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

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.

Etsy

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.

Splunk Inc. (NASDAQ: SPLK) provides a real-time platform for collecting and analyzing data along with security and IT infrastructure services. The company’s market cap is around $15.1 billion. Splunk has not posted a profit in the previous four quarters and its net loss over the 12-month period was $1.17 billion. Free cash flow for the 12 months was $187.7 million. Free cash flow per share totaled $1.17 over the past year.

BTIG analyst Gray Powell has a Buy rating on the stock with a price target of $132. Powell is replacing Zscaler, its former top pick in the space, with Splunk, commenting that BTIG sees ” a few dynamics such as [an] accelerating shift to cloud and improving [operating cash flow] profile that could help SPLK stock re-rate to a higher trading multiple over the course of the year.” The stock is also trading at a discount to its peers in the security space, and a rumored $20 billion buyout bid from Cisco that never materialized also figures into Powell’s calculations.

Based on Tuesday’s closing price of $94.42, the upside potential at BTIG’s price target is 39.8%. The stock’s 52-week range is $84.63 to $176.66.

Tyler Technologies

Tyler Technologies Inc. (NYSE: TYL) provides integrated information management solutions and services to customers in the public sector. The company’s market cap is around $13.9 billion, and it has posted net income of $164.5 million over the past four quarters. Free cash flow totaled $321.7 million, and free cash flow per share came to $7.76 for the four quarters.

BTIG analyst Matt VanVliet said that Tyler was the firm’s top pick for the second half of 2022 because “we expect the public sector to remain much more resilient than the broader economy which should help the shares outperform the remainder of the year.” About half the $350 billion in the federal American Rescue Plan Act will be spent by the end of this year and the rest (most of which is already in the hands of state and local governments) is scheduled to be spent by the end of 2024.

The stock closed at $340.13 on Tuesday, implying an upside potential of 75.5% based on BTIG’s price target of $585. The stock’s 52-week range is $300.85 to $557.55.

Uber Technologies

Ride-sharing giant Uber Technologies Inc. (NYSE: UBER) has a market cap of $42.55 billion and is currently trading much closer to its 52-week low than to its 52-week high. Uber has posted a net loss of $6.32 billion over the past four quarters and has a negative free cash flow of $108 million (negative $0.06 per share). BTIG analyst Jake Fuller has a price target of $55 on the Buy-rated stock.

Despite a “health rebound in rideshare, ongoing strength in delivery and breaking through to EBITDA profitability,” Uber was caught in the sell-off of growth stocks in the first half of the year, and the stock has dropped nearly half its value. Fuller also noted that Uber has reported an EBITDA profit for three successive quarters and expects to be free cash flow positive for 2022.

Shares closed at $22.52 on Tuesday, implying a potential upside of 144% based on BTIG’s price target. Uber stock’s 52-week range is $19.90 to $51.03.

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And More

BTIG also has Buy ratings on one London-traded large cap stock, Flutter Entertainment, which owns sports betting site FanDuel, and three small/mid-cap tech-related stocks: ForgeRock, CarGurus and Sprout Social.

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