The stock market appears to be making a transition in the these first few months of 2022, from last year’s bullish trend to a slower pace of growth this year. Headwinds are mounting – the pandemic is stubbornly persistent, inflation is high and trending higher, the Fed is getting set to raise interest rates in response, the list goes on – and so it’s natural for retail investors and experts alike to go looking for investing advice. And one source of advice is the circle of market gurus, the hedge fund experts who have leveraged their insight into multi-billion dollar success.
Ray Dalio is the exemplar of that cohort. He got his trading start some 50 years ago, and has built his firm, Bridgewater Associates, into the world’s largest hedge fund. Bridgewater manages approximately $150 billion in total assets. In short, Dalio knows how make the market works, no matter what the trends are.
Looking to Dalio for investing inspiration, we used TipRanks’ database to find out if three stocks the billionaire recently added to the fund represent compelling plays. According to the platform, the analyst community believes they do, with all of the picks earning “Strong Buy” consensus ratings. Let’s take a closer look.
XPO Logistics (XPO)
We’ll start in the transport sector, where XPO Logistics is a freight carrier, based in Connecticut and operating as a transport broker. The company offers less-than-truckload (LTL) freight services to customers across North America, making it possible for customers to move loads that don’t require full semis, trailers, or containers. XPO can broker freight haulage for more than 50,000 shippers across 99% of all US postal codes.
The supply chain crunch has driven up ground freight costs in the US, and that has redounded to XPO’s advantage. In Q4 of 2021, the company reported, in its own words, the “highest revenue of any quarter in company history.” The top line came in at $3.36 billion, up 14% year-over-year. Non-GAAP EPS, at $1.34, was up 152% in the same period. And, in 4Q21, the company saw $98 million in cash flow from operations, of which $57 million was free cash flow. For the full year, the company reported $656 million in cash flow, with $475 million of that being FCF.
Ray Dalio likes what XPO has to offer. In Q4, Bridgewater bumped up its holding by 248% when it bought up 79,031 shares. Now, the fund’s total XPO position comes in at 110,914 shares worth $7.72 million at current prices.
Wall Street’s analysts are sanguine, too. From Deutsche Bank, Amit Mehrotra writes: “We think Street estimates incorporate some mismodeling that should result in a sharp revision higher in the coming weeks and months… We still believe there is substantial upside in shares from a plan that accelerates deleveraging and focuses the company on becoming a pure play LTL.”
“We also took away positive views from mgmt’s commentary around asset sales… We think this path could significantly accelerate the opportunity we see in shares,” the analyst added.
To this end, Mehrotra puts a Buy rating on XPO shares, and his $120 price target suggests it has room for a substantial 73% one-year upside.
Overall, the Strong Buy consensus rating on XPO shares makes it clear that Wall Street is in broad agreement with the bulls here. The 15 recent reviews break down 13 to 2 in favor of Buys over Holds, and the $97.13 average price target implies ~40% upside from the current share price of $69.39.
As the economic activity grows, consumer credit becomes ever more important. Consumer spending accounts for some 70% of the US economy, and much of that is driven by access to credit. This is where Equifax steps in. The company is one of the three biggest consumer credit reporting agencies, with a database holding aggregated information on more than 800 million individual consumer and 88 million business around the world. Equifax operates on both sides of the credit monitoring business, selling credit and demographic data to enterprise customers and credit monitoring and fraud prevention services to retail consumers.
The growth of Equifax’s business can be seen in its long-term trend. The company has seen 8 quarters in a row of double-digit year-over-year revenue growth, and it’s 4Q21 top line, at $1.3 billion, was a company record – and up 12% from the year-ago quarter. EPS came in at $1.84 per share, down 8% yoy, although just above the $1.81 estimate.
Management was confident in the Q4 earnings, and declared a quarterly common share dividend of 39 cents. This makes for a 13-year streak of reliable payments, and a modern dividend that goes back to 1987. Equifax boasts that it has paid out dividends for over 100 consecutive years. The current payment annualizes to $1.56 and gives a modest yield of 0.7%; the key here is not the yield, but the company’s long-term commitment to reliability.
Long term reliability is an attractive feature in any stock, and Dalio clearly sees this one as attractive. Bridgewater opened a new position in EFX in Q4, buying in 14,896 shares. At the current share price, this holding is worth $3.3 million.
The billionaire isn’t the only EFX fan. Evercore analyst David Togut rates the stock an Outperform (i.e. Buy), and his $370 price target suggests a 66% upside potential for the year ahead.
Backing his stance, Togut writes, “In its largest business, Workforce Solutions, EFX enjoys a near monopoly in income & employment verification, reducing its historic dependence on mortgage, auto and credit card-related consumer credit reporting demand. For ‘22E and ‘23E, Workforce Solutions revenue should grow 19% and 13%, 2% and 3% above Consensus, respectively, fueled by five key growth levers: 1) incremental work number records, 2) more pulls on the TWN database, 3) deeper market penetration, 4) pricing, and 5) new market entry, all supported by new product innovation (NPI) and the EFX Cloud.”
Overall, the outlook on Equifax is a Strong Buy, based on 9 reviews that include 8 Buys against a single Hold. The stock is selling for $221.73 and its $305.67 average price target implies a 38% upside from that level by year’s end.
Legend Biotech Corporation (LEGN)
Last up on our list of ‘Dalio picks’ is Legend Biotech, a clinical-stage biopharma company working on new cell therapies for a range of hematological and solid tumor cancers. The company has offices and operations in the US, China, and Ireland, and maintains an active research pipeline with no fewer than 5 programs at Phase 2 or Phase 3 clinical trials.
Legend’s leading drug candidate, ciltacabtagene autoleucel (or cilta-cel), is a potential treatment for multiple myeloma – and is the subject of several late-stage clinical trials, dubbed CARTITUDE. In December, data from the CARTITUDE-1 study was presented, showing “2-year progression-free survival and overall survival rates were 61 and 74 percent.” In addition, data from the CARTITUE-2 study showed acceptable efficacy and safety profiles in Cohort A of the Phase 2 trial.
The company has received an updated PDUFA date from the FDA on cilta-cel, with agency setting this coming February 28 as the deadline.
Legend, unlike many clinical-stage biopharma companies, has a revenue stream; the company receives milestone payments from partner-companies, other drug firms that have licensed their candidates to Legend for clinical work. Legend received $16.9 million in such payments during the last reported quarter (ended September 30, 2021), up from $11.7 million in the prior year. Legend also reported having $636 million in cash on hand.
Biotech firms are highly speculative, but a revenue stream and an upbeat regulatory outlook are key points for investors, and may have influenced Dalio’s decision to open a position here. His firm bought 116,159 shares of Legend, which are currently worth $4.71 million.
Covering this biotech for BTIG, Justin Zelin focuses on the regulatory outlook as the main catalyst, writing: “We chose Legend Biotech as our large -cap top pick as the company is focused on growing their robust cell therapy organization (1000+ employees, 10+ pipeline programs) and global commercial footprint ahead of anticipated PDUFA target date for their lead asset Carvykti (cilta -cel)… These data establish Carvikty as the best -in -class anti -BCMA autoCAR -T and clearly superior to approved anti -BCMA auto CAR -T ABECMA, supporting our confidence in likely approval.”
Unsurprisingly, Zelin gives LEGN shares a Buy rating, and his $65 price target implies a one-year upside of 60%.
A unanimous Strong Buy consensus, based on 4 reviews, shows that the Street agrees with Zelin’s take. LEGN has a $59.75 average price target, suggesting an upside of 47% from the current trading price of $40.85.
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