Less than two weeks into the new year, the most important question is becoming clear: should we buy the dip or not? In January, the markets have been a little swoony, but not too much. Both the S&P 500 and the NASDAQ have lost money in 2022’s cumulative trading sessions. The S&P lost 2%, and the NASDAQ lost 4.5%.
Headwinds and tailwinds are pushing on equities at the same time. Before that, there was the Omicron wave of COVID-19, and there are still problems in the supply chains and labor markets. When Omicron looks less dangerous and more contagious, it could lead to mass natural immunity with less death, and the pandemic could be over soon. Another sign that interest rates might go up later this year: The Federal Reserve says it will start raising them later this year. To put a stop to rising prices, that’s what that will do.
On the other hand, Marko Kolanovic, JPMorgan’s global markets strategist: “We think there is more upside for stocks, and we think this dip should be bought into.” The new version is going to be a lot less harsh, and the negative effects on mobility are going to be much easier to deal with.
Kolanovic says that “Inventories are very low, and the labor market is still going strong.” Earnings are still going up, and we think that the consensus forecasts for 2022 are going to be way off again.
With this in mind, we wanted to take a closer look at two stocks that JPMorgan said were good investments. The company said both had more than 80% upside potential. It turns out that the rest of the market agrees with us. Both have been given a “Strong Buy” consensus rating by TipRanks.
Driven Brands Holdings (DRVN)
We’ll start with Driven Brands, the largest car service company in North America. It is a company that owns a lot of different businesses that help people with their cars, like Driven Brands. The services are broken down into four groups: Maintenance; Paint, Collision, & Glass; Platform Services; and Carwash. They include well-known brands like Meineke and Take 5 Oil Change. Maaco and the Automotive Training Institute are also there. There are more than 4,200 brand locations, most of which are owned and run by franchisees.
When Driven went public last year, it raised more than $650 million in net proceeds from the IPO. There has been a lot of change in the company’s stock price over the last year, but it’s still well above the original price of $22.
Four quarterly financial reports have been released by Driven since the company went public in 2012. During the summer, sales went up. In the third quarter, the company made $371 million, which was up 39% from last year, and same-store sales rose 12.8 percent. YOY: Adjusted earnings came in at 26 cents per share, up 30% from last year. The company opened 53 new stores in the third quarter.
This growth comes along with the reopening of the business world. As people get out and move around, they drive, which means their cars will need to be serviced and have new parts. Growth in the company continued after the quarterly report for Q3. Since then, the company has announced expansions in both its carwash and auto glass segments. In November, the company bought its 100th car wash since August 2020. It now has more than 300 car wash locations. This month, the company bought Auto Glass Now, which had 75 locations in the auto glass repair business.
“We continue to see DRVN as one of the most unique stories in our coverage.” That’s what Christopher Horvers, a 5-star analyst at JPMorgan, said about the stock when he wrote about it. There are many reasons why DRVN is a good bet for 2022: (1) supportive recovery dynamics, (2) pricing power, (3) fewer competitors after COVID, (4) material upside bias to estimates, (5) structural valuation upside, and (6) an emphasis on perceived asset quality. “DRVN checks many boxes in 2022.”
If you want to buy shares of DRVN, Horvers says to do so with an “Overweight” (i.e., Buy) rating, and his $15 price target suggests an 83 percent chance of growth over the next year. To see Horvers’ record, click here.
4 analysts have written about Driven Brands, and they all think it’s a good idea to buy the stock. This means that everyone agrees that Strong Buy is a good idea. There are DRVN shares for sale at $30.54 each, and their average price target of $45 means they have a one-year upside potential of about 47%.
Edgewise Therapeutics (EWTX)
In the second stock we’ll look at, Edgewise Therapeutics is a biopharma company that is still in the early stages of development. It focuses on the treatment of musculoskeletal diseases. The company is working on new therapies for rare muscle disorders that can be very painful and debilitating if they are taken by mouth. Duchenne and Becker muscular dystrophy (DMD and BMD), spasticity disorders, and neuromuscular metabolic disorders are some of the illnesses that are targeted by this study.
Most of Edgewise’s research projects are still in the early stages of testing, but the DMD/BMD program has reached the first phase of clinical testing. This month, the topline results from EDG-5506, a drug candidate in the muscle stabilizer class, came out. They show that patients took the drug very well, with no side effects. After two weeks of taking the drug, adults with BMD showed significant muscle concentrations and fewer muscle damage biomarkers than predicted. These are important results for a first-in-human clinical study, and they show that EDG-5506 should be used in more studies.
“In our view, key aspects that made the update a clear success include: 1) significant and time-dependent lowering of key muscle damage biomarkers; 2) favorable PK consistent with robust target engagement (e.g., exposures exceeding pharmacologically active levels seen in diseased pre-clinical models in both the plasma and muscle); and 3) noun expected safety/tolerability concerns.” JPMorgan’s Tessa Romero agrees.
It’s possible to make a lot of money off of EDG-5506. “We have proof of concept (POC) data with EDG-5506 that is backed up by both biological and functional markers of response,” Romero said.
Romero lists Edgewise as a “top idea” for 2022, which is in line with what people have said. They give the stock an Overweight rating, which means they think it should be bought. They also have a $33 price target. If the goal is met, an 82 percent gain over the course of a year could be in store. Watch Romero’s record here.
Edgewise has a strong buy rating from three analysts who have recently given it a review. Average price target for the shares is $32, which means they could rise by about 77% in the next year.