After a volatile end to the summer, can investors look forward to a gentler autumn? There is some reason to hope so, according to Sharmin Mossavar-Rahmani, chief investment officer of wealth management at Goldman Sachs.
This year, as the S&P 500 rebounded from the 19% loss it sustained in 2022, Mossavar-Rahmani has seen her bullish position vindicated, and she believes recent earnings trends and the receding probability of a recession promise further gains to come.
In an interview with Barron’s, Mossavar-Rahmani said, “Quarter-on-quarter margins have improved, providing good support for our view of earnings growth. Investors and analysts downgraded earnings [expectations], and both first- and second-quarter results surprised to the upside. Earnings will grow around mid-single digits, by 4% to 5% this year. Also, we aren’t so worried about inflation getting out of hand. That supports the equity market.”
“We have looked at past episodes in which growth outperformed value by a wide margin to see whether there is a pattern of growth continuing to outperform. In all the cases, the S&P 500 is higher, so our view is just to stick with the S&P 500 in this environment,” she adds, providing a positive outlook for investors.
The analysts at Goldman Sachs are following her lead and pointing investors toward two names they believe are set to push higher from here – and by higher, we mean primed to double, or more, over the next year. Using TipRanks’ database, we found out that the rest of the Street is also on board, as each boasts a “Buy” consensus rating.
Azul S.A. (AZUL)
Azul – which means ‘blue’ in Portuguese – is a Brazilian-based airline with a fleet of 126 aircraft operating some 900 daily flights to over 100 destinations. Most of this low-cost carrier’s destinations are in Brazil, but its international flights include routes to Fort Lauderdale and Orlando, in Florida, and to Lisbon, Portugal.
The company maintains a varied aircraft fleet, featuring short-haul turboprops but also modern small- and mid-sized jetliners from Airbus and Embraer. The company also operates 2 modern air freighters, each a Boeing 737 model. Azul is Brazil’s largest airline, measured by the number of cities served, and has been in operation since 2008.
The company last month reported its second-quarter results, posting $4.3 billion Brazilian reals, or US$866 million at current exchange rates, an 8.8% increase compared to the previous year’s second quarter and an all-time record. At the bottom line, the GAAP figure amounted to a 71-cent net positive per ADR, exceeding the forecast by $1.04.
Since reporting the 2Q results, Azul’s most recent data release is the August 2023 traffic report. This is a key metric for airlines, documenting trends in passenger demand. For this past August, the company reported a year-over-year increase of 13.5% in consolidated passenger traffic, and management reports that corporate traffic is fully recovered compared to pre-pandemic levels.
For Goldman Sachs analyst Bruno Amorim, this South American airline is a ‘top pick’ among airline stocks. The analyst points to solid execution as reasons for investor interest.
“In our view, AZUL’s present situation leads to a buying opportunity given the current rational state of the competitive environment, which should allow for price increases over the next few quarters to offset higher costs. In that context, we note i) the company was successfully able to pass through the effect of higher fuel costs to tariffs in the past year (RASK expanded by 27% in 2022E) as the whole market has been rational and focused on rebuilding profitability towards pre-pandemic levels; ii) Azul has been able to maintain yields at high levels even in a context of lower jet fuel prices in 1H23; and iii) the Brazilian market remains rational with ~0% CAGR in domestic capacity over the past 10 years,” Amorim explained.
At his bottom line, Amorim writes, “All in all, we believe that the company has shown that it has been able to, and will continue to maintain pricing power.”
These bullish comments back up Amorim’s Buy rating on AZUL, and his price target, at US$18.30, implies a gain of ~117% for the next 12 months. (To watch Amorim’s track record, click here)
Overall, this Brazilian airline gets a Moderate Buy consensus rating from the Street’s analysts, based on 6 recent reviews that include 4 Buys and 2 Holds. The shares are priced at $8.44 on Wall Street, and their average price target of $14.54 implies a one-year upside potential of 72%. (See AZUL stock forecast)
Madrigal Pharmaceuticals (MDGL)
For our next Goldman Sachs pick, we’ll focus on Madrigal Pharmaceuticals, a clinical-stage biopharmaceutical firm. Madrigal is actively developing new treatments for NASH, or nonalcoholic steatohepatitis – a dangerous condition characterized by the accumulation of fat in the liver. This condition can lead to a range of complications, including inflammation, cellular damage, cirrhosis, cancer, and long-term failure. NASH is common as a secondary complication of diabetes.
NASH represents a condition with significant unmet medical needs, as the industry jargon suggests. Currently, the most effective treatments are weight loss and proper diabetic management, as there are no approved medications for NASH treatment. This makes it a potentially lucrative field for the first biopharmaceutical company to succeed.
Madrigal offers investors an exciting opportunity with its chief drug candidate, resmetirom, designed specifically for NASH treatment. This candidate is a selective agonist for the thyroid hormone receptor (THR)-β, intended for once-daily oral dosing, targeting the key underlying causes of NASH in the liver.
To date, resmetirom has completed 18 clinical studies for the treatment of this serious liver condition. These trials include 12 Phase 1 studies, 2 Phase 2 studies, and 4 Phase 3 studies. The company released its most recent set of Phase 3 trial data during the second quarter of this year, utilizing the full data sets from all 18 studies to support its new drug application (NDA). The NDA submission was made to the FDA during the same quarter. Earlier this month, the company reported that the FDA has accepted the NDA submission for Priority Review, with a PDUFA date set for March 14, 2024.
Goldman Sachs analyst Andrea Tan, a biotech stock expert, sees in this a solid reason to support MDGL stock. She notes that resmetirom has high potential to become the first approved treatment for NASH, with consequent strong commercialization potential.
“We continue to see resmetirom’s attractive clinical profile as supportive of favorable pricing and reimbursement (recall, the recent ICER draft report found resmetirom would be cost-saving at $19k/yr and our KOL conversations suggest limited pushback at this price point given the benefit/risk profile), both of which should support significant commercial uptake (GSe peak global sales into the F2/F3 population of $5.4bn in 2033). Meanwhile, we are watching the evolving NASH landscape, noting MDGL’s first-to-market status will be a competitive advantage and new guideline recommendations from the American Diabetes Association for screening type 2 diabetes (T2D) patients for NAFLD (precursor to NASH) given greater awareness for the former’s role in the latter will likely expand the pool of identified patients and offer upside to numbers,” Tan opined.
Looking ahead, and quantifying her stance, Tan rates MDGL shares a Buy and sets a price target of $409. This target suggests a robust upside for the stock, of 170% on the one-year horizon. (To watch Tan’s track record, click here)
Overall, the 7 recent analyst reviews on MDGL shares break down 6 to 1 in favor of Buys over Holds, giving the stock a Strong Buy consensus rating. The shares are priced at $150.94 and their $314.83 average price target indicates room for ~109% increase heading into next year’s PDUFA date. (See MDGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
