JPMorgan: 3 Cheap IPO Stocks to Buy Now

The S&P 500 closed at 3,039.42 Monday evening, up 0.6% from Friday, setting a new record high, and maybe — just maybe — poised to go even higher.

According to investment banker J.P. Morgan, the global economy is in the midst of a “synchronized” recovery that, fueled by strong earnings, interest rate cuts, and renewed hopes for a truce in the U.S.-China trade war, could propel the stock market as high as 3,200 by mid-next year.

What’s the best way to capitalize on this recovery in stock fortunes? Searching through the TipRanks Stock Screener, we’ve come up with three strong value stocks worth a look — each recommended by J.P. Morgan itself, and each rated “strong buy” on average by top Wall Street banks that we track. Here they are for your review:

Oportun Financial (OPRT)

San Carlos, California-based consumer direct lender Oportun Financial is our first candidate, and if you haven’t heard of it before, that’s no big surprise. Oportun only went public a month ago, and its first earnings report as a publicly traded company won’t happen till next month.

Regardless, J.P. Morgan thinks this opportunity is too good to wait ’til earnings to buy.

Initiating coverage of the stock with an “overweight” rating and a $20 price target, J.P. Morgan analyst Richard Shane hailed Oportun as “a mission-driven lender, focused on providing loans to borrowers with little or no credit history.” (To watch Shane’s track record, click here)

Oportun’s business model is to provide a low-cost alternative to pawn brokers and payday lenders who traditionally have preyed upon borrowers with limited (or bad) credit history.

Instead of loan shark rates in the triple digits, Oportun offers borrowers “APRs in the low 30s,” which is good for its customers — and also plenty high to allow Oportun to make a tidy profit for itself.

Calling Oportun “one of the best potential growth stories in our sector,” Shane argues the a stock is “best suited for small cap and financial investors seeking a balance of growth and value.” On the growth side of the equation, the analyst believes Oportun could achieve compound annual earnings growth on the order of 37% over the next three years. And as for value, well, the stock sells for only 4.8 times estimated 2021 earnings, so … cheap!

All in all, this financial services company has earned one of the best analyst consensus ratings on the Street. Out of 6 analysts polled by TipRanks in the last 3 months, all 6 are bullish on OPRT’s prospects, highlighting a strong bullish backing here. With a healthy return potential of 21%, the stock’s consensus target price stands at $19.83. (See Oportun Financial stock analysis on TipRanks)

SmileDirectClub (SDC)

Next up: SmileDirectClub — the 1-800-Contacts of the dental invisaligner industry.

Like Oportun, SmileDirectClub only went public last month. Soon after, J.P. Morgan analyst Robbie Marcus initiated coverage of this one with an “overweight” rating, and with a price target of $31, arguing that “SmileDirectClub’s clear aligners and the DTC business model” are the solution to “high costs and a significant time commitment” of traditional orthodontics, which can run to $5,000 to $8,000 and require multiple in-person visits to the orthodontist. (To watch Marcus’ track record, click here)

As a result, Marcus explains, “less than 1% of SmileDirectClub’s target market” is receiving corrective dental care today, offering a “long, multi-year runway for global growth” for the company. In the analyst’s view, this market is in fact so huge — potentially as big as $569 billion annually, worldwide —  that 50% annual sales growth could be a “conservative” estimate for SmileDirectClub.

Predicting that SmileDirectClub will achieve “its first full year of positive earnings and” free cash flow in 2021, and maintain “sustained profitability” thereafter, even assuming an even more conservative forecast of 47% sales growth through 2023, Marcus believes the stock could hit $31 a share by the end of next year. With the stock trading for just $12 and change today, that’s a chance to see more than 150% upside from today’s prices.

SmileDirectClub stock has a resounding “yes” on Wall Street. TipRanks analytics show that out of 8 analysts, all eight are bullish. The price target of $22.71 shows a potential upside of about 90%. (See SmileDirectClub stock analysis on TipRanks)

Peloton Interactive (PTON

And wrapping up with the stock that dominated the television commercial circuit last Christmas, we come at last to Peloton Interactive, the stationary bicycle company that — you guessed it — also IPO’ed last month.

This time, the J.P. Morgan analyst initiating coverage is Doug Anmuth — but just like his fellows, Anmuth is optimistic about his chosen stock. Initiating coverage last week with an “overweight” rating and a $32 price target, Anmuth highlights Peloton’s status as “the largest interactive fitness platform in the world, with 1.4M+ members across the US, UK, & Canada” as reasons to buy the stock. (To watch Anmuth’s track record, click here)

Anmuth notes that as its membership has grown, so too have Peloton’s revenues, averaging a 122%-per-year growth rate from $84 million in 2016 revenues to $915 million in 2019 — and he predicts a “significant runway for growth” in the years to come as well: “We believe PTON is well positioned for sustained 35%+ Y/Y revenue growth,” says Anmuth. And in this case, the “+” is no afterthought. In fact, the analyst predicts growth will average 47% annually over the next three years, “which may be conservative.”

And while Peloton’s revenues may not be profitable today, Anmuth believes the company will reach at least “adjusted EBITDA” profitability by 2023, and begin earning 10% adjusted EBITDA margins the following year. In the analyst’s view, this should be good enough to make Peloton stock worth $32 a share — nearly 50% more than it costs today — by the time Christmas 2020 rolls around.

All in all, Wall Street loves Peloton. TipRanks tracking of 19 analyst ratings on the company shows a consensus Strong Buy, with 17 analysts recommending Buy and only two recommending Hold. The average price target is $31.06, representing a 40% upside from current levels. The most confident analyst goes as high as $37 – the lowest price target is still $24, higher than its current value. (See Peloton stock analysis on TipRanks)


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