We’ve got just a few days left this year, and the big question is, will the year end with a whimper or a bang? According to the analysts at JPM, we may be looking at least at a partial bang. Yes, we’re dealing with the Omicron corona variant, but this one seems mild despite the headlines and the hype. The firm’s global market strategist Marko Kolanovic notes this, and notes also that a short squeeze could be in the cards as we get ready for 2022.
“On the macro fundamental side – we retain our positive outlook for COVID. Despite the recent panic about the Omicron variant, global COVID deaths are at the lowest point of the year, and cases actually flat for the past 2 weeks,” Kolanovic noted.
“Yet, there is aggressive shorting, likely in a hope of declines in retail equity position and cryptocurrency holdings… For short-selling campaigns to succeed, there have to be positioning, liquidity and often systematic amplifiers of the selloff. We believe these conditions are not met, and hence this market episode may end up in a short squeeze and cyclical rally into year-end and January,” the strategist added.
A rally in January would bring a New Year smile to most investors. So let’s take a look at two of the stocks which Kolanovic’s colleagues among JPM’s stock analysts see as potential winners. In the JPM view, these are equities with potential to gain 60% or more by the end of next year. Let’s take a closer look.
Iris Energy (IREN)
The first stock we’ll look at is deeply involved in the data center industry. Iris Energy builds, owns, and operates the data centers and electrical infrastructure necessary for bitcoin mining. The company does it with a twist, however: Iris uses a sustainable energy footprint in its energy generation. In practical terms, this means that Iris sets up its operations in remote areas, with access to abundant, under-used, renewable energy sources. The company’s flagship operation, in British Columbia, Canada, uses hydroelectric power.
That BC data center has a 0.7 EH/s hashrate, operating on 30 megawatts of power. Iris has plans for expansion, and currently has as much as 15.2 EH/s of operating and contracted hashrate capacity. This will require approximately 530 megawatts when it is fully online. Looking forward, the company has a near-term growth pipeline in Western Canada, the Central US, and the Asia-Pacific region with power capacity exceeding 1 GW.
In mid-November, Iris priced an IPO, putting over 8.26 million shares on the market at $28 each. This exceeded expectation by a significant margin; the market had been looking for a price range between $25 and $27 per share. The company raised $231.5 million in new capital through the sale, and now boasts a market cap of $3.3 billion.
JPMorgan’s Reginald Smith covers this newly public stock, and is bullish on what he sees.
“We believe IREN has one of the largest mining equipment order books (~15 EH/s) of any publicly traded operator. Moreover, the company has conditional and unconditional rights to additional sites in British Columbia and Texas that could support an additional 15 EH/s of mining capacity, clearing the path to become a top five operator globally over time.” Smith wrote.
“We think IREN is an attractive and efficient way to gain long exposure to Bitcoin prices and sentiment… At current levels, which seem to price in very little data center expansion, we think IREN offers investors a unique and attractive risk/return profile, with positive leverage to rising Bitcoin prices and some downside protection should Bitcoin prices fall,” The analyst added.
Based on all of the above, Smith rates IREN an Overweight (i.e. Buy) along with a $30 price target. This target conveys Smith’s confidence in IREN’s ability to soar ~80% in the next year. (To watch Smith’s track record, click here)
Wall Street generally agrees with Smith on the bullish outlook for Iris. The Street’s analysts have 4 positive reviews on file, for a unanimous Strong Buy consensus rating on the shares. IREN is trading at $16.75 and its $25 average price target suggests it has room for 48% share appreciation next year. (See IREN stock analysis on TipRanks)
Bright Health Group (BHG)
The second JPM pick we’ll look is Bright Health, a ‘consumer centric’ health insurance provider, focused on matching its policies to the specific needs of the healthcare consumer. The Minnesota-based company was founded 2016 and has seen rapid growth in just 5 years; it currently boasts over 200,000 providers and more than 663,000 paying members in 99 markets around the country.
Bright is a new kin on the health insurance block, and also into the stock markets. The company went public through an IPO in June of this year, an event that saw the stock priced at $18. Bright raised some $924 million in the IPO, and has a market cap of $2.18 billion.
Unfortunately, since going public, BHG has been one of the worst performers on the New York Stock Exchange, and is trading about 80% below its IPO price.
The company’s worse share price losses came on November 11, when the 3Q21 results missed badly on EPS. Earnings were reported at a loss of 48 cents per share, much deeper than the 28-cent loss in Q2 and significantly worse than the 14-cent loss expected. Revenue was strong though. At $1.079 billion, the top line was up 206% yoy, and slightly better than the $1.06 billion Q2 result. Bright also reported liquid assets of $956 million.
Perhaps the best point for investors to note is the company’s current move to expand. The NeueHealth division, Bright’s primary care clinic network, is looking to open at least 25 new branches early next year. The new locations will be in Texas, Florida, and North Carolina. The NeueHealth clinics have more than 170,000 patients as of the end of 3Q21 and are expected to bring in $575 million in revenue by the end of this year.
JPMorgan analyst Lisa Gill, rated 5-stars by TipRanks, believes that positives outweigh the negatives here, and writes: “The company expects to end 2022 with ~100 owned clinics with growth concentrated in North Carolina and Texas. Management expects over 50% of its Texas membership will be managed by NeueHealth providers in 2022. We note that new membership typically runs higher MCRs in the first year of joining a new health plan, and BHG is accordingly taking a conservative approach to 2022 margin assumptions on these members. We are optimistic that higher engagement metrics for members attributed to NeueHealth providers should drive new member risk score capture in-line with BHG’s expectations.”
To this end, Gill gives Bright’s stock an Overweight (i.e. Buy) rating, with a $6 price target indicative of ~70% growth for the next 12 months. (To watch Gill’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 5 Buys, 3 Holds and 1 Sell add up to a Moderate Buy consensus. In addition, the $7.81 average price target indicates 121% upside potential from current levels. (See BHG stock forecast on TipRanks)
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Disclaimer: 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.