Ticker Reports for July 7th
3 Stock Giants Analysts Are Bullish On Despite Struggles
Despite their recent struggles, these three industry giants hold the promise of significant upside. With favorable consensus price targets and ratings, attractive P/E valuations, solid earnings growth projections, and some highly attractive dividend yields, they present a hopeful picture for income and value-oriented investors. Let's delve into these stocks that, despite their recent setbacks, might be the exciting investing opportunity you've been looking for.
Analyst Price Targets: Potential Upside for PayPal Stock
PayPal (NASDAQ: PYPL) is a leading digital payment platform that enables digital and mobile payments on behalf of consumers and merchants. Year-to-date, the stock has underperformed in the financial sector, with its stock down almost 3%, and over a year, it is down over 12%. However, from a valuation perspective, PayPal is now trading with a P/E ratio of 15 and a forward P/E ratio of 13.04, making it an attractive option for value investors.
The stock also has projected earnings growth of 9.9% for the entire year. In its most recent report on April 30, the credit services provider reported $1.08 EPS for the quarter, missing analysts' consensus estimates of $1.22 by $0.14. The company had revenue of $7.70 billion for the quarter, compared to analyst estimates of $7.52 billion. Its revenue for the quarter was up 9.4% compared to the same quarter last year.
Analysts see considerable upside for the stock, with a consensus price target of $73.82, forecasting an almost 24% upside. Most recently, the stock has received several positive analyst actions: on July 2, Susquehanna analysts upgraded the stock from neutral to positive, and on June 25, analysts at Evercore ISI boosted its target from $65 to $70.
Analyst Sentiment on Pfizer: Forecasting Future Performance
Pfizer Inc. (NYSE: PFE) is a US-based multinational biotech company that is a research-based pharmaceutical company focused on discovering, producing, and marketing medicines and vaccines. Like many other vaccine names that benefited greatly during the pandemic, Pfizer still suffers from its post-pandemic gains hangover, with the stock down 3.6% YTD and a whopping 24% over the previous year.
However, this slump provides a potentially excellent risk-reward opportunity for value investors, especially those interested in dividend income. The stock offers a 5.95% dividend yield and a forward P/E ratio of 10.12. From a technical perspective, Pfizer has bottomed out in May, and if the stock can reclaim its 50-day SMA around $30, a trend break is confirmed. Like PayPal, analysts forecast a significant upside for this high-dividend-yielding name, with a consensus price target of $25.54, forecasting over 28% upside.
Analyst Ratings for Alibaba: Forecasting Significant Upside
Alibaba (NYSE: BABA) is a Chinese multinational conglomerate specializing in e-commerce, retail, and technology. In recent years, Alibaba has been plagued by the economic and property crisis, along with regulatory risks in China. As a result, the stock has fallen almost 10% over the previous year and close to 2% YTD. However, with a multi-year consolidation and trading near support, a forward P/E ratio of 8.56, and a current P/E ratio of 17.3, it might present an opportune time to buy.
The stock also has a dividend yield of 1.3% and positive projected earnings growth for the full year of 12.07%. Analysts are bullish on Alibaba, with a moderate buy rating and a price target forecasting a whopping 44% upside. Most recently, on June 6, analysts at Loop Capital boosted their price target from $111 to $115, predicting over 45% upside at the time of the report.
Nvidia's Quiet $1 Trillion Pivot
Nvidia recently added $277 billion in market cap …
IN ONE DAY.
Simulations Plus Stock Drops 15% Despite EPS Beat
Simulations Plus (NASDAQ: SLP) is a small-cap healthcare technology company with a value of about $800 million. The firm has vastly underperformed the market and its sector over the last 12 months, with a total return of -7%. The S&P 500 is up 26% in the same period, and XLV, which represents the healthcare sector, is up 11%. The firm released earnings after market close on July 2, 2024. Despite beating estimates on both earnings per share (EPS) and revenue, the share price fell nearly 15% on July 3. Let's take a look at some context around what Simulations Plus’s business does, dive deeper into the earnings report to understand the price drop, and close with some outlook on the firm.
Simulations Plus: Drug Development Software and Services
Simulations Plus develops modeling and simulation software used in drug discovery and development. This software is largely based on predicting the molecular properties of a potential drug, such as how a drug's molecular structure will interact with biological molecules. This helps determine how a drug can achieve the desired effect on the body and helps identify and stop undesired effects. The software uses AI and machine learning.
The business operates as two reportable segments: software and services. The company offers 12 different software products for pharmaceutical research and development. Its flagship product and largest single source of revenue is GastroPlus. GastroPlus simulates drug absorption and interaction on compounds given to both humans and animals. It is one of the most widely used commercial software products of its kind. The software segment represented 61% of the firm's total revenue during the 2023 fiscal year.
The services segment performs studies for a fee, helping solve drug development problems in which it has expertise. This segment makes up 39% of total revenue. Total revenue grew by 14%, with 12% growth from software and 18% from services from the previous year. Competitors to Simulations Plus include Certara (NASDAQ: CERT) and Schrödinger (NASDAQ: SDGR).
Financial Results: Lower Margins and Other Factors Send Shares Tumbling
In its fiscal Q3 2024 earnings release, the firm’s EPS came in at $0.19, 3 cents above the expected figure of $0.16. So why did the firm lose nearly 15% of its value the next day? One culprit is an alarming contraction in margins. Gross margin fell 400 basis points from the previous quarter and is down 11% from the previous year. This was predominantly due to a massive drop in gross margin for the services segment, which is down to 41% from 63% in Q3 2023. The gross margin for software also declined slightly. This contraction was not limited to gross margin. In total, research & development, selling, general, and administrative expenses were up by $2.2 million. This contributed to the operating margin falling to 10% compared to 25% last year.
The next source of this drop in share price? A hefty reduction in EPS guidance despite an increase in revenue guidance. The firm currently expects midpoint adjusted diluted EPS of $0.55 on revenue of $70.5 million for fiscal 2024. Before, it expected EPS of $0.67 on $67.5 million in revenue. So, the firm is raising its revenue estimate while lowering its EPS estimate by 18%. This can mean only one thing: it expects margins to contract further. Dramatically contracting margins is one of the worst obstacles a business can face. Margins are important indicators of sustainable profitability. Lowering margins often indicates increased competition in an industry, causing prices across the board to come down.
Another troubling sign for Simulations Plus is that the firm is suspending its dividend. Suspending dividends is a sign that a firm is under financial pressure. It can indicate it needs to preserve cash to reinvest in the business or meet its obligations. The company’s balance sheet looks good. It has current assets of $136 million compared to only $11.3 million in current liabilities. This gives it a current ratio of 12x. The firm is likely using the extra cash to reinvest in the business, a much better sign than needing it to fund its liabilities.
Outlook: Relative Valuation and Analyst Price Target
All these factors led to the significant decline in share price. This happened despite Simulations Plus beating earnings estimates. One could argue that the firm is overvalued based on its forward price-to-earnings (P/E) ratio. Its 68x forward P/E is in the 94th percentile for global healthcare companies. However, healthcare analyst Matthew Hewitt at Craig Hallum Capital Group reiterated his buy rating on the company after the release. His price target of $56 implies a 40% upside.
Alex's "Next Magnificent Seven" Stocks
Today Alex Green is releasing his new breakdown of AI's "Next Magnificent Seven."
So please make some time to watch it.
Nasdaq vs. Dow Jones: A Detailed Breakdown of Stock Indexes
In this article, we compare the Nasdaq vs. Dow Jones, including their composition, market focus, calculation methods, performance, and risk. By examining these factors, investors can better understand how each index aligns with their investment goals and strategies.
What is the Nasdaq?
The National Association of Securities Dealers Automated Quotation, or the Nasdaq index, is the world’s first global electronic marketplace for trading securities and a top benchmark for U.S. technology stocks. When it was established in 1971 by the National Association of Securities Dealers (NASD), it provided traders with speed, transparency, and automation.
Today, the Nasdaq houses the world’s largest and most influential tech firms like Apple Inc. (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet, Inc. (NASDAQ: GOOG). These Nasdaq companies help make the index an indicator of tech sector health and market sentiment towards innovative and high-growth industries.
The Nasdaq operates several market tiers, providing a platform for both well-established corporations and emerging startups to access capital and grow.
- Nasdaq Global Select Market: largest and most established companies
- Nasdaq Global Market: mid-sized companies
- Nasdaq Capital Market: smaller companies with growth potential
What is the Dow Jones?
The Dow Jones Industrial Average (DJIA), commonly known as the Dow Jones or simply the Dow, is a well-respected stock market index that reflects the performance of prominent, publicly traded companies listed on U.S. stock exchanges. Established in 1896 by Charles Dow and Edward Jones, the Dow Jones index started as just a dozen industrial companies. Today, it has grown to include 30 U.S. businesses in technology, finance, healthcare, and consumer goods.
A committee of editors from The Wall Street Journal selects the companies that make up the Dow Jones typically based on their size, industry representation, and financial performance. Current Dow Jones companies include The Goldman Sachs Group, Inc. (NYSE: GS), Johnson & Johnson (NYSE: JNJ) and The Coca-Cola Company (NYSE: KO). Similar to the Nasdaq, the Dow serves as a barometer for the overall health of the U.S. stock market and economy, given its inclusion of multiple sectors and industries.
Key Differences Between Nasdaq and Dow Jones
Composition
The Nasdaq includes over 3,000 companies, primarily composed of technology firms, but also featuring businesses from other sectors such as consumer services, healthcare, and financials.
Dow Jones companies, on the other hand, are an elite group of 30 large, publicly-traded companies from a wide range of industries (excluding transportation and utilities).
Market Focus
The Nasdaq is known for representing the performance of innovative and fast-growing sectors, focusing on high-growth technology and internet-related companies.
A more traditional cross-section of the American economy, the Dow Jones encompasses various sectors such as finance, healthcare, industrials, and consumer goods, providing a broader perspective on established industry leaders.
Calculation Methods
The Nasdaq is a market capitalization-weighted index. This means that the weight of each stock is proportional to its market cap, so stocks with larger market values have more influence on the index.
The Dow is a price-weighted index. This means that the weight of each stock depends on its stock price, so companies with higher stock prices, regardless of their overall size, have a more substantial influence on the index.
Performance Comparison
The Nasdaq has often outperformed the Dow Jones due to its concentration in high-growth technology and internet-based companies. But while the Nasdaq has outpaced the Dow over long periods, it has also been more volatile. This divergence in performance highlights the Nasdaq's sensitivity to technological trends and innovation compared to the Dow's broader economic representation.
Historical Performance
Since its inception, the Nasdaq has experienced substantial growth, particularly during periods of technological advancement such as the late 1990s dot-com boom. And in the 2010s, tech titans like Google and Apple started soaring, sending the Nasdaq soaring as well. As of June 30, 2024, the Nasdaq Composite total return over the past five years was 126.35%.
Because The Dow represents a broader variety of industries, it has shown steadier and more consistent growth over the long term, reflecting the overall performance of the American economy. Major economic events, like the Great Depression, post-World War II booms and a series of bull markets have left marks on the Dow. As of June 30, 2024, the Dow Jones Industrial Average total return over the past five years was 45.30%.
Recent Performance
The Nasdaq has continued to outperform the Dow Jones, driven by the significant gains of major tech companies like Apple, Amazon, Microsoft, and Tesla (NASDAQ: TSLA). The COVID-19 pandemic accelerated this trend as technology companies benefited from increased digital adoption and remote work. In contrast, the Dow’s performance has been more moderate, reflecting the struggles of industries and sectors impacted by the pandemic.
As of June 30, 2024, the Nasdaq Composite total return over the past year was 29.33%. During that same time period, the Dow Jones Industrial Average total return was 13.66%.
Investment Considerations
When deciding between investing in the Nasdaq and the Dow Jones, you should consider various factors such as risk and volatility, return on investment (ROI), and suitability for different types of investors.
Risk and Volatility
Nasdaq risk is typically higher than Dow Jones risk. The Nasdaq's heavy weighting towards technology and growth stocks makes it more susceptible to market fluctuations and economic cycles. Tech stocks can experience significant price swings due to factors such as innovation cycles, regulatory changes, and market sentiment. On the flip side, the Dow’s diverse mix of established companies across various industries translates to lower volatility and more stable performance, providing a safer investment option during market downturns.
Return on Investment
Usually expressed as a percentage, ROI is calculated by dividing the net profit from the investment by the initial cost of the investment.
Nasdaq ROI has been historically higher than Dow Jones ROI. During periods of technological innovation and economic expansion, Nasdaq returns can significantly outperform the broader market. But this potential for higher returns comes with increased risk. Tech is fiercely competitive and products or services can become obsolete in a flash.
The Dow Jones tends to provide more consistent, moderate returns over the long term. This is due to its portfolio of established, blue-chip companies that pay steady dividends and provide capital appreciation.
Suitability for Investors
You are probably wondering which is the best index for investors. The short answer is: it depends. When deciding on a Nasdaq vs. Dow Jones investment, consider how much risk you are willing to take on and which index best aligns with your overall investment goals.
Do you have a higher risk tolerance, a longer investment horizon, and the ability to withstand short-term volatility? Are you looking to capitalize on technological advancements and growth opportunities? If so, the Nasdaq might be for you.
Are stability, lower volatility, and steady income important to you? Do you prefer a balanced portfolio that reflects the overall economy and dividend payments from well-established companies? If so, the Dow Jones may be more your speed.
Nasdaq vs. Dow Jones: Finding the Balance Between Risk and Return
When comparing the Nasdaq vs. Dow Jones, it’s important to remember that each index has pros and cons. The Nasdaq is known for its focus on technology and growth, offering significant potential for high returns but with higher volatility. The Dow Jones represents a broader array of sectors and industries, providing steady performance and lower risk.
Understanding the characteristics, risks, and benefits of each index will help you make a well-informed decision. Ultimately, the index you choose should align with your risk tolerance, investment goals, and time horizon.
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