taking this outlook into consideration, we used TipRanks’ database to take a closer look at two names identified by Morgan Stanley as strong value stocks. The firm’s analysts noting that each could gain more than 40% in the year ahead.
Freeline Therapeutics (FRLN)
Using AAV technology, Freeline Therapeutics develops gene therapies to deliver safe and effective gene replacement to the liver to produce sustained therapeutic protein expression for diseases like hemophilia B and Fabry disease. Based on its cutting-edge pipeline, Morgan Stanley is pounding the table.
Representing the firm, 5-star analyst Matthew Harrison points out that its “broad platform provides significant gene therapy opportunity, which can drive $1 billion-plus in unadjusted peak sales.” Highlighting its lead candidate, FLT180a, its gene therapy for hemophilia B (a disease that is characterized by decreased clotting and uncontrolled bleeding), the analyst believes it has major potential.
The current standard of care for hemophilia B involves regular infusions of Factor IX (FIX) protein into the blood, but the FIX activity typically doesn’t remain stable. “FLT180a has the potential to deliver a single-dose cure for patients by achieving FIX levels in the ‘normal’ range of 50-150%. Although active clinical programs for hemophilia B include Spark/Pfizer and uniQure, they have been unable to achieve a mean expression level in the normal range. We thus believe that FLT180a has the potential to be a best-in-class product with $500 million-plus in peak sales potential,” Harrison commented.
With the Phase 1/2 data already de-risking the asset, the implications go even further, in Harrison’s opinion. Along with the hemophilia B program, FRLN has another therapy, FLT190, targeting Fabry disease, a lysosomal storage disorder. While only one patient has been dosed, the analyst argues “the Freeline platform sets up this program for success.”
Expounding on this, Harrison stated, “Given the data in hemophilia B, Freeline’s platform has high potency which can provide high protein expression levels at low doses, and Freeline’s prophylactic immune management regimen appears to prevent immune reactions, which could affect the durability of those high protein expression levels. Because FLT190 is using the same capsid and promoter and the same immune regimen as used for hemophilia B, we believe that, although still at an early stage, FLT190 is primed for success.”
Adding to the good news, the company has early stage programs for hemophilia A, a multi-billion market, according to Morgan Stanley, and Gaucher disease, another lysosomal storage disorder. “While both programs are early, we believe the platform supports their potential,” Harrison mentioned.
It should come as no surprise, then, that Harrison stayed with the bulls. To this end, he kept an Overweight (i.e. Buy) rating and $28 price target on the stock, implying 65% upside potential. (To watch Harrison’s track record, click here)
What does the rest of the Street have to say? Only Buy ratings, 4 in fact, have been issued in the last three months, so the consensus rating is a Strong Buy. In addition, the $28.75 average price target suggests 69% upside potential. (See FRLN stock analysis on TipRanks)
Cloudera Inc. (CLDR)
Switching gears now, we come across Cloudera, which delivers an enterprise data cloud for any data, anywhere, from the Edge to AI. Even with ARR ramping up, Morgan Stanley believes this tech company is undervalued.
Firm analyst Sanjit Singh points to CLDR’s Q2 performance as reaffirming his confidence. “Q2 results highlight what has been true now for several quarters – CLDR is now a much more stable business.”
Digging into the details of the print, ARR accelerated to 12% year-over-year, beating the consensus estimate. Subscription revenue growth came in at 17%, also besting the Street’s 14.5% call. The outperformance continued when it came to operating margins and cash flow, which landed at 13.9% and $32 million, respectively. “Resilience within the customer base underscored by improvement in churn rates combined with sharp operational execution helped management raise its FY21 subscription revenue outlook to $755-$765 million (13-15%) from $745-$755 million prior,” Singh noted.
Following the strong print, there is one question on investors’ minds. As both the CDP Public Cloud and CDP Private Cloud have now been officially launched, will the CDP platform become a key revenue driver?
Addressing this question, Singh commented, “The early signs are encouraging with customer count and bookings doubling in the quarter. Management expects revenue traction in FY22 and we are cautiously optimistic that CDP can enable modest improvement in growth particularly as the spending environment recovers.”
Some investors were taken aback by CLDR’s Q3 subscription revenue guidance, which implies a minor quarter-over-quarter decline, but Singh offers an explanation. “This reflects the impact of becoming a pure open source model which results in less up-front revenue recognition vs. Last year when Cloudera was operating a part proprietary/open source model,” he stated.
Summing it all up, Singh said, “Recent results highlight management’s ability to meet investor expectations while delivering on key product milestones, most notably CDP, which better positions the company in the data management market. We see the launch of CDP sustaining growth by improving retention rates and securing new customers as the spending environment recovers. Furthermore, a growing focus on larger enterprises should provide leverage going forward given their more attractive unit economics. With low expectations, achievable ARR estimates and a new product cycle, we see shares attractively valued.”
All of the positives prompted Singh to leave his bullish call and $16 price target unchanged. This target conveys Singh’s confidence in CLDR’s ability to climb 46% higher in the next year. (To watch Singh’s track record, click here)
Looking at the consensus breakdown, 4 Buys, 6 Holds and 1 Sell have been published in the last three months. Therefore, CLDR gets a Moderate Buy consensus rating. Based on the $14.50 average price target, shares could rise 32% in the next year. (See CLDR stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
China to let in more foreigners as virus recedes
BEIJING (AP) — Foreigners holding certain types of visas and residence permits will be permitted to return to China starting next week as the threat of coronavirus continues to recede.
The new regulation lifts a months-long blanket suspension covering most foreigners apart from diplomats and those in special circumstances.
Beginning Monday, foreign nationals holding valid Chinese visas and residence permits for work, personal matters and family reunions will be permitted to enter China without needing to apply for new visas, according to the regulation.
Those whose permits have expired can reapply. Returnees must undergo two weeks of quarantine and follow other anti-epidemic measures, the regulation said.
Some exceptions may still be made, with the foreign ministry communicating to some journalists that the regulation may not apply to them. Journalist visas have recently opened up as a new front in the diplomatic confrontation between Washington and Beijing.
The announcement was made jointly by the Ministry of Foreign Affairs and the National Immigration Administration on Wednesday.
China announced seven new cases of coronavirus on Thursday, all of them imported, marking 39 days since the country has reported a case of domestic transmission. China has confirmed 85,314 cases of COVID-19 since the virus was first detected in the central Chinese city of Wuhan late last year.
In other developments around the Asia-Pacific region:
— India reported another 86,508 new coronavirus cases, but Prime Minister Narendra Modi sees little merit in imposing even short local lockdowns. India now has confirmed more than 5.7 million cases, the second-most in the world. The Health Ministry also said Thursday that 1,129 more people have died, for a total of 91,149. India’s junior Railways Minister Suresh Angadi died on Wednesday, nearly two weeks after he was admitted to a New Delhi hospital with COVID-19. He was the first federal minister and the fourth Indian lawmaker to die from the disease. Modi on Wednesday decried short, local lockdowns imposed in some places and said the country needs to not only keep fighting the virus, but also move ahead boldly on the economic front. He asked states to focus on testing, tracing, treatment and surveillance. He said lockdown restrictions hit smooth movement of goods and services, including medical supplies.
— Auto executives have flown in early to wait out a coronavirus quarantine ahead of the Beijing auto show, the year’s biggest sales event for a global industry that is struggling with tumbling sales and layoffs. Others plan to hold news conferences by video link from their home countries during the show, which begins Saturday. Brands are going ahead with plans to unveil new models in a sign of the importance of China’s market, the world’s biggest. Sales have revived while U.S. and European demand remains weak. Organizers say they will impose intensive anti-disease controls on crowds and monitor visitors and employees for signs of infection.
— Leaders from nations large and small are criticizing the haphazard response to a microscopic virus that unleashed economic havoc and has taken nearly 1 million lives while continuing to claim more. Kazakhstan’s president called it “a critical collapse of global cooperation.” The coronavirus pandemic and its consequences topped the list of concerns shared Wednesday at the General Assembly’s first virtual high-level meeting.
Trump bars Americans from staying at 400+ Cuban hotels believed to be under government control
Americans visiting Cuba are going to be prohibited from staying at 433 hotels that are believed to be owned or controlled by the government or “certain well-connected insiders,” the State Department announced Wednesday.
The order was taken as part of a broader effort announced by President Donald Trump to tighten restrictions on the Cuban government, a sharp reversal from the more open policies toward the island nation under President Barack Obama.
“Today we reaffirm our ironclad solidarity with the Cuban people and our eternal conviction that freedom will prevail over the sinister forces of communism and evil in many different forms,” Trump said in remarks meant to honor veterans of the ill-fated Bay of Pigs invasion in 1961, in which Cuban exiles attempted to launch an invasion of their homeland. “Today we declare America’s unwavering commitment to a free Cuba.”
The sanctions come amid a tight race for the presidency ahead of the Nov. 3 election in the critical swing state of Florida where Cuban-Americans are an important voting bloc.
In announcing the list of hotels, the State Department said the profits from them “disproportionately benefit the Cuban government, all at the expense of the Cuban people, who continue to face repression at the hands of the regime.”
Instead, the department urged travelers to stay at casas particulares, private accommodations owned by “legitimately independent entrepreneurs.”
The order will likely encourage more Cubans to rent rooms or residences through services like Airbnb, said John Kavulich, president of the U.S.-Cuba Trade and Economic Council in New York.
In addition, it could entice the Cuban government to sell hotels to some of the foreign companies that currently have management contracts to run them, taking them off the list and thus making them able to book U.S. visitors again, Kavulich said.
But with the list limited the number of accommodations for Americans in Cuba, it may force airlines to cut their flight schedules there as well, he added.
The order also prohibits Americans from bringing home Cuban rum or cigars.
The Trump administration has taken several steps to isolate Cuba. In June 2019, it stopped cruise ships from visiting the island, which had been allowed since 2016 following the re-establishment of diplomatic relations between the two countries two years earlier. That October, it banned flights to all Cuban cities but the capital, Havana. Earlier this summer, it ordered Marriott to close its Four Points Sheraton hotel in Havana.
Legally, U.S. travelers can still visit Cuba under specific conditions:
Official U.S. government business
Professional research and meetings
Educational activities (like those from U.S. academic institutions and secondary schools)
Support for the Cuban people
The battle for Florida: Trump courts Latino votes in Miami as campaigns enter final stretch
Marriott exits Cuba: Trump administration orders Marriott to shutter Cuba hotel by end of August
Visiting Cuba: How can you still go to Cuba despite new U.S. travel restrictions?
Contributing: Jayme Deerwester and David Oliver, USA TODAY; The Associated Press
This article originally appeared on USA TODAY: Cuba: Trump bars American travelers from more than 400 hotels
China running 380 detention centres in Xinjiang: researchers
China’s network of detention centres in the northwest Xinjiang region is much bigger than previously thought and has been expanded in recent years, according to research presented by an Australian think tank Thursday.
The Australian Strategic Policy Institute said it had identified more than 380 “suspected detention facilities” in the region — where China is believed to have detained more than one million Uighurs and other mostly Muslim Turkic-speaking residents.
The number of facilities is around 40 percent greater than previous estimates and, according to Australian researchers, has been growing despite China’s claims that many Uighurs have been released.
Using satellite imagery, eyewitness accounts, media reports and official construction tender documents, the institute said “at least 61 detention sites have seen new construction and expansion work between July 2019 and July 2020.”
Fourteen more facilities were under construction in 2020 and around 70 have had fencing or perimeter walls removed, indicating their use has changed or they have been closed.
US lawmakers recently voted to ban imports from Xinjiang, citing the alleged use of systematic forced labour.
Beijing recently published a white paper defending its policies in Xinjiang, where it says training programmes, work schemes and better education mean life has improved.
It has defended the so-called training centres as necessary to stamp out extremism.
Following the publication of the latest report, Chinese government-controlled nationalist tabloid the Global Times cited “sources” saying Australian Strategic Policy Institute contributors Clive Hamilton and Alex Joske were banned from entering China.
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