The good feelings engendered by last year’s bull market are still with us, and are helping to power more gains. Since their October low points, the S&P 500 is up 27.5% and the NASDAQ is up 29.5%. The gains put stocks well into bull market territory, and mark the latest installment of a secular bullish trend that has lasted more than a decade so far.
It’s clearly a positive environment for stock investors; the chief difficulty being how to locate the right stocks to buy. Last year, the gains were driven by Big Tech corporations. This year, those gains are finding a broader footing. In a recent note, Raymond James’ Chief Investment Officer Larry Adam looks at the current market strength and adds some context: “The S&P 500 is off its best start to the year since 2019, climbing ~10% and hitting its 20th record high YTD… Resilient economic data, strong earnings (2024 earnings have bucked the typical downward revision trend), AI optimism and increased investor optimism have been the key drivers. Historically, a strong start has been a positive signal for the market, with the S&P 500 up an additional ~7% on average the rest of year when Q1 performance is greater than 10%. While we remain optimistic longer term, caution is warranted in the near term.”
While Adam advocates a careful approach right now, that’s not to say there aren’t good opportunities available. Going forward, Raymond James’ analysts are selecting Buy-rated stocks where they see solid potential for gains. The firm advises investors to ‘load up’ now – and we’ve opened up the databanks at TipRanks to get a better picture of two of their picks. Let’s take a closer look.
Weave Communications (WEAV)
The first stock we’ll look at is Weave Communications. This tech company provides a software platform optimized to streamline the way that small- and mid-sized healthcare businesses locate, contact, and interact with their patients and customers. The company operates in the US healthcare sector, and its platform can support office phone lines, messaging systems, digital forms and online assistants, email marketing and patient scheduling, and data analysis and customer insights.
The company boasts that its platform helps ensure that users – mainly medical and dental clinics – miss fewer phone calls, save work hours, and operate with greater efficiency. Smoother office communications can have a ripple effect into other areas of operations – medical clinics using Weave report better patient compliance with scheduling and billing due to text message reminders, a feature that can be automated through the system.
On the financial front, both revenues and earnings have been trending upwards for the past couple of years. This was clearly visible in the last reported quarter, Q4 2023. Weave showed a top line of $45.7 million, for a year-over-year increase of 21% and beating the forecast by $1.5 million. Like many emerging tech firms, Weave operates at a net loss; in the last quarter of 2023, that loss came to $0.8 million, or 1 cent per share. This was a strong improvement from the 6-cent EPS loss recorded in Q4 2022, and it beat the forecast by two cents per share.
Over the last 12 months, the shares are up by 131% although they have retreated a bit since the print. As such, Raymond James analyst Alexander Sklar thinks investors should take advantage. He writes up an upbeat reaction to the company’s recent earnings and its prospects: “We believe recent momentum in the business will continue in 2024 and the pullback in shares following its 4Q23 report… creates an even more favorable risk/reward setup. Our positive fundamental thesis is centered around the belief that its growth acceleration exiting 2023 can be maintained in 2024 (with a medium-term compounding opportunity) that is not reflected in shares that trade at ~4x our 2024E revenue.”
Getting into some details, Sklar adds his outline of where Weave is going, and how it will benefit investors, saying , “We see several contributors to support higher growth in 2024 including: 1) Higher take rates of its largest bundle (ARPU up); 2) Improved rep tenure/ productivity and growth in reps; 3) A broader lead-gen motion (digital, live events, partners, etc.); 4) A formal focus on large specialty medical vertical (now its 3rd largest customer base); 5) Continued product enhancements (integrations, multi-office functionality, new offerings). With an improving profitability profile, an attractive beat and raise setup, and the potential for a ~20% growth profile to continue into 2024, we believe a Strong Buy rating is warranted.”
That Strong Buy rating is backed by a $15 price target that shows his confidence in a 30.5% upside potential on the one-year time horizon. (To watch Sklar’s track record, click here.)
Overall, WEAV shares get a Moderate Buy rating from the Street consensus, based on 7 recent analyst reviews that include 5 Buys and 2 Holds. The shares are trading for $11.48 and their $14.57 average target price implies a one-year upside of 27%. (See Weave’s stock forecast.)
GoDaddy, Inc. (GDDY)
Next up, GoDaddy, is an internet company, a firm offering web domain and hosting services. GoDaddy is based in Arizona, and its services include web hosting and domain registration for a wide-ranging customer base of private individuals and corporate entities. The company stands among the top web hosting firms by market share and hosts more than 84 million domain names with over 21 million entrepreneurs among its customer base.
Among the services domain registrants can access are free installs for up to 150 apps, an easy-to-use management dashboard, 24/7 customer service, and a guarantee of 99.9% uptime reliability. The company will give its customers one free domain name during the first year of the paid hosting subscription, and plenty of choices in monthly subscription service and payment options. It’s all designed to make GoDaddy the one-stop shop for web domain hosting.
The online world is changing rapidly, as AI makes inroads into virtually every digital activity – and GoDaddy is adapting to the new circumstances. The company has introduced a suite of tools, GoDaddy Airo, designed to harness AI technology and capabilities for website domain maintenance, site construction, email marketing, and more. The tools aim to make AI-based automation available to site builders and managers, in the interest of streamlining online operations.
Turning to the financials, we find that GoDaddy’s revenue has been consistently strong for the past several years, at or near $1 billion per quarter. In the last quarterly report, covering 4Q23, the company reported a result in line with expectations, at $1.1 billion for the period. This figure was up nearly 6% year-over-year. The bottom-line result, GoDaddy’s $7.85 GAAP EPS, came in $6.80 above the forecast – this was reportedly due to a one-time ‘release of valuation allowance on U.S. and state deferred tax assets.’
In other metrics, the company reported total bookings, a measure of future business, at $1.1 billion, up 7% y/y, and a free cash flow of $305.1 million, up 51% y/y.
This company’s solid performance and smart moves into AI have caught the attention of Josh Beck, one of Raymond James’ 5-star analysts. Beck, who ranks in the top 2% of Street stock pros, writes of GoDaddy, “Our ‘SMB GenAI Tailwind’ thesis is based on GoDaddy leveraging the innovative Airo GenAI stack to effectively lower adoption hurdles from products beyond core domains such as logo creation, presence, commerce/GPV that should lead to a rising mix of 2+ product customers (>50% currently). Over time, we believe GoDaddy could effectively ‘outsource’ customer care expertise and deep data set (20M+ customers and 14M interactions including a unique Conversations corpus across SMB email, messages, and social media accounts) to produce a more autonomous SMB agent to help respond to customer requests and generate a meaningfully autonomous SaaS component.”
Quantifying his stance, Beck rates the shares as a Strong Buy, with a $150 price target that implies a solid upside of 26% for the next 12 months. (To watch Beck’s track record, click here.)
This stock also gets a Moderate Buy rating from the Street’s consensus, resting it on 16 analyst recommendations that break down to 11 Buys and 5 Holds. The current trading price of $118.68 and the average target price of $130.64 together indicate a 10% share gain for the year ahead. (See GoDaddy’s stock forecast.)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
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.
