As fears of high inflation and the threat of a recession become the talk of the town, investors are turning to the titans of Wall Street for guidance, namely Ken Griffin. Having founded the Citadel hedge fund in 1990, the firm now boasts more than $50 billion in assets under management.
As a 19-year-old sophomore at Harvard University, Griffin began trading from his dorm room with a fax machine, computer and phone. Now the CEO of Citadel, whose net worth is $27 billion, is known as one of the greats of Wall Street. Looking at the fund’s performance in 2022, it becomes even clearer why Griffin has legendary status.
In contrast to the average hedge fund, which had a negative return of 4.54% in the first seven months of 2022, Citadel Wellington’s flagship fund saw its return grow by 21% over the same period.
With that in mind, we wanted to take a closer look at three stocks that Citadel recently snapped up. Using TipRanks database, we found that each ticker earned a consensus rating of “Strong Buy” from the analyst community. Not to mention that all three have great potential for development.
Ranger oil (ROCC)
We’ll start with Houston, Texas-based independent hydrocarbon producer Ranger Oil. Ranger operates in the Eagle Ford shale formation in South Texas, where its holdings produced 38,500 barrels of oil equivalent per day in the most recent quarter, 2Q22. Of this total production, Ranger recorded crude oil sales totaling 27,500 barrels per day.
Those are solid production numbers for a small, independent oil company and generated a top line of $314.5 million for Ranger in Q2. The company posted net earnings, based on this revenue, of $71.18 million, a sharp turnaround from Q1’s loss of $9.98 million and much higher than the $3.04 million profit it generated in 2Q21.
This pattern also applies to EPS. In the previous quarter, the company reported earnings of 20 cents per share, which fell to a loss of 47 cents per share in 1Q22. In the second quarter of this year, diluted EPS reached $3.33.
Ranger is benefiting from higher prices in the oil and natural gas markets. The company produces and sells crude oil, natural gas liquids and natural gas — and prices for all three have risen over the past 12 months, even accounting for a recent pullback.
This company maintains an active policy of returning capital to shareholders, through a small dividend and a larger share buyback program. The company’s board has authorized up to $140 million in buybacks through June next year, and since the program’s launch last May, it has returned about $46 million to shareholders.
Ken Griffin saw fit to buy ROCC with the purchase of 100,845 shares. This entry-level position at the company is currently worth $4.1 million.
Griffin is far from the only bull here. 5 star reviewer Neil Dingman, of Truist, covers this stock and writes, “ROCC is one of the few small-cap E&Ps we believe is in a position to target share buybacks when the market presents opportunities while growing double-digit production … We believe the solid operating/financial mix offers a unique investment, especially at today’s severely depressed relative valuation. We forecast solid production/earnings/FCF growth in the second half of the year, which should continue well into 2023 for a strong setup.”
Dingman doesn’t just outline an optimistic path for the company, he backs it with a Buy rating and a $71 price target. Following this target, the stock is expected to rise ~76% over the one-year period. (To watch Dingmann’s record, Press here)
In total, there are 3 recent analyst reviews for this stock and all of them are positive – making the analyst consensus a unanimous Strong Buy. Shares are trading at $40.66, and their average price target of $58.33 suggests ~44% upside potential over the next 12 months. (See the ROCC stock forecast at TipRanks)
Skechers USA (SKX)
Now we’re going to turn to shoes and take a look at Skechers. This company was founded in 1992 and over the past 30 years has become one of the largest athletic shoe brands in the United States. Branding itself as a “comfort technology company”, Skechers offers a wide range of shoes, sandals, slippers and other footwear for every purpose under the sun.
Skechers ended the second quarter with some mixed numbers. The company reported a 12% year-over-year increase in revenue to a quarterly record of $1.87 billion. That total includes an 18% gain in wholesale sales and a more modest 4% gain in direct-to-consumer sales. However, the company’s earnings came in at 58 cents a diluted share, down from 88 cents in the year-ago quarter.
Skechers reported that it had $946.4 million in cash and liquid assets at the end of the second quarter, and year-to-date has completed share repurchases totaling $49.2 million, or 1.3 million shares. At the end of the quarter, the company still had $450.8 million remaining in its approved share repurchase program.
Reflecting a new position for Griffin’s Citadel, the fund pulled the trigger on 455,696 shares in Q2. As for the value of this holding, it amounts to $17.77 million.
Morgan Stanley Analyst Alexandra Stratton is unabashedly bullish on SKX, saying, “Run, don’t walk, to take another look at this stock.” Getting down to the nitty-gritty, Straton continues, “We think SKX is one of the few companies in our coverage with a 1) for positive EPS revisions, 2) a clear opportunity for a valuation re-rate, and 3) that it can benefit from a macroeconomic slowdown due to its focus on value.”
Stratton’s view naturally leads her to an Overweight (ie, Buy) rating on SKX stock and a $59 price target, implying 51% upside potential over a one-year time horizon. (To watch Straton’s record, Press here)
Skechers has clearly piqued interest on the Street – here are 9 recent analyst reviews, all positive, supporting a unanimous consensus rating of Strong Buy. Shares are trading at $38.99 and their average target price of $50.33 suggests a 12-month upside of 29%. (Check out the Skechers stock forecast at TipRanks)
Cycling therapy (BCYC)
The final stock we’ll look at resides in the biopharmaceutical sector. Bicycle Therapeutics is using a new platform to develop a new class of synthetic, precisely targeted therapeutic agents for the treatment of currently incurable solid tumor cancers. The therapeutic agents are based on Bicycles, a fully synthetic short peptide molecule that structurally forms two loops to maintain stability. They represent a new – and unique – therapeutic class that combines the pharmacokinetic advantages of small molecules with the pharmacological advantages of biologics.
Most of Bicycle’s drug candidates are early-stage, and the company announced in June of this year that it had dosed the first patients in its expansion cohort of clinical trial candidate BT5528, a second-generation bicycle toxin (BTC) conjugate targeting EphA2. This is a phase I/II study designed to enroll up to 56 patients in the clinical trial to begin in Q3.
Bicycle also has initial clinical trials underway for BT7480 and BT8009. Again, both are precision therapeutics designed to target solid tumors. The 7480 is currently undergoing a Phase I/II clinical trial, as is the 8009. Earlier this year, Bicycle announced positive Phase I data for the 8009, justifying continued studies. The company currently has 37 patients dosed in a phase I/II trial of BT8009.
Bicycle is lucky and receives collaboration fees and payments from development partners in its operations. In the second quarter, these payments totaled $4.37 million, compared to $1.78 million in the prior quarter.
This biopharma has a unique development platform and an early-stage clinical program—all of which caught Ken Griffin’s attention. His firm bought 243,334 shares of the company’s stock in Q2, which is now valued at $6.5 million.
JMP parser Rennie Benjamin I would agree that this stock deserves a closer look. He wrote for Bicycle: “With three products in the clinic advancing through dose-ranging studies or already in Phase 2, market moving data over the next 12 months, and a strong cash position of $392.6 million (pro forma), we believe Shares of Bicycle represents a unique buying opportunity given the recent weakness in the biotech sector.”
Benjamin uses his comments to support his Outperform (i.e. Buy) rating, and his $70 price target shows the extent of his confidence: 172% upside over the next year. (To watch Maughan’s record, Press here)
We’re again looking at a stock with a consensus analyst consensus of Strong Buy – this one based on 7 recent positive reviews. The stock has a trade price of $26.71 and an average target of $57.14, for a 114% one-year upside potential. (See TipRanks Bike Stock Forecast)
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Rebuttal: 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.