Welcome back, bears.
The Dow retreated further on Thursday and has now pulled back 26% from its all-time high, crossing the threshold considered to officially trigger a bear market. The latest sell-off came after the World Health Organization declared the coronavirus outbreak a global pandemic and Trump addressed the virus in a speech in which he also announced a ban on most travel from Europe, without delivering the economic and medical response investors were hoping for.
In a note to clients, Wedbush’s Daniel Ives reminds investors that as history has repeatedly shown, the many panics, fears, and sell-offs on account of different types of market and “shock” events, always present openings for investors.
“We view these times of fear and ‘white knuckle’ Street panic as witnessed over the past week with the coronavirus outbreak as while tragic for the individuals and families impacted, representing golden buying opportunities to own the tech themes and stocks that we believe will be long term winners,” Ives said.
Using TipRanks’ Stock Screener tool, we gauge the sentiment on the Street towards three stocks the Wedbush analyst notes are at bargain prices. Turns out, that the analyst consensus currently rates all three as Strong Buys. Let’s take a closer look.
Uber Technologies (UBER)
Following a very hyped IPO last year, Uber stock has crashed down the charts, as heavy losses and disappointing earnings results sapped investors’ morale. Since bottoming out in November, Uber finally got a foot back on the market ladder, with the ride sharing pioneer posting healthy gains in 2020. That is, until the recent downturn swiftly wiped them all out again.
There is no doubt, as Ives notes, that Uber will feel the coronavirus’ impact on its daily business due to people travelling less. Although its closest rival Lyft has suggested Uber will take more of a hit as it operates in many different countries, Ives argues that Uber differentiates itself on account of its multi-pronged approach. Citing the company’s ability to morph its platform into a broader consumer engine with Uber Eats, Uber Freight, and autonomous initiatives as “just scratching the surface” on the full monetization potential of its business. The analyst believes that as the market leader in one of the most innovative growth sectors, Uber can turn into the Amazon of its industry.
Ives concluded, “We believe Uber remains a core name to own for the coming years and attractive risk/reward to play these trends despite the near-term worries with coronavirus fears. We believe SOTP is the best way to value Uber as saying it’s just a ridesharing platform would be undervaluing the value of the entire company which has the DNA to become a game changing consumer distribution ecosystem over the coming years.”
Along with his bullish call, Ives keeps an Outperform rating on Uber along with a $52 price target. The figure suggests potential upside of a very healthy 115% in the coming months.
Is the Street still keen on catching an Uber ride? It appears so. Uber’s Strong Buy consensus rating breaks down into 26 Buys and 3 Holds. 90% upside could be attained should the $49.92 price target be met over the next year. (See Uber stock analysis on TipRanks)
With the market pressing the panic alarm, it is very easy to forget that only a few weeks ago, some of the world’s biggest companies were actually notching all-time highs. Microsoft has retreated by 24% since reaching the milestone a month ago. According to Ives, there may be an opportunity to buy the dip in the tech giant.
Unsurprisingly, the world’s second largest company by market cap is feeling the pinch of the market’s downturn. Microsoft took its PC March guidance off the table on account of supply chain issues, which have affected scores of tech companies all over the world. The PC segment is clearly a focus for the Street, as it comprises roughly a third of revenue for MSFT.
However, Ives notes that many investors will look past this issue as more of a temporarily blip than a longer-term worry. Importantly, the rest of Microsoft’s March guidance, which includes the enterprise, Azure, Office 365 and cloud segments, remains unchanged.
Ives argues that based on Wedbush analysis, 32% of workloads are currently on the cloud, with the number set to increase to 55% by 2022. With a $800 billion TAM (total addressable market) the analyst believes MSFT is “poised to win the next phase of cloud.”
Ives concluded, “Microsoft firmly remains our favorite cloud play for 2020 and beyond; despite the bad news from the PC/supply chain (which we view as temporary) this does not change our bullish thesis around Azure’s growth and the longer-term prospects for Redmond over the coming years.”
As a result, Ives reiterates an Outperform rating on Microsoft shares along with a $210 price target. Should the figure be met, investors will be pocketing a 44% gain. (To watch Ives’ track record, click here)
The Street is almost unanimously bullish on the tech giant. 1 Hold countering a resounding 25 Buys, provides MSFT with a Strong Buy consensus rating. The average price target comes in at $197.32 and implies upside of 36%. (See Microsoft stock analysis on TipRanks)
A fellow large-cap with recent all-time highs is software company Adobe. The creator of ubiquitous offerings such as Photoshop, Adobe Flash and the PDF, reached a new peak of $383 on February 19. Unlike many tech companies reliant on the Chinese economy, Adobe has minimal exposure to the giant from the Far East. Still, Adobe hasn’t been spared in the recent bloodbath and is down 22% from its all-time high.
Adobe’s growth has been impressive. Since the third quarter of 2015, the company has generated record revenue in every quarter and has posted year-over-year revenue growth of over 20% for 18 consecutive quarters. Investors will be keen to see if the company can keep it up when it will release its FQ1 2020 results this evening.
Ives believes Adobe “represents a defensive and offensive core SaaS software stalwart.” The 5-star analyst notes the acquisitions of Marketo and Magento show it is successfully transitioning from its core consumer base to the B2B landscape.
Ives said, “We continue to see relatively healthy demand trends for the company’s creative and marketing solutions with ADBE driving increased customer lifetime value and TAM expansion opportunity with subscriptions over the next 12 to 18 months a key lever that may drive further upside over time. With ARR and subscription growth humming and further margin improvement on the horizon, ADBE fundamentally speaking has significant tailwinds heading into 2020 and beyond, in our opinion, with no major speed bumps that we see on the horizon.”
Looking at the consensus breakdown, the bulls are leading the way. Adobe’s 17 Buys and 5 Holds add up to a Strong Buy consensus rating. The analysts put an average price target of $361.14 on the stock, expecting it to add nearly 22% over the coming months. (See Adobe stock analysis on TipRanks)