Rising inflation rates are currently a major concern in the economic situation. With prices rising, dollars don't go that far – it's an interaction that threatens to derail consumer spending, the engine of the US economy.
In June, however, investors got clarity after the last FOMC meeting. The Fed had an 'inflation target' for a long time held at 2%; while inflation was more than double, there was much speculation that the Fed would act aggressively against it. Such an attitude would necessarily put an end to the current policy of easy money that has made cash and credit readily available for investment. Still, the Fed appeared to be taking a middle course, indicating that it will keep rates low for the time being, but pushed forward its forecast of when it could start raising rates.
The result, according to Willem Sels of investment bank HSBC, is a policy that is 'just right' for the time being. is. The strategist added, "I think you're back to the near Goldilocks scenario, where you have a Fed that isn't behind the curve, but that doesn't crush the recovery either."
In a sign that investors agree, US stock indices are at or near record highs. Against this backdrop, we've used Investing Insights to search the market for stocks with serious upside potential — stocks that Wall Street analysts recommend that offer potentially strong returns.
Here are three who recently 'thumbs up' have received from the analysts, who are forecasting more than 50% gains along the way. Importantly, these stocks also have a 'Perfect 10' smart score.
Playags, Inc. (AGS)
We start in the casino sector, where games are big business. Playags (NYSE:) is a game provider that got its start in the Native American casinos of the reservation, but has since developed into a major commercial game provider in the global markets. The company offers casino slots and table games, along with an interactive B2B platform for gaming and sports betting partners, and social casino games through a mobile app.
With its strong emphasis on land-based casino games, Playags saw a heavy loss of revenue begin in 1Q20, as the coronavirus crisis hit. The company still hasn't seen revenue recover, but 1Q21 revenue came in at $55.4 million, up 18% sequentially and a more modest 2% year-over-year.
In recent weeks, Playags has announced two major expansions. In mid-June, the company entered the Canadian online real money gambling market when it made several online video casino games available through the Ontario Lottery & Gaming website. A week later, Playags announced that Fast Cash's mobile chip devices, which allow players to quickly purchase new chips at casino tables without using cash, would be implemented at Morongo Casino near Palm Springs, California.
Looking at Playags for B. Riley Securities, five-star analyst David Bain sees plenty of opportunities for further growth and revenue expansion.
“Structural and geographic advantages over most competitors include ~80% recurring revenue anchored by a concentrated regional weighting of casinos that we believe benefit from multiple short-term sustainability factors. We expect AGS' product roadmap to substantially penetrate the $1.5 billion premium casino gaming segment, currently AGS' whitespace. Furthermore, AGS's high margin recurring revenue table business is undervalued and undervalued, especially given the expansion of the table shuffler in 2H21, in our view. Other likely positives for models/stocks include the potential for an increase in slot buying in the FYE season after October and an earlier-than-expected general normalcy of regional casino capex," Bain thought.
In line with these comments, Bain rates AGS a Buy, and its price target of $21 implies a robust one-year upside potential of ~118%.
Overall, this well-positioned casino game provider gets a Strong Buy rating from the consensus of Wall Street analysts; the stock's 5 recent ratings include 4 buys and 1 hold. AGS shares are selling for $9.65 and the average price target of $14.40 suggests room for ~50% growth in the coming year. (See AGS stock analysis)
Altice USA, Inc. (ATUS)
The next stock we look at is a telecom company, Altice USA (NYSE:). Altice is a cable television provider, serving 4.9 million customers in 21 states. The majority of these customers are served through two of Altice's brands, Optimum and Suddenlink. Altice's business has been solid over the long term and its stock is up 52% ??over the past 12 months. The company is consistently ranked in the top 5 cable TV companies in the US market, based on customer base.
Over the past two years, since 1Q19, Altice's revenues have remained fairly stable, with quarterly sales consistently registering between $2.4 billion and $2.54 billion. In the most recently reported quarter, 1Q21, revenue was $2.48 billion. EPS told an even better story; at 58 cents a share, it was 2 cents (or 3%) lower than in the fourth quarter, but up sharply from the 1 cent loss reported in 1Q20.
In a key statistic, Altice reported strong cash flows in the first quarter. Operating cash flow grew more than 17% year-over-year, reaching $862 million. This was driven partly by earnings growth and partly by lower capital expenditures.
JPMorgan's Philip Cusick is impressed by Altice's solid business foundation, noting, "We continue to value ATUS for solid fundamentals, strong capital returns and an attractive valuation based on a fully taxed 2021 FCF yield of 10 .3% and low single digit revenue growth…Altice remains on track to meet its 2021 residential broadband subscriber growth target, in line with or better than growth in 2019 and 2018."
For this, Cusick rates ATUS as an Overweight (i.e. Buy) along with a price target of $62. This figure implies an 80% increase over the next 12 months.
What does the rest of the street think? Looking at the breakdown of the consensus, the opinions of other analysts are more scattered. Buy 5, hold 3 and sell 1 together make up an average buying consensus. In addition, the average price target of $42.33 points to an upside potential of about 23% from current levels. (See ATUS stock analysis)
iStar Financial (STAR)
Last but not least is iStar (NYSE:), a real estate investment trust (REIT) focused on commercial real estate. REITs are engaged in the ownership, management and leasing of real estate. iStar pioneered the leasehold segment of the REIT industry and is the largest shareholder and investment manager of Safehold (NYSE:), the first publicly traded company to focus on such leases. iStar is using its position to expand net leases in the $7 trillion institutional commercial real estate market. The company has been in business for over 20 years and has completed more than $40 billion in net leases in that time.
In the first quarter of this year, iStar reported a net loss per share of 1 cent. However, this was a strong improvement from the year-ago quarter, when the company's net EPS loss was 28 cents.
During 2Q21, iStar announced an increase in its dividend payment, increasing the payout on common stock from 11 cents to 12.5 cents. This was the third dividend increase in the past two years, pushing the annualized payout to 50 cents per common share. This gives the dividend a yield of 2.4%, slightly higher than the average yield of 2% found among S&P-listed companies.
In June of this year, iStar made another major announcement, reporting that its credit rating had been upgraded. The rating came from Fitch Ratings, who put iStar's credit rating on BB, from BB-. iStar's senior secured debt rating was increased from BB+ to BBB- and the company's stock rating was moved from B- to B.
Matt Howlett, who covers iStar for B. Riley Securities, likes what he sees here – especially the relationship with SAFE.
"The company is undergoing a major transformation to focus on growing its leasehold business, which it owns through a 65% stake in the publicly traded Safehold… STAR manages SAFE through a management agreement that increases as capital is raised with the SAFE entity There is also a termination clause that requires 3x the annual fee to be paid Based on our modeled growth of SAFE and our time frame of approximately two years to the merger, we expect STAR to collect $164 million in fees (100% in the form of SAFE shares.) Applying a discount rate of 15%, we arrive at a value of $1.50/share for the contract today," Howlett noted.
To this end, Howlett estimates STAR shares in a buy, with a price target of $35, implying growth of about 70% in one year.
This is another stock with a unanimous consensus for a moderate buy, based on 2 positive reviews. The average price target is $30 and the stock is trading at $20.64, yielding a year-on-year increase of ~45%. (See STAR inventory analysis)
For more stock trading ideas at attractive valuations, visit Investing Insights.
