It’s a new year, and a good time to choose new stock to line the portfolio. Investment banking giant Goldman Sachs has been watching the markets with an eye toward the long term – and a finger on pulse of the present. The firm is bullish following the passage of the COVID relief bill last month, seeing the direct income assistance of $600 per person – or $1200 for married couples – as a positive for consumers’ disposable income in the here-and-now.
And with consumer spending making up some two-thirds of the US economy, and boost to that metric is seen as good for the whole. Taking the COVID relief checks into account, Goldman Sachs’ chief economist, Jan Hatzius, raised his expectations for US economic growth in 1Q21 – bumping his GDP forecast from 3% to 5%.
“While the income effects of the fiscal package will be very front-loaded, we expect the impact on consumer spending to be more evenly distributed throughout the year,” Hatzius noted.
The economist sees current conditions – with lockdowns in place, as putting something of a damper on immediate spending, but leading to pent-up demand later in the year. With that in mind, Hatzius is predicting sequential gains in Q2 and Q3, and full-year GDP growth of 5.8%, up 9% from his previous estimate.
The stock analysts at Goldman are keen to follow Hatzius’ lead, and they’ve been combing the market for stocks that are likely to gain as the markets take a long-term rising trajectory. The firm’s analysts are pulling the trigger on two stocks in particular, noting that each has the potential to deliver double-digit gains in the year ahead.
We ran the two through TipRanks’ database to see what other Wall Street’s analysts have to say about them.
17 Education & Technology (YQ)
The worldwide pandemic had one effect that could never have been predicted in advance: the sudden shift of schools to mass online classes. Remote office work has been around for a long time, and at the secondary and college levels, schools have had long experience with correspondence courses – but mass online learning, even down to the primary level, had never been attempted. Companies like 17 Education, however, take up the challenge of online learning.
17 Education is a Chinese company, dedicated to joining technology with high-quality educational content to create more effective and efficient tutoring services for K-12. The program includes both online and in-classroom solutions – 17 Education bills itself as a full-service educational technology provider.
It is also a new company to the financial markets. YQ stock went public just this past December, when trading commenced on the 4th of the month. The IPO opened flat, with shares priced at $10.50, the midpoint of the pre-IPO range. By December 9, the share price had nearly doubled. Since then, however, the stock is down 34% from its peak.
Among the bulls is Goldman analyst Christine Cho, who initiated her coverage of YQ with a Buy rating and a $21 price target. This figure indicates a 55% upside for the next 12 months. (To watch Cho’s track record, click here)
Cho is bullish on the company’s application of big data systems to analyze and streamline classroom solutions, and sees its unique ‘hybrid’ model of combining in-school and online courses as a net plus.
“We see [YQ] translating into two potential advantages for its AST [after school tutoring] business: (1) proprietary school-level insights enabling YQ to develop more localized/customized content, and (2) ability to grow paid enrollments rapidly at a low student acquisition cost — a key challenge in the online AST industry — through penetration of organic in-school MAUs…”
The Goldman review is one of two on record for 17 Education; the other is also a Buy, making the consensus view a Moderate Buy. The stock is priced at $13.5, and the $20.50 average price target gives an upside potential of ~52%. (See YQ stock analysis on TipRanks)
ChampionX Corporation (CHX)
17 Education wasn’t the only new ticker to hit the markets at the height of the pandemic, rather, it was one of many. ChampionX is an oilfield technology company that conducted a major change in 1H20. It’s namesake, ChampionX Holdings, merged with Apergy Corp, with the combined company attaching the ChampionX name to the new partner’s trading history. CHX started trading in June 2020, and in December, the company moved its ticker from the NYSE to the NASDAQ.
CHX offers a range of oilfield tech solutions, including such specialized applications as drilling fluid and mud additives, fracturing fluid systems, and well cementing, in addition to drilling technologies. These tech services are essential for the oil producers – that own the wells – to get the product to the surface. The essential nature of the service, plus the generally improving economic conditions, led to a Q3 sequential gain in revenues of 112%. The top line came in at $633 million.
Analyst Angie Sedita, who covers this stock for Goldman, sees the company in an advantageous position.
“We view ChampionX as a strong oilfield service and equipment provider with a global footprint and favorable product mix. Its primary businesses, chemicals and artificial lift, are exposed to the production phase of the life of a well, thus producing lower earnings cyclicality and stronger through-cycle EBITDA. The recent merger of the two companies completed in Q2-20 (Apergy and ChampionX) should drive market share growth and cross-selling opportunities both in the international and U.S. markets,” Sedita wrote.
To this end, Sedita initiated coverage on CHX with a Buy rating and a $21 price target. Her target implies a 20% upside for the next 12 months. (To watch Sedita’s track record, click here)
All in all, six of Wall Street’s analysts have reviews CHX shares, and 5 said to Buy against 1 who rated it a Hold. This puts the analyst consensus at a Strong Buy. However, the recent share appreciation has pushed the stock price above the average price target of $17.10. (See CHX stock analysis on TipRanks)
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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.