As we approach the end of 2022, with less than three weeks till we flip the page to 2023, the markets and economy are flashing contradictory signals. Stocks have steadied off slightly in the last month, with less volatility than in the prior six months. Simultaneously, investors must evaluate economic signals, particularly stubbornly high inflation and uncertainties around the Federal Reserve’s interest rate decision this week. It’s a difficult atmosphere in which to make stock decisions.
1. Inc. HubSpot (HUBS)
We’ll begin in the tech area, where HubSpot is a well-known name in online inbound marketing, as well as a field innovation. HubSpot provides a robust line-up of web analytic solutions to its customers, who include social media professionals, CRM experts, content managers, and SEO optimizers, using the freemium model. Users can access basic services for free under this model, with higher-level options and upgrades offered as paid subscriptions.
HubSpot’s software is available in six languages and is used by over 158,000 paying clients in over 120 countries. This indicator is derived from the 3Q22 financial results and shows a 24% year-over-year growth. HubSpot’s subscription model is profitable, with an average monthly income per client of over $11,000 in Q3, up 7% from the previous year. Total revenue in 3Q22 was $444 million, representing a 31% year-on-year increase. Subscription income accounted for $435 million of the total, representing a 32% increase over 3Q21.
In terms of earnings, the corporation produced both positive and negative results. HubSpot reported a quarterly net loss of $31.4 million, or 65 cents per share, under GAAP. This was a considerable increase over the GAAP net loss reported in 3Q21. Non-GAAP net income, on the other hand, was positive, at $35.1 million, or 69 cents per diluted share, marking a 37% rise in net and a 38% increase in diluted EPS.
However, the stock, like many others, has taken a pounding this year, and shares are now trading at a 56% discount to the price at the start of 2022.
According to Credit Suisse analyst Rich Hilliker’s premise, this could be an opportunity.
“We believe HubSpot is establishing itself as the future front and middle office software leader, and that its value-led growth strategy is connecting strongly with customers at all phases of their lifecycles, leading to greater standardization and eventual expansion… We feel that the combination of intentional, meticulous, and ongoing product development, along with a well-trodden, natural freemium to paid conversion motion, has resulted in a genuinely engaging product and value-led growth algorithm that has clients ‘Hooked on Hubs,'” Hilliker said.
To that end, Hilliker grades HUBS as an Outperform (Buy), with a $400 price objective implying a 37% one-year gain.
Overall, IT companies such as HubSpot receive a lot of analyst attention, and HUBS shares have 21 recent analyst reviews on file. These are split 19 to 2 in favor of Buys over Holds, resulting in a Strong Buy consensus rating. The stock has a potential upside of 31% with a trade price of $291.38 and an average price objective of $380.38.
2. Vaxcyte Inc. (PCVX)
Vaxcyte, a biotech firm specializing in vaccine research, is the second ‘perfect 10′ stock we’re looking at. It’s working on preventative vaccines against a variety of dangerous bacterial illnesses, including pneumococcal disease, Group A strep, and periodontitis. The company’s research programs are built around Vaxcyte’s patented cell-free protein synthesis platform, XpressCF, with the goal of developing vaccines with discrete antigens and protein carriers – important building blocks for vax effectiveness.
The company’s research pipeline now includes four tracks, three of which are in the pre-clinical stage. The fourth, VAX-24, is being developed as a vaccine against invasive pneumococcal illness and pneumonia. VAX-24 is a 24-valent pneumococcal conjugate vaccine (PCV) candidate, and the data reported at the end of October was extremely encouraging, exceeding many milestones. The topline data from the Phase 1/2 proof-of-concept study demonstrated positive results in terms of safety, tolerability, and immunogenicity at all dosages, allowing the company to proceed with a Phase 3 trial based on the 2.2mcg dose. The study included healthy participants aged 18 to 64. Looking ahead, Vaxcyte intends to hold regulatory negotiations regarding a Phase 3 trial during 2H23, with Phase 3 results expected to be available in 2025.
The market reaction to the data release demonstrates why biotech stocks are popular with investors: the shares rose 60% in one day and are now trading at roughly double their October 20 valuation.
Vaxcyte used the increase in share price to launch an initial public offering of stock. With the underwriters’ options fully subscribed, the business achieved $690 million in gross proceeds from the sale of 17,812,500 shares of common stock at $32 apiece.
BTIG analyst Thomas Shrader sees plenty of strength in the company’s pipeline and potential addressable market in the future. “The company’s vaccines appear ready to become best-in-class in the over $40 billion infectious disease vaccine industry,” he says. The majority of the stock’s current value is dependent on the lead program VAX-24, and the recent P1/2 readout positions the vaccine to be BIC in this $7 billion market that could double in the next decade…”
“It’s difficult to envision a stronger readout than the current VAX-24 P1/2 data, with all three doses providing a profile likely to support approval and all three doses demonstrating an AE profile virtually identical to less effective but already approved vaccines,” Shrader noted.
Shrader adds a Buy rating to his commentary on Vaxcyte and rounds out his optimistic attitude with a $69 price target, representing a 63% upside over the next 12 months.
Overall, Vaxcyte has received four recent analyst assessments, all of which have been positive, resulting in a unified Strong Buy consensus rating. The stock last traded at $42.39 and has a price target of 61.75, meaning a 46% increase by the end of next year.
3. Rocket Pharmaceuticals, Inc. (RCKT)
Many people are born with illnesses for which there is no cure or only paltry remedies to improve their quality of life. However, it is claimed that with gene therapy, entire illnesses can be eradicated after just one treatment that targets their cause.
Rocket Pharma is a gene therapy business that is developing innovative medicines for serious diseases with “high unmet medical needs.” To lessen disease presentation, the company adapts viruses as delivery systems capable of introducing new genetic material directly into disease-affected cells, substituting faulty or damaged genes, and modifying the cell at the genetic and molecular levels. Rather than palliative care, these medicines may offer the prospect of curing the targeted diseases.
The pipeline of the company includes active initiatives working on gene treatments for a variety of terminal malignancies and severe pediatric diseases. Targeted disorders include Danon Disease, Fanconi Anemia (FA), Leukocyte Adhesion Deficiency (LAD-I), and Pyruvate Kinase Deficiency (PKD), and the company is developing delivery systems for genetic therapeutic medicines using an associated viral vector (AAV) and lentiviral vector (LVV) tracks.
Rocket anticipates regulatory filings on both the LAD-I and FA tracks in 2023, based on recent outstanding clinical findings. The LAD-I file is scheduled for 1H23, while the FA filing is scheduled for 2H23. Clinical data from both tracks should be available by the end of the year.
In other clinical news, Rocket announced that its Phase 1 clinical trial of RP-A501 against Danon Disease yielded encouraging findings. The study found that the medication candidate had a long-lasting therapy effect, with disease improvement lasting 9 to 36 months in juvenile and adult patients. The potential medication was likewise well tolerated. The company has created a Phase 2 pivotal research and is awaiting regulatory feedback from the FDA.
While all this has been going on, Rocket has expanded its AAV-based gene therapy approach in cardiovascular illness by acquiring Renovacor. Rocket now controls Renovacor’s pipeline of AAV-based gene therapy medicines. The merger was executed entirely in stock, and Renovacor shares ceased trading on December 1.
Rocket’s stock hit a low in May of this year but has since risen 139%. Nonetheless, Canaccord analyst Whitney Ijem believes the business is well-positioned to maintain its gains.
“We continue to believe that RCKT shares represent a one-of-a-kind opportunity in the gene therapy arena. We like the company’s distinct gene therapy pipeline… Both RP-L201 and RP-L102 are nearing the end of the late-stage pipeline, with BLA+MAA submissions expected in 1H23 and 2H23, respectively. Meanwhile, RCKT’s earlier-stage pipeline should continue to supply clinical catalysts in the short to medium future. Furthermore, we expect pipeline additions – so-called ‘Wave 2’ in 2023 – to contribute to valuation and the catalyst-driven side of the story,” Ijem stated.
These remarks support Ijem’s Buy recommendation, and her price objective of $49 implies a 157% upside potential in the coming year.
The bulls are obviously on the move for RCKT; the stock has 11 recent positive analyst reviews, resulting in a unanimous Strong Buy consensus rating. The company is currently trading at $19, and its average price objective of $54.90 is even higher than Canaccord’s, implying a 187% rise in the next 12 months.
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