The Dow Jones industrials retreated more than 15% in the first half of this year, the S&P 500 dropped more than 29% and the Nasdaq fell by nearly 30%. What is on tap, then, for the second half of the year? Will the market tumble even further? When will it be safe to buy equities again?
No one knows the answer to any of those questions. Yet, there is an abundance of suggestions for key market metrics to watch and which companies stand to perform better given where the market is starting in the second half. Profitability and cash flow are expected to play a major role in investing decisions for the rest of this year.
Analysts at BTIG Research have just published their top picks for the second half of 2022. Included among their highest conviction calls are 11 large cap ($10+ billion) and 38 small and mid-cap companies (less than $10 billion). All are Buy rated and five are U.S.-based large cap tech stocks. Here is BTIG’s take on those five companies.
AppLovin Corp. (NASDAQ: APP) develops and sells software platforms that help mobile app companies market and monetize their apps. The company’s market cap is around $13.4 billion. Although the company posted a net loss of $115 million in the prior quarter, including a $32 million cash burn, the net loss for the past 12 months totals $69.3 million, and free cash flow totals $266.8 million. Free cash flow per share for the 12-month period was $0.71.
In early May, BTIG slashed its price target on the stock from $103 to $60 but maintained its Buy rating. In recent comments on the company, the analysts said, “[W]e believe the reset in APP’s valuation relative to the fundamental setup presents a compelling opportunity that should be realized via forthcoming quarterly reports. Long-term, we believe APP should be able to maintain ~40% margins and can generate $3-5 in cash flow per share, even with higher incremental costs” related to scaling up product revenues.
Based on the most recent closing price of $35.36, the upside potential to BTIG’s price target is nearly 70%. The stock’s 52-week range is $27.04 to $116.09.
Online marketplace Etsy Inc. (NASDAQ: ETSY) claims a market cap of around $11.1 billion. The company posted net income of $86.1 million in the first quarter of 2022 and reported free cash flow of $56.3 million. Over the past four quarters, net income totals $435.9 million and free cash flow totals $546.8 million. Free cash flow per share totals $4.31 over the past 12 months and has been positive in all four quarters.
BTIG researchers note that they see “Etsy as having a dominant position within the handmade/special vertical with low risk of displacement by competitors given their prior unsuccessful efforts.” They also note that the company’s “healthy” free cash flow offers “valuation support that is critical in this current market.” Etsy replaced Farfetch as BTIG’s top pick among online marketplaces.
Based on Tuesday’s closing price of $88.24 and BTIG’s price target of $105, the upside potential on the stock is 19%. The stock’s 52-week range is $67.01 to $307.75.
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