What can we make of the headlines today, and how will the stock market react? These are the question that every investor must answer, in order to make a rational portfolio allocation, but the answers are, simply, less than clear. Geopolitical tensions, rising inflation, spiking oil prices, a probable reversal of Federal Reserve policy going forward – these are the main headwinds blowing in right now.
Covering the scene for JPMorgan, chief global markets strategist Marko Kolanovic has outlined six reasons why the worst might be behind us: “1) the announced sanctions, though severe, appear to have limited impact on economic growth; 2) energy price increases have been contained so far; 3) CB hawkishness is likely tempered by geopolitical risks; 4) the conflict is unlikely to spread to other Eastern European countries that are NATO members; 5) US tech approached oversold conditions; 6) the rise in oil prices should create some supportive flows for equities via SWF accumulation and oil company buybacks.”
Against this backdrop, the analysts at JPMorgan have been seeking out stocks that are poised to push ahead in the current environment. They have pinpointed two which they see generating returns of at least 50% over the next 12 months. We ran both names through TipRanks’ database to see what other Wall Street’s analysts have to say about them.
Frontier Communications (FYBR)
We’ll start with Frontier Communication, an American telecom company. This full-service telecom operator offers customers local and long-distance telephone services, plus broadband internet, digital television, and computer technical support – in short, a full range of telecom services. Frontier has a large presence in less-served rural areas, but has also been expanding into urban metro markets. The company currently operates in 25 states, and boasts over 3.1 million total customers, a number that includes nearly 2.8 million broadband internet customers.
The FYBR ticker has been trading on the NASDAQ exchange since last year, when the company exited bankruptcy proceedings – successfully – and returned to the public markets. The FYBR ticker started trading on May 4, 2021, and has seen high volatility since that time.
Frontier reported its full-year 2021 results in February. During 2021, the company made long strides toward becoming a ‘fiber-first’ operator, serving customers through an all-fiber network. Frontier reported that it built out its fiber network to an additional 638,000 locations during the year, and added a net of 99,000 fiber broadband customers. Of the customer additions, 75% came in 2H21; the total number marked a 7.4% gain from the previous year.
Philip Cusick, covering this stock for JPM, sees the company’s continuing move to fiber broadband service as the key point for investors to consider, and writes: “We expect Frontier’s strong momentum to persist in 2022+ driven by the company’s aggressive pivot to fiber… We believe Frontier’s premium to broadband peers is justified given the company’s long-term market share opportunity in residential and business services as well as the commensurate margin expansion driven by the pivot to high-margin fiber services.”
These comments back up Cusick’s Overweight (i.e. Buy) rating, while his $40 price target indicates potential for 56% share-price gains ahead. (To watch Cusick’s track record, click here)
Overall, Wall Street is willing to go with the bulls on this one. The stock has 4 recent reviews, and they include 3 Buys against a 1 Sell, for a Moderate Buy consensus rating. FYBR has a current trading price of $25.60 and an average price target of $40.25, suggesting an upside potential of 57% for the next 12 months. (See FYBR stock analysis on TipRanks)
iQiyi, Inc. (IQ)
The rise of online streaming has forever altered the way that we watch TV. Consumers can peruse the offerings of the large streaming networks, and buy access to the shows they want, when they want. It’s no wonder that the model has so rapidly become so successful. But looking at the streaming market from a Western perspective, we can loose sight of the fact that it’s actually China which makes up the world’s largest single online market – and that includes China’s online streaming services.
iQiyi is China’s largest streaming service, leading the market in country with both a voracious appetite for online content and over 800 million connected internet users. The company offers a wide range of original content, along with a library of existing material including both user-generated content and professionally produced offerings.
While iQiyi currently leads its market, the company is giving investors some complex signals. For 2021 as a whole, revenues came in at $4.8 billion, up a modest 3% from 2020. Looking at the final quarter of the year, we find that Q4’s top line, of $1.2 billion, was roughly flat year-over-year, and the company ran a net loss of $80.9 million. At the same time, iQiyi’s reported non-GAAP operating loss margin of 7%, which was a large improvement from 4Q20. What we have here is a company whose revenues are running flat – but whose operating efficiency appears to be improving.
That final point is the key for JPMorgan analyst Alex Yao. He writes in a recent note: “We are positive on iQiyi’s path to OP breakeven in 2022 after its better-than-expected loss ratio in 4Q21 (-7%, vs. -14%/-13% in 3Q21/4Q20) and management’s 2022 OP breakeven target. We expect further margin improvement in the next few quarters, driven by cost savings in content cost and opex, which should prove that iQiyi can operate as a self-sustaining business model and trigger further multiple re-rating for its share price.”
In line with his optimistic outlook, Yao upgraded his rating on IQ stock to Overweight (i.e. Buy), while also boosting the price target from $5 to $8. Should his thesis play out, a 12-month gain of ~87% could potentially be in the cards. (To watch Yao’s track record, click here)
While JPM is bullish on this Chinese internet company, Wall Street generally is showing caution. The shares have 7 recent review, and these break down to 2 Buys, 4 Holds, and 1 Sell – for a Hold consensus view. The stock is selling for $4.80, and its $5.48 average target implies a one-year upside of 14%. (See IQ 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.