"Wait for the year-end rally," says Morgan Stanley;  Here are 2 stocks to play this bullish outlook

After three months of highly volatile trading that saw the S&P 500 fall to 3,600, rise to 4,300 and fall back to 3,900, investors could be forgiven for feeling a bit of whiplash. The question that begs to be answered, however, is where will the markets go from here?

Morgan Stanley strategist Andrew Slimmon thinks investors shouldn’t worry too much about the bear. Worse-than-expected inflation data for August may have pushed markets lower this week, but Slimmon’s view is that the S&P should show a recovery by the end of the year and finish close to where it started, near 4,700. That would represented an increase of 17% over current levels.

“Positioning is uniformly bearish. And I suspect that will turn around at some point in Q4, pushing [S&P 500] higher at the end of the year, not lower,” Slimon noted.

Slimon based his belief on evidence that inflation is beginning to decline after peaking in July. “It’s not going down very fast, but it’s going down,” Slimon said.

With that in mind, we wanted to take a closer look at two stocks that have received Morgan Stanley’s endorsement, with the firm predicting upside potential of more than 30% for each. Using TipRanks databasewe understand that the rest of the street is also included as both have earned a consensus rating of Strong Buy.

Alphatec Holdings (ATEC)

We’ll start with medical technology. Alphatec Holdings owns three subsidiary companies, which together are bringing dramatic changes to the field of spine surgery. The company markets a series of medical devices that introduce a new approach to spine surgery, from the neck to the pelvic vertebrae. The company’s goal is to create a surgical approach with clinical distinction that will make Alphatec the “Standard Spine Carrier.”

New surgical methods could open up expanding prospects for a well-positioned medtech company, and Alphatec’s recent financial results support that. In the second quarter of this year, Alphatec posted a top line of $84 million. This is 35% more than the previous quarter.

On the earnings side, Alphatec maintained persistent losses that deepened from 2020 to 2021. However, the 2Q22 net loss of $36 million represented moderation compared to recent quarters. And the company reported cash of $107 million against operating expenses of $91 million.

Looking ahead, Alphatec expects full-year revenue of $325 million for 2022. That figure would represent 34% year-over-year growth.

Strong growth seems to be the story here, according to a Morgan Stanley analyst Drew Ranieri points out.

“Over the past 10 quarters, the company has averaged nearly 40% quarterly organic revenue growth, compared to a median of 9% for pure-play peers. Unlike larger competitors, we believe Alphatec’s commercial growth is not tied to market growth. With a roughly 2.5% stake today, Alphatec has significant runway ahead to drive sustainable double-digit revenue growth. We foresee Alphatec doubling its market share to nearly 6% by 2026, with total company revenues reaching $673 million, implying approximately 20% CAGR for 2022-2026,” Ranieri said.

“Alphatec’s stock and peers narrowed significantly as the turnaround narrative was discounted and investors better appreciated the multi-faceted growth story; however, Alphatec shares currently appear undervalued relative to peers in our view,” the analyst concluded.

To that end, Ranieri sets an Overweight (i.e., Buy) rating on ATEC stock, along with a $13 price target, which indicates upside potential of 47% over the next year. (To watch Ranieri’s record, Press here)

Overall, it’s safe to say the Street agrees with this bullish view on Alphatec. The stock has 5 recent analyst reviews breaking down to 4 buys and 1 hold for a strong consensus rating of buy. The average price target on ATEC shares, $12.90, is practically the same as Ranieri’s. (See the ATEC stock forecast at TipRanks)

Bill.com Holdings (WAS)

Let’s stick to tech but move to fintech. Bill.com Holdings is a software provider offering cloud-based solutions for small businesses to handle accounting and paperwork issues. The company’s software enables users to simplify, digitize and automate back-office financial processes, for greater overall efficiency in day-to-day operations. BILL products can be used for billing, invoicing, making and receiving payments and other time-consuming accounting tasks.

The company’s target customers are small and medium-sized enterprises, and BILL is popular among small entrepreneurs. The company ended its 2022 fiscal year on June 30, and a look at its fourth-quarter and full-year results shows the extent of its popularity and growth. The fiscal fourth quarter saw the company boast about 400,000 business customers and surpass $200 million in quarterly revenue. Year-over-year, the top line grew an impressive 156% from $78.3 million in the year-ago period.

Like many technology and/or software firms, BILL tends to incur a net loss — but its fiscal Q4 net loss came in at just $3.3 million, compared to $5.8 million a year earlier. On an EPS basis, the loss was 3 cents per diluted share, less than half of the 7 cents reported in fiscal 4Q21.

Even though BILL’s revenue is up sharply, the stock has underperformed this year. BILL shares are down 36% year-to-date, compared with the S&P 500’s 18% year-to-date loss.

Falling stock price hits Morgan Stanley Keith Weiss, a 5-star analyst, as an opportunity. He began his coverage of BILL with some laudatory comments, writing: “Compelling value proposition, differentiated go-to-market strategy through direct sales, accounting partnerships and financial institution partners supporting +65% revenue CAGR (CY21–CY23E) . the second fastest in our coverage, and a solid execution track record creates a favorable risk/reward for BILL.”

Weiss places an Overweight (i.e., Buy) rating here and sets a price target of $220, implying a one-year gain potential of ~38%. (To watch Weiss’ record, Press here)

Technology and software usually get more than their share of Wall Street interest, and BILL is no exception. The stock has 21 recent analyst reviews, which include 19 buys versus just 2 holds, for a strong buy consensus. Shares are trading at $158.84, and the average price target of $208.35 suggests upside of 31% over the next year. (Check out the BILL stock forecast at TipRanks)

To find good stock trading ideas at attractive valuations, visit TipRanks’ The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.

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.

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