What to do with the markets today? Everywhere we look, currents seem to pull in two directions at once. Inflation and high interest rates are driving austerity forces at full speed into a remarkably resilient economy — but according to earnings results, we saw a mild recession early last year and are in the midst of a recovery. The conventional wisdom is no longer calling for a downward ‘double dip’ recession, but growth is forecast to slow sharply in the near term.
In a recent note, Bankim Chadha, chief global strategist at Deutsche Bank, gauges the current situation and outlines the major opportunities that may arise in the future. From an investor’s perspective, Chada listings offer the prospect of profits, and some reason to be cautious.
“As the dispersion of views on the outlook for the economy remains wide, we assess the implications of 3 views for equities. Our view suggests that a widely expected mild, short-term recession will lead to a quick sell-off and a rebound.” S&P 500 Close to current levels and year-end target of 4500; Continued mudslides will support a choppy grind up to 4750 as growth is impressed to the upside but a cloud of doubt remains. Clear soft landing signals and the price in a new growth cycle shows a strong rally towards 5000. The mudslinging of conditions best describes the rally this year and is likely to continue in the near future, he said.
For investors, the main question remains: Which stocks are best placed to prosper against this backdrop? Deutsche Bank analysts have an idea about that and have tagged two names with potential of up to 120%.
In fact, Deutsche Bank is not the only one supporting these names. using TipRanks database, we find that both are rated ‘Strong Buy’ by analyst consensus. Let’s take a closer look.
Hilton Grand Vacations (HGV)
First is Hilton Grand Vacations, formerly a subsidiary of Hilton Inc. as an independent public entity. HGV operates branded, quality vacation shares, offering clients a share of ownership in vacation destinations. The company touts its high level of service in line with the Hilton hotel chain name and says the club’s more than 520,000 members will have access to exclusive services and international destinations.
As economies reopened after pandemic-era shutdowns, vacation and leisure stocks gained. People accumulated savings and wanted to spend them, and travel increased.
However, weather conditions and natural disasters can affect vacation destination companies, and Hilton Grand Vacations, which has regional offices in Hawaii, was hit hard by the recent wildfires on the island of Maui. Two of the company’s 13 Hawaiian properties are on the affected island — though they were not physically damaged. HGV’s major success came from a reduced trip to Maui.
The company saw some modest growth numbers in its financial results for 2Q23. These include a 2.8% increase in consolidated net membership growth (ie contract members) to 522,000 as of June 30. The company’s quarterly top line increased roughly 6.5% to $1.01 billion, beating forecasts by $11.4 million. On the bottom line, HGV’s adjusted diluted EPS, a non-GAAP measure, came in at 85 cents per share. Current EPS was 1 cent better than expected, down from 88 cents in 2Q22.
For Deutsche Bank’s Chris Woronka, this adds value to investors’ timing. Woronka relatively likes the stock’s entry price and believes the company will recover well from the disruption in its Hawaii business. He wrote, “We view HGV as a cheap stock at recent levels (or close to it) on any relevant measure. In particular, we are interested in single-digit forward-year P/E multiples and double-digit free cash flow results for all periods (2023E-2025E). We believe that multiples at these levels suggest that investors will not agree that the estimates published on the Street are likely to be achieved…”
Woronka elaborated on the situation in Hawaii, saying, “Disruption due to the recent wildfires in Hawaii could result in EBITDA in FY23 (against 3 to 6% growth expected before the fires). We see that the impact is very manageable for HGV and eventually the trip to the island of Maui creates light comps as it recovers.
In the analyst’s view, HGV deserves a Buy rating, and the $59 price target indicates a one-year upside potential of 48%. (To view Woronka’s track record, Click here)
In general, HGV It maintains a Strong Buy rating from the analyst consensus, and a consensus based on 3 recent positive reviews. The shares are trading at $39.81 and boast an average price target of $63, indicating a 58% potential gain for the stock. (look out HGV stock forecast)
BlackBerry Technology (BKSY)
For the second Deutsche Bank pick, we go to Blacksky Technologies, a commercial satellite company in the geospatial intelligence space. The company provides real-time data from a network of small satellites in low Earth orbit, which can capture images with high efficiency and cost-effectiveness. The company includes analytics services using the Spectra AI software platform for data processing and integration of third-party sensors. Blacksky counts US and international government organizations as its client base, as well as international commercial businesses.
The core of Blacksky’s business is a constellation of small satellites that can provide the company’s customers with fast space-based data coverage. Intelligence products can typically be delivered within 90 minutes, satellite imagery can be viewed within 60 minutes and the company can conduct 15 satellite revisits per day. Blacksky can provide customers with direct satellite downlinks, both for ground-based and maritime operations.
In a move that will help BlackSky continue to provide high-quality satellite data services, the company announced in August that it had entered into an agreement with launch company RocketLab USA.RKLB) to purchase an additional 5-initiator block. The launches, which use Rocket Lab’s electron vehicle, ensure that Blacksky continues to provide the broad and real-time coverage its customers expect and need.
In its 2Q23 financial results, Blacksky reported strong year-over-year revenue growth, although both the top and bottom lines missed analysts’ expectations. Revenues came in at $19.3 million, up 28% from 2Q22 but below estimates of $1.22 million. Bottom-line earnings, reported as a loss of 24-cents per share, were 12-cents deeper than estimates.
But the losses didn’t stop Deutsche Bank analyst Edison Yu from taking a big position on the stock. He sees BlackSky as positive for the future, and writes of the company, “Although the growth path has been stronger than expected in terms of new contracts and renewals, we believe BlackSky’s core defense and intelligence business remains strong.” (Looking at the windfall of adoption/wallet from the business markets). Management has signed several new contracts with the International Department of Defense this year and should close several large deals in the latter half. Additionally, margin distortion remains on track for positive EBITDA in 4Q23, despite sales coming in at the low end of guidance, reflecting high margin growth (80-90%) and prudent cost performance.
To this end, Yu maintains a Buy rating on BKSY, with a price target of $2.50, indicating strong upside potential of 120% over the next 12 months. (To see Yu’s story, Click here)
The path is generally healthy about BlackSky, as evidenced by a 3-to-1 margin backed by 4 reviews with a strong buy consensus rating. The shares are trading at just $1.14, and their $2.88 average price target represents ~154% upside for the next year. (look out BlackSky stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.