Let’s talk about growth stocks. These are stocks that have shown strong and sustained share price appreciation, sometimes ranging into triple-digit gains over the course of a year or more. In short, these are stocks that make investors say, “If only I’d bought in when…!”
There’s no point dwelling on the past. A savvy investor, aiming to build a growth-oriented portfolio, will set up a profile for a solid growth stock, and look to match it. The factors to look for: that strong appreciation we mentioned already, a solid upside potential and an outlook toward further growth.
Approval from Wall Street’s analyst corps can also be added to the list. The markets offer plenty of candidates to match that profile, and we’ve used the data tools at TipRanks to find several. These are Buy-rated stocks, each hovering at or near one-year peaks – and with potential to reach new highs. Let’s take a closer look.
First on the list, Inovalon, is a company with one foot in the tech field and one foot in the healthcare industry. The company provides a cloud-based software platform that offers solutions – in the form of data tools – for healthcare providers looking to analyze and use accumulated information on patients, lab work, finances, and pharmacy services. Data analytics is a rapidly growing field, and the application of it to the healthcare industry shows a particularly high potential. And Inovalon has registered better than 79% share growth over the past 12 months.
That growth rests on a solid foundation. Inovalon’s software platforms have found customers across the healthcare spectrum. The company boasts that its customer base includes the 25 largest health insurance plans in the US, the 25 largest global pharmaceutical companies, and 24 of the 25 largest healthcare provider systems in the US.
Turning to the financial numbers, Inovalon saw a 15% year-over-year gain in revenue, to $177.2 million, in 1Q21. While down slightly from the previous quarter, this result was still the second-highest of the past two years and also ahead of Wall Street’s forecast by $3.11 million. In earnings, the company reported 6 cents EPS, up from the 1-cent loss reported in the year-ago quarter, and ahead of the estimates by 2 cents.
Inovalon’s strong performance has attracted the attention of Baird analyst Vikram Kesavabhotla, who initiated his coverage of the stock with an Outperform (i.e., Buy) rating and a $41 price target suggesting a 25% one-year upside potential.
Backing his stance, Kesavabhotla writes, “INOV is generating impressive new business wins, all stemming from the underlying value of its data assets. We expect this momentum to continue and for consensus estimates to revise higher. We also believe the attributes of INOV's subscription business will gain appreciation over time and drive valuation expansion…. we see a positive risk/reward over next 12 months.” (To watch Kesavabhotla’s track record, click here.)
Overall, INOV shares have a Strong Buy rating from the analyst consensus, based on 6 recent reviews that include 5 Buys and 1 Hold. The shares are selling for $32.80 and their $36.17 average price target implies room or a 12-month upside of 10%. (See Inovalon’s stock analysis at TipRanks.)
Let’s stick with the healthcare sector for the second stock on our list – but shift our sights to the biotechnology segment. Verastem is a development stage biopharma company with a focus on creating new cancer treatments. The company’s pipeline features novel small molecule drugs designed to inhibit the signaling pathways that promote cancer cell and tumor growth. Verastem’s two main research tracks are RAF/MEK inhibition and FAK (focal adhesion kinase) inhibition.
Verastem’s two drug candidates are VS-6766, the RAF/MEK inhibitor, and defactinib, the FAK inhibitor. Both are under investigation, individually and in combination, for several cancers, including low-grade serous ovarian carcinoma (LGSOC), mesothelioma, and colorectal cancer. Verastem is developing VS-6766 on a license agreement with Chugai Pharmaceuticals.
In the company’s recent development program updates, Verastem reported that the Phase 1/2 FRAME study of VS-6766 in combination with defactinib, treating patients with recurrent LGSOC, demonstrated an overall 70% response rate among 21 patients, with side effects being reversible. VS-6766, in combination with defactinib, has received Breakthrough Therapy Designation from the FDA, for the treatment of patients with recurrent low-grade serous ovarian cancer (LGSOC) and the Phase 2 study, RAMP 201, investigating VS-6766 on its own and together with defactinib, is now underway. Results from these studies are expected in 2H21 and 1H22, respectively.
Defactinib, Verastem’s second drug candidate, has the FDA’s Orphan Drug Designation for the treatment of ovarian mesothelioma cancers. The drug candidate is being evaluated as a combination therapy against a number of solid tumors.
An active pipeline, with promising drug candidates, is a major part of a biotech firm’s investment profile, and Verastem has attracted plenty of investor attention in the last year. This is clear from the 12-month share gains of 157%. Year-to-date, the stock is up by 111%.
On the financial side, Verastem reported total expenses in 1Q21 of $15.1 million. This total includes $6.2 million in general and administrative expenses, along with $8.9 million R&D costs. These expenses are balanced against $127.1 million in available cash holdings, giving the company sufficient funding for the next 8 quarters.
In coverage of this stock for BTIG, 5-star analyst Robert Hazlett writes, “We believe Verastem's recent licensing of Chugai’s RAF/MEK inhibitor (no VS-6766), with favorable deal terms (double-digit royalty), to be developed with Defactinib, its focal adhesion kinase (FAK) inhibitor, for KRAS-mutant solid tumors, appears encouraging, based on initial data. The combination strategy is based on single agent activity for both compounds in KRAS-mutant tumors, along with preclinical data suggesting FAK signaling acts as an escape mechanism to MEK blockade, and promising synergistic activity seen with the molecules, especially in those with KRAS-mutant tumors. We expect Verastem to actively consider additional rational combinations for KRAS-mutant driven tumors.”
Hazlett rates VSTM shares as a Buy, and his $8 price target implies an upside of 78% over the next year. (To watch Hazlett’s track record, click here.)
While this stock only has 2 recent analyst reviews on record, both are to Buy, making the Moderate Buy consensus unanimous. VSTM’s shares are selling for $4.50 and have an average price target of $6, giving the stock a 33% one-year upside. (See Verastem’s stock analysis at TipRanks.)
Global Ship Lease, Inc. (GSL)
For the last stock on our list, we’ll switch gears and move over to the oceangoing container trade. This forms a major part of the global trade network, moving goods of all sorts – from small personal shipments to multi-ton cargoes of grain to shipments of cheap toys from China – all across the world. Global Ship Lease is an independent owner of containerships, with a diversified fleet in the small- to mid-sized range.
GSL’s fleet includes 62 containerships in service or on order, ranging in size from 2,200 to 11,000 TEUs – or twenty-foot equivalent units, the industry standard in rating a ship’s carrying capacity. Operating a mix of ship sizes allows GSL flexibility in providing carriers across the world’s trade routes. The company has contracts to purchase additional ships, including one 6,000 TEU carrier, and 12 additional vessels – announced this month – with capacities averaging 3,000 TEUs. Overall, the company’s fleet, when fully delivered, will have a total capacity of more than 322,000 TEUs, and will include 9 post-Panamax vessels of more modern fuel-efficient design.
The economic dislocations of the COVID pandemic crisis have caused massive disruptions and delays in the oceangoing trade routes, especially on the US Pacific coast and in South China. One result has been rapidly rising shipping rates – and GSL’s stock has been rising in recent months. Since this time last year, the shares are up 345%.
The company showed $73 million in revenue for 1Q21, in-line with revenue results from the past 4 quarters. The company declared a 25 cent dividend per common share in the quarter, its first dividend payment since 2015. At the current rate, this dividend will annualize to $1 per common share and give a robust yield of 5%.
Liam Burke, rated 5-stars by TipRanks, covers GSL for B. Riley Securities, and sees the new ship purchases as a key point here. He writes, “The acquisition increases GSL's fleet … and would make the company the eighth largest non-operating owner of containerships by TEU capacity. The announcement is consistent with the company's creation of incremental value through the addition of vessels to its fleet with existing charters. We would expect additional upside to the acquired vessel contribution as the vessels are rechartered at higher rates and longer durations. We would expect additional adjusted EBITDA contribution from six vessels that re-charter in 2023.”
Burke rates GSL as a Buy, and in consideration of the new vessel purchase, he raises his price target from $22 to $25, implying an upside of 23% for the shares. (To watch Burke’s track record, click here.)
Once again, we’re looking at a stock with a unanimous Moderate Buy consensus, based on 2 recent reviews. GSL’s shares have an average price target of $24.50, suggesting room for 20% upside from the current trading price of $20.38. (See Global Ship Lease’s stock analysis at TipRanks.)
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