After a market rout, investors this week have a chance to catch their collective breath. US stocks on course for their first back-to-back gains since early February. The sigh of relief that investors must be feeling likely can’t hide some underlying anxiety, as current conditions just aren’t right for the growth that ensures profitable trading.
Still, the bear market has pushed prices down, and there are some buy-side bargains out there with potential for strong returns. With this in mind, we’ve used TipRanks database to find two buy-rated stocks with an upside potential of at least 40%. Let’s dive in.
Green Dot Corporation (GDOT)
Green Dot is a major financial tech company, as well as the world’s prepaid debit card issuer. The company’s payment processing platform is also widely used, and boasts many big-name customers. Chief among GDOT’s payment processing customer is Apple, Inc, which uses the platform in the Apple Pay service.
The company saw steep losses in 2019 after it repeatedly revised full-year guidance downwards. Those losses came despite beating revenue estimates consistently – investors just didn’t like that the company kept reducing the forward projections. In Q4, GDOT beat the forecasts again, reporting 14 cents EPS against the expected 11 cents. The year-ago number, however, was 56 cents – so maybe the company was justified in lowering its bar early on. Despite the drop in EPS, revenues remained stable. GDOT reported $238.4 million in Q4, just over the expectation, while Q4 2018 showed $237.83 million.
Northland Securities analyst Michael Grondahl is upbeat about GDOT’s prospects. He points to the company’s new management as a net positive, and notes solid plans for future profit growth: “GDOT has two large projects in customer service automation and for improved fraud prevention. The interim execs noted GDOT has not been strong enough in these two areas and a decent amount of efficiency can be picked up from these initiatives.”
Backing his statement, Grondahl upgrades this stock from Neutral to Buy, and his $35 price target suggests an upside of 41%. (To watch Grondahl’s track record, click here)
GDOT shares have a trading price of $25.10, and their average price target of $36.38 implies room for an impressing 45% upside potential. The Moderate Buy analyst consensus rating is based on an even split: 4 Buy-side reviews and 4 Holds. (See Green Dot stock analysis on TipRanks)
Global Medical REIT (GMRE)
Next up is a real estate in vestment trust. For investors seeking a steady income in a difficult market environment, REITs are a natural fit. These companies generate their cash flow primarily by owning, operating, and managing residential and commercial real properties, and since they are required by tax regulations to pay back a high percentage of their income to shareholders, they typically show excellent dividend yields. GMRE is no exception.
The company focuses is operations in the medical market, acquiring and owning healthcare facilities – hospitals, outpatient and diagnostic clinics, group practice clinics, and outpatient surgical centers. GMRE leases these facilities to large-scale clinical operators, and manages the physical structure.
Real estate was doing well before coronavirus hit, and the medical profession is one sector that is seeing business increase despite the general downturn right now. And in the last quarter of 2019, GMRE reported quarterly beats on revenue and FFO (funds from operations, an REIT equivalent to EPS). At the top line, revenues were $20.45 million, 5.2% over expectation and far higher than the year-ago quarter’s $14.4 million. FFO, at 21 cents, was 5% over the forecast and flat yoy.
On the dividend, GMRE pays out 20 cents quarterly, or 80 cents annualized, and shows a yield of 8.7%. Considering that Treasury bonds are currently yielding 1.3%, and the average dividend yield among S&P companies is ~2%, this makes GMRE’s return simply superior. The company has a 4-year history of maintaining the dividend. Better yet, even after the recent share depreciation the payout ratio is 95%, indicating that the company can afford to keep up the dividend payments.
Writing from B. Riley FBR, analyst Bryan Maher upgrades his stance on GMRE from Neutral to Buy. He points out the company’s solid connection to the health care industry, and its excellent position in available credit. Regarding future prospects, he writes, “Going out to 2021 and 2022, we estimate that the company will complete approximately $75.0M and $80.0M of acquisitions, respectively, using a 50/50 debt/equity financing strategy. That said, even if the equity markets do not recover by then (highly unlikely, in our opinion), GMRE still has plenty of availability under the accordion feature of its credit facility to finance the acquisitions we have modeled.”
As a result, Maher upgraded his rating for GMRE from Neutral to Buy, while setting a $12 price target, which implies about 13% potential upside from current levels. (To watch Maher’s track record, click here)
Other analysts are even more optimistic. Of the five investment banks that have rated GMRE over the past three month, all five agree the stock is a “buy” — and on average, they think it’s worth $15.10 a share — 44 % ahead of current pricing. (See GMRE stock analysis on TipRanks)