In the most recent escalation, the World Health Organization (WHO) deemed the coronavirus outbreak a pandemic on March 11. In reaction to the declaration, the U.S. banned most flights to Europe in an effort to contain the virus that has already spread to 114 countries. However, the President’s response was widely perceived as insufficient both medically and economically, sending the market deeper into the red. One day later, Dow futures tumbled by over 1,000 points, with S&P 500 and Nasdaq futures dipping as well.
Before panicking, the pros on Wall Street remind investors that market weakness could present a dip-buying opportunity. One of the top economic advisors for the Trump administration, Larry Kudlow, says that now is the time to pull the trigger as the full value of certain names might not be factored into the share price. “Long-term investors should think seriously about buying these dips,” he commented.
Taking this into consideration, we set out on our own search for compelling investment opportunities trading at a discount. Using TipRanks’ Stock Screener tool, we were able to find 3 beaten-down stocks the analysts believe are undervalued. Not to mention each has received enough support from Wall Street to earn a “Strong Buy” consensus rating.
Trade Desk Inc. (TTD)
We will start with a software name. Trade Desk serves the advertising industry, offering a media-buying platform that helps users create engaging and inspiring content. TTD shares have slumped 22% lower so far this year. However, analysts aren’t giving up hope just yet.
Stephens’ Kyle Evans points to its fourth quarter earnings release as being a key facet of his bullish thesis. During the quarter, spending on the company’s platform crushed the previous record, coming in at $1 billion-plus. Additionally, profitability held sturdy for the fourth year in a row with a 30%-plus AEBITDA margin and data use increased 65% year-over-year.
Looking forward, management guided for spending on the platform to grow by 35.7% in 2020, compared to the 33% growth rate it achieved in 2019. According to Evans, these results are “indicators that its profitable land grab strategy on the buy-side of the digital ad ecosystem is working, and gathering momentum.”
Evans added, “We believe TTD is the best way to play the rapid growth in ad supported connected TV, and investors should use recent weakness to build positions. We believe concerns about Chrome third party cookies, tough comps, lower take rates, etc. are largely misplaced and that TTD can grow into its seemingly pricey valuation by continuing to execute and expand its business in CTV and internationally.”
Calling TTD the firm’s “favorite business model in the connected TV ecosystem”, it should come as no surprise that Evans advises buying the dip. In addition to keeping his bullish call on the stock, the analyst bumped up the price target from $250 to $310. This puts the upside potential at 51%. (To watch Evans’ track record, click here)
What do other Wall Street analysts have to say? As it turns out, 6 out of 8 analysts that have published a recent review see the stock as a Buy, making the consensus rating a Strong Buy. With an average price target of $285, the potential twelve-month gain comes in below Evans’ forecast at 38%. (See Trade Desk stock analysis on TipRanks)
Plexus Corporation (PLXS)
Next up is Plexus, which specializes in complex product design, manufacturing, supply chain and aftermarket services. The stock has slipped 26% year-to-date, and while the situation appears dire, the company could be nearing an inflection point.
Writing for J.P. Morgan, analyst Paul Coster argues that the company’s valuation makes it worthy of investor attention. Currently, the company trades at 14.7 times forward P/E and around 8.7 times forward EV/EBITDA, which reflect slight discounts to the 3-year mean and a substantial discount on a PEG basis. With the analyst expecting PLXS to edge out its peers in the next six to twelve months, he sees the stock as being significantly undervalued.
Also impressive, in Coster’s view, is that unlike other names inhabiting the space, PLXS focuses on complex, engineering-led, manufacturing services in healthcare, industrials, aerospace and defense applications. “We believe this focus can lead to the firm easily exceeding it 5% operating margin targets over the next few years, and believe this could sustain a premium valuation multiple for PLXS in the electronics manufacturing services (EMS) space,” he stated.
It should be noted that management is anticipating a disruption as a result of the coronavirus outbreak in the second half of 2020, in the shape of a $40 million hit to fiscal second quarter revenues. Even though this led Coster to reduce his estimate for operating profit, he remains bullish on Plexus’ long-term growth prospects.
To this end, Coster gave his rating a boost, upgrading the call to Overweight. Given his price target of $84, shares could surge 47% in the next year. (To watch Coster’s track record, click here)
Looking at the consensus breakdown, other analysts also have high hopes for PLXS. With 3 Buys and 1 Hold set in recent weeks, the word on the Street is that the stock is a Strong Buy. The $82.33 average price target brings the upside potential to 44%. (See Plexus stock analysis on TipRanks)
Zendesk offers easy-to-use CRM software that provides businesses with a complete sales and support solution. While shares are down 22% year-to-date, some members of the Street believe that a turnaround is on the horizon.
William Blair’s Arjun Bhatia wrote in a recent note to clients that he is more confident in ZEN’s business fundamentals and long-term growth story after attending the company’s virtual analyst day. Part of the excitement is related to its Sunshine product, which has enabled new product cycles to begin. On top of this, ZEN has upgraded both the Sales and Support Suites.
“Suite selling has worked well for Zendesk in the past and these new solutions with enhanced feature functionality bode well for the company, in our view. While there was some near-term noise at the analyst day from the company’s canceled Relate user conference and recent comments on coronavirus, we do not see this as a long-term threat to the business and continue to be positive on Zendesk’s product roadmap and go-to-market initiatives,” Bhatia explained.
Additionally, ZEN’s decision to offer a free Lite version of Sunshine should bode well for the company, according to Bhatia. “We see the freemium approach as an effective way to get as many developers using Sunshine as possible, while also driving an upgrade motion for Support customers,” he stated.
Bhatia does note that should the coronavirus situation worsen, ZEN’s full-year revenue numbers could take a hit. That being said, the analyst points out that currently, the impacts of the virus on the company are minor.
In line with his recommendation to snap up shares on “outsized weakness”, Bhatia reiterated an Outperform rating but declined to set a price target.
Out on Wall Street, other analysts are on the same page. A Strong Buy consensus rating breaks down into 10 Buys and 3 Holds. At $95.54, the average price target puts the upside potential at 55%. (See Zendesk stock analysis on TipRanks)