This week’s spotlight is Facebook (FB), as the company reveals its new cryptocurrency offering today (June 18, as I write this), and on the US Federal Reserve as the Board’s Federal Open Market Committee will conclude its regular policy meeting tomorrow with a much-anticipated position announcement on interest rates. Facebook’s news has been feeding grist to the rumor mills for nearly a year; the company’s white paper will separate facts from wishful thinking. The Fed has been holding rates steady since December last year; with week’s meeting, market watchers expect some guidance on future cuts.
So, the big news is crowding the spotlights, which can make it difficult to see what the smaller guys are up to. But those smaller companies offer plenty in the way of market action. For investors willing to shoulder a bit of extra risk, the rewards can be compelling. We’ll use the TipRanks Trending Stocks data to look at three companies that Wall Street’s top analysts think are positioned for strong gains.
Lumentum Holdings (LITE)
Lumentum is leading provider of optical and photonic products for datacom, telecom, and commercial lasers. If you’re one of the 900 million iPhone users, then you’re familiar with Lumentum products – the company is a supplier of screen components for the popular smartphone.
It’s prominent place in the tech ecosystem – Lumentum is also part of Huawei’s supply chain – has left the company vulnerable to the ‘China Contagion,’ the fallout from ongoing trade tensions between China and the US. The tech industry is generally is vulnerable to the trade spat, as the US is the world’s largest tech consumer and China is a massive exporter of tech products. Lumentum, with its exposure to both Apple (AAPL) and Huawei, is more vulnerable than most. Between May 14 and May 20, LITE shares lost almost 13% when the trade war flared up again.
The company is not without hope, however. Writing from Goldman Sachs, analyst Rod Hall has run the numbers on a series of scenarios for LITE’s future. He took careful note of a “a worst-case earnings scenario that assumes 100% of Huawei related revenues are lost and Apple’s iPhone volumes end up being 20% lower than his below consensus estimates.”
In that scenario, he described the downside as “…likely [to] deliver about $3.27 in FY (to June) EPS which implies a current forward trading PE of 13.2x vs. a recent historical median PE of 12.3x.”
Hall continues, summarizing the case thus: “While acknowledging that a range of outcomes may exist outside our analysis, we highlight that even in our most bearish scenario the implied PE multiple is ~13x at current trading levels. This compares to Lumentum’s median multiple of ~16x since it started trading in 2015… We also flag again that we see our most bearish scenario as unlikely, given iPhone unit weakness is already built into our model. In our note published on May 20 we estimated ~34% of Huawei revenue is replaceable in our central case.”
To put it plainly, Hall sees LITE’s vulnerabilities as known factors, which investors are already seeing and taking into account. His most bearish estimates, also, still show the company maintaining a profit. With that in mind, he gives LITE a ‘Buy’ rating and a $69 price target, suggesting a 39% upside.
Wall Street’s analysts are in general agreement with Hall’s thesis. With a unanimous 15 buy ratings, LITE has a ‘Strong Buy’ from the analyst consensus. Shares trade for $49, so the average price target of $67 gives a 36% upside.
RingCentral, Inc. (RNG)
Cloud computing has revolutionized communications and networking technology, along with the software industry. Unified Communications as a Service (UCaaS) brings all three together, routing telephone, video links, and data communications through one server. RingCentral is a leader in the industry, with a reputation for…
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