Investing
Merrill Lynch Has 5 Buy-Rated Stocks With 35% to 85% Upside Potential
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In a pricey market, it gets harder and harder to find stocks that look solid and have the kind of upside potential that warrant owning in a period when volatility can spike for any number of reasons. Some Wall Street strategists see a Republican victory in November as a huge tail risk. Others point to a deafening chorus of anti-American rhetoric from everywhere from the Middle East to Russia.
One thing is for sure, the sun will rise regardless of who wins in three weeks, and top stocks with big upside potential can still reach that goal. We screened the Merrill Lynch research database and found five companies rated Buy that have big upside targets for aggressive accounts.
Acacia Communications
This company had a red-hot IPO and has backed up sharply since a recent secondary offer. Acacia Communications Inc. (NASDAQ: ACIA) is a leading supplier of high-speed coherent optical interconnect products to network equipment manufacturers, hyperscale cloud companies and service providers. The company’s foundation is in its Digital Signal Processing (DSP) and a unique approach with its silicon-based photonic integrated circuit (SiPhi PIC). The company primarily combines the DSP and PIC to create modules, which are integrated into optical/networking equipment to provide high-speed optical interconnect.
Merrill Lynch loves the company and the growth potential, and recently it said this when raising its price target:
We are increasing our estimates following Acacia’s positive preannouncements and secondary offering completed last week. Acacia continues to benefit from strong demand across Web 2.0 direct customers, Chinese OEMs, and metro 100G cycles.
The Merrill Lynch price target for the stock is a stunning $130, and the Wall Street consensus target is $119. Shares closed Wednesday at $88.37.
CyberArk Software
This company had a hot IPO in 2014. While down almost 15% in the past month, it has rallied back smartly off the lows. CyberArk Software Ltd. (NASDAQ: CYBR) claims it is the only security company focused on eliminating the most advanced cyber threats, those that use insider privileges to attack the heart of the enterprise. The company proactively secures against cyber threats before attacks can escalate and do irreparable damage. Some 35% of the Fortune 100 and 17 of the world’s top 20 banks use the software to protect high value information assets, infrastructure and applications.
The constant hacking and malware threats continue and many on Wall Street realize that the bigger players in the niche, while volatile, are solid long-term plays. A Merrill Lynch report last month said this:
We hosted CyberArk management and came away more confident in the PAM market opportunity and the company’s leadership & market focus. Management’s tone was bullish; it reiterated recent comments about the potential market size, competitive advantages and outlook. We see substantial long term revenue and earnings-per-share growth potential driven by new wins, deeper existing customer penetration, and cloud adoption.
Merrill Lynch has a $62 price target, and the consensus target is $58.18. Shares closed on Wednesday at $45.20.
Frontier Communications
Many top analysts have remained very positive on this rural local exchange carrier. Frontier Communications Corporation (NASDAQ: FTR) offers residential services, such as fiber-to-the-home and fiber-to-the-node broadband, as well as traditional copper-based broadband products; and commercial services, including Ethernet, dedicated Internet, multiprotocol label switching, time division multiplexing, data transport services, and optical transport services.
Frontier also provides Frontier Secure suite of products for computer security, cloud backup and sharing, identity protection, equipment insurance and technical support. Its unified messaging services include call forwarding, conference calling, caller identification, voicemail and call waiting services. It also offers long distance network services and packages of communications services.
The company reported solid numbers in the first quarter, but the second quarter print was messy and the stock has been hit hard. The company has guided in line to ahead of Wall Street estimates on post-Verizon deal cash flow. Frontier is the highest yielding non-energy component in the S&P 500, and most big firms see the dividend easily covered by current cash flow.
Frontier investors receive a huge 10.27% dividend. The $7.50 Merrill Lynch price target compares with the consensus target of $5.66.Shares closed Wednesday at $4.09.
Salesforce.com
Though this top company reported choppy second-quarter numbers, the stock took a hit. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.
The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.
Despite the earnings and billings miss, the analysts remain positive and said this in a recent report:
Our take is seasonality may be shifting heavily towards the fourth quarter after defying size, producing consistent execution for 3 years. The company has recovered from billings misses, raising questions about maturity, execution, competition, with panache in the past.
The Merrill Lynch price target is $100. The consensus target is $93.43, and the stock closed at $72.82.
Zendesk
This smaller cap company could make an interesting play for more aggressive accounts. Zendesk Inc. (NYSE: ZEN) is a software development company that provides software as a service customer service platform for organizations. It provides single customer service interface to organizations to manage all their one-on-one customer interactions; track and predict common questions; and provide a seamless path to answers. The company’s platform also enables organizations to gather customer data and engage with customers based on the insights the data provides, and it offers tools for organizations to understand their customers and track the efficiency and effectiveness of their customer service.
Zendesk also provides live chat software that enables the organizations to communicate in real time with their customers through online chat, as well as analytics software that enable organizations to analyze and visualize data from a diverse set of applications.
The Merrill Lynch price objective is posted at $35. The consensus target is $32.25. The stock closed most recently at $26.76.
While these stocks have all traded back to good entry points, it should be noted that they are only suitable for aggressive growth accounts. While the future is bright for all of them, any quarterly earnings hiccup could bring out the sellers again.
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