Wells Fargo is forecasting a rally of up to 70% for these two stocks – here’s why they have solid upside potential

The US stock market is poised to end the week on a positive note, fueling optimism with the long bank holiday weekend ahead. This upbeat sentiment comes on the back of news that the White House and congressional Republicans are nearing the final stages of an agreement to raise the government’s debt ceiling, which currently stands at $31.4 trillion.

A successful debt ceiling bill would allay fears that the US could default on its debt obligations and avoid the risks that such an event would entail. Meanwhile, investors continue to grapple with a confusing market environment: stubborn inflation, high interest rates, a tight labor market and mounting recession fears.

How do you find the next hot stock to buy in this environment? One way might be to look for stocks that are particularly recommended by analysts at large investment banks like Wall Street banking giant Wells Fargo.

The company’s equity analysts show their bullish outlook by picking the stocks they believe will be the winners for the coming year — winners with solid upside potential of up to 70%. Use of TipRanks databasewe looked up two of these Wells Fargo picks to find out what sets them apart.

Stagwell, Inc. (STGW)

The first stock Wells Fargo is betting on is Stagwell, a company founded by noted marketing bigwig Mark Penn. Stagwell’s marketing strategies focus on bringing together human creativity and data analysis to enable a more comprehensive understanding of today’s digital world. The company supports its strategy with teamwork and talent while providing exceptional service to its customers.

Penn originally founded Stagwell in 2015 and in 2021 the company entered its current form by completing a merger with MDC Partners. Today, Stagwell works to transform marketing through a digital-first approach. The company has a network of 70 agencies in over 34 countries and serves more than 4,000 business customers worldwide.

Stagwell’s success can be gauged from its overall earnings. In 2022, the company’s first full year of operations since the MDC merger, revenue was $1.995 billion and revenue increased in the second half of the year. However, the first quarter of this year brought a different result.

The story goes on

In Q1 2023, Stagwell saw both revenue and earnings decline. Quarterly revenue of $622 million was down 3.3% year over year and was more than $24 million below guidance. Bottom line, the company reported non-GAAP earnings of 13 cents per share; this missed expectations by 7 cents.

On a positive note, Stagwell reported “net new business income” of $53 million for the quarter and $212 million for the trailing year. The company closed the first quarter of 23 with a cash position of $138.5 million.

During the first quarter, Stagwell announced a share buyback program, a move to both return capital to shareholders and increase the value of the stock by reducing the number of shares outstanding. The program comprises a total of 23.3 million shares; in Q1 23 the first 2.6 million were repurchased for a total of $18 million.

All of this has caught the attention of Well Fargo analyst Steven Cahall, who writes of Stagwell, “STGW is making a name for itself as a digital-first agency network with a foundation in digital transformation.” We estimate a 3-year organic growth stack (‘ 21+’22+’23E) of +41% or nearly double the larger agency holdcos. STGW also engages in political advocacy, and we believe that political spending should be in the range of $10-11 billion in 2024, up from $9 billion in 2020. On the cost/margin side, STGW is early in the development of AI tools focused on cost reduction ($35M cost savings for ’23-’24), and the Stagwell Marketing Cloud offers high-margin SaaS revenue.

“We see the trigger for a higher share price as continuing strong organic growth, reducing leverage and continuing to allocate capital for M&A and share buybacks,” the analyst summarized.

Cahall uses these comments to bolster its Overweight (ie, Buy) rating on the stock and places a price target of $9, which implies upside potential of 47% in 1 year. (To see Cahall’s track record, Click here)

Like Cahall, the rest of the street is optimistic. With 4 buys and no holding or selling, STGW receives a Strong Buy consensus rating. The stock’s trading price of $6.10 and average price target of $9.75 together suggest upside potential of about 60% over the next 12 months. (See STGW Stock Forecast)

Zentalis Pharmaceuticals (ZNTL)

We now turn our attention to Zentalis Pharma, a clinical-stage biotech company working on new treatments for a variety of cancers. The company uses its proprietary integrated research engine to develop novel small molecule compounds as the basis for new and more effective treatments. The Company develops its drug candidates based on a thorough analysis of cancer pathways to ensure potential therapeutics are on target.

The Company’s approach – a thorough discovery process involving drug candidates with multiple potential applications – enables a capital-efficient operation. Zentalis’ lead candidate is azenosertib, or ZN-c3, a WEE1 inhibitor that is the subject of eight separate clinical trials.

In these studies, azenosertib is being tested both as a monotherapy and as a combination therapy. Target cancers include uterine serous carcinoma, various ovarian cancers, osteosarcoma and pancreatic cancer.

Upcoming catalysts from the company’s numerous clinical trials include the planned publication of positive clinical data on azenosertib as a combination treatment with chemotherapy for ovarian cancer. The data is scheduled for release June 5 at the American Society of Clinical Oncology meeting.

Other upcoming catalysts include the planned publication of data on azenosertib as a monotherapy dose in the first half of 2023. This study will provide data on the maximum exposure and tolerability and clinical benefit of the drug candidate in a broad range of patients. In the second half of 2023, the company expects to publish data on azenosertib in combination with the drug candidate ZN-d5. This data will be collected in a phase 1/2 study in the treatment of acute myeloid leukemia. Additional data on the company’s drug candidate ZN-d5 from a phase 1/2 study in recurrent or refractory light chain amyloidosis are also expected in the second half of 2023.

Analyst Derek Archila, who covers this biotech stock for Well Fargo, sees the flurry of upcoming data releases as a key point for investors to watch.

“This has been a sleepy stock as there haven’t been many clinical catalysts lately. Hence we like the setup as the upcoming updates appear to be under the radar and the stock remains heavily shorted – there could be a major bottleneck… We like the risk/reward ratio ahead of dose optimization/RP2D data and onwards ASCO Presentations… In our baseline for both updates, we expect stocks to trade in the mid-$40s (+100%), implying a ~$2.5 billion mkt cap, what we think is appropriate,” said Archila.

All of this prompted Archila to rate ZNTL as “Overweight” (ie, “Buy”). Additionally, the analyst gives the stock a price target of $46, which points to a share value appreciation of about 70% in the coming year. (To see Archila’s track record, Click here)

This is another stock unanimously given a Strong Buy rating by Wall Street analysts based on 8 recent positive reviews. ZNTL is trading at $26.98 and its average price target of $48.25 implies a 12-month gain of ~79%. (See ZNTL Stock Forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.