The last few weeks have been rocky, with the collapse of Silicon Valley Bank, and the crypto-heavy Silvergate and Signature banks, dominating the headlines. For a short time, it seemed that the contagion would spread to the global financial giants. Now, however, it appears that we’ve managed to avoid a true banking crisis – and Raymond James’ chief investment officer Larry Adam has pointed out several reasons why.
For starters, Adam notes that Credit Suisse, despite its troubles, found a way out. The peer firm UBS agreed, in a last-minute weekend deal, to purchase the Swiss giant for over $3 billion. That move, in Adam’s view, ‘should lay the foundation for greater stability in the banking sector.’
Adam also notes that smaller-scale banks are also finding help. He reminds us that last week, some 11 US banking majors put together a $30 billion package to shore up First Republic Bank, another regional bank which was showing signs of collapse. Again, this is a move to encourage stability, and it reassured investors and depositors that the regional banks have a backstop.
While Adam stresses that we might not be ‘out of the woods’ yet, he thinks that “overall, there have been some positive developments in dealing with the potential banking crisis.”
In fact, Adam remains “optimistic that the equity market (S&P 500) will move higher by year end.”
It is quite a backdrop, and it puts some context behind the recent ‘Strong Buy’ ratings set by some of Raymond James’ stock analysts. These equity experts have found clear opportunities for investors – even in the current climate. We’ve pulled up the details from the TipRanks database, and found these Buy-rated stocks feature solid upside potentials for the coming year. Here they are, with the Raymond James commentaries.
We’ll start in the insurance industry, with Kemper Corporation. This Chicago-based firm is a giant in the insurance world, boasting a market cap of approximately $3.5 billion, total assets worth $13 billion, and more than 5.3 million policies on the books. Kemper offers a wide range of insurance products, including home, rental, and auto policies, personal liability and business policies, and life insurance. Its combination of size and breadth of products makes Kemper one of the leading specialized insurers in the US market.
We should note, first, that Kemper has been running quarterly net losses since Q2 of 2021, and that did not change in the most recent report, for 4Q22. That said, Kemper’s net loss in that quarter was reported at $55.5 million – making it the lowest quarterly net loss in the last 7 reporting periods. The company’s adjusted consolidated net operating loss came to $26.6 million, compared to $130.8 million in the prior year quarter. On a per-share basis, the adjusted consolidated net operating loss came to 41 cents per diluted share, a large improvement from the $2.05 diluted EPS loss seen one year earlier. Q4’s EPS was 1 cent below expectations.
At the top line, Kemper reported $1.38 billion in 4Q22, down 7.5% year-over-year. For 2022 as a whole, the company reported revenues of $5.58 billion, compared to $5.79 billion in 2021.
To get the Raymond James view, we can turn to analyst C. Gregory Peters, who highlights the company’s improving profitability profile. “We believe there could be significant upside to the stock as management continues to execute on initiatives to restore the company’s profitability results,” the 5-star analyst wrote. “We believe the company could achieve management’s longer-term ROE target of 10-12% in 2024 due in part to our positive outlook for pricing in KMPR’s personal auto book, management’s expense saving initiatives, and the potential for CA to become a positive state for KMPR should its second round of auto rate filings be approved. Additionally, we believe the strategic review of the PPA business and the migration to a reciprocal exchange could improve the company’s longer-term margin profile.
Based on this upbeat stance, Peters rates KMPR as a Strong Buy, with an $80 price target to suggest a 44% upside potential for the coming 12 months. (To watch Peters’ track record, click here)
While Raymond James is bullish, the Street overall is evenly divided. Kemper has picked up 4 recent analyst reviews, with a 2 to 2 split between Buy and Hold for a Moderate Buy consensus rating. The stock’s $55.53 trading price and $70.25 average price target combine for a 26% one-year upside potential. (See KMPR stock forecast)
Next up is another insurance company, Globe Life. Globe is a holding company, operating through a series of wholly owned subsidiaries to offer insurance policies for home, life, health, and work. The company is the largest issuer of life insurance policies in the US, with over 16.8 million policies in force. Across all its segments, Globe currently has some $220 million worth of active policies.
Over the last few years revenues have been stable, but earnings have been increasing over the last year. A look at the 4Q22 results, the most recent released, will show the story.
At the top line, globe had $1.32 billion in revenues, missing the forecast by $10 million but coming in ahead of the year-ago quarter’s $1.30 billion. At the bottom line, non-GAAP diluted EPS was $2.24, beating expectations by 7 cents, or 3%. And looking ahead, Globe estimated its 2023 diluted EPS in the range between $10.20 and $10.50, well above the $9.73 consensus estimate.
All of this caught the eye of Raymond James analyst Wilma Burdis, who wrote, “GL produces consistently superior growth and returns given the moat that it holds around unique exclusive distribution and product (with relatively inelastic pricing) in attractive targeted low-middle to middle income markets. GL’s increased near-term earnings outlook is driven by a higher premium base driven by recent strong sales and improved underwriting income due to declining COVID claims…. We like GL under uncertain macro conditions as its business is not exposed to equity markets and has little interest rate sensitivity, and its credit profile is favorable.”
Burdis goes on to rate the shares as a Strong Buy, and sets the price target at $138, indicating room for 25.5% share appreciation in the year ahead. (to watch Burdis’ track record, click here.)
There are 6 recent analyst reviews on record for Globe, with a split of 3 Buys, 2 Holds, and 1 Sell for a Moderate Buy consensus rating. The stock is currently trading for $109.89 and has an average price target of $128.67; together, this suggests a 12-month potential upside of 17%. (See GL stock forecast)
From insurance, we’ll shift gears to wrap up this list with a clinical- and commercial-stage biopharmaceutical firm. Sol-Gel is focused on dermatology, developing new topical medications for the treatment of common skin conditions. The company has an active development pipeline, with two new drugs in clinical trials, and has two medications approved and on the market.
On the commercial side, Sol-Gel announced last year that its medications, epsolay and twyneo, had been approved by the FDA for commercial use. The first of these is a treatment for inflammatory lesions of rosacea, and the second is a treatment for acne vulgaris.
In its recent 4Q22 report, Sol-Gel released positive prescriber data on both approved drugs, showing that 82% of twyneo prescribers have continued to prescribe the drug, while epsolay has a 64% recurring prescriber base. Overall, there have been 106,000 prescriptions written for twyneo, and 26,000 for epsolay.
On the clinical trial side, Sol-Gel’s leading candidate is SGT-610 (patidegib), a hedgehog signaling pathway blocker – and potentially the first ever treatment for Gorlin syndrome, a skin condition that puts patients at risk for basal cell skin cancer, as well as other cancers. SGT-610 has already received Orphan Drug designation, and Sol-Gel is preparing to initiate a Phase 3 study of the drug in 2H23, with trial results expected for release by year-end 2025.
Elliot Wilbur, covering this stock for Raymond James, notes that the commercial ramp toward profits is proceeding more slowly than had previously been assumed, but that the company’s approved drugs are making headway in the market. With that in mind, and the prospect of mid-term catalysts in the development program, Wilbur writes, “…the relatively de-risked nature of the royalty structure with market giant Galderma (Galderma has an exclusive 5-year license to commercialize epsolay and twyneo in the U.S.) provides the stock with a largely favorable risk/reward profile as attention shifts towards progress on the pipeline as the company’s newest value inflection lever, patidegib for Gorlin syndrome could see pivotal results toward the end of 2025.”
In Wilbur’s view, this is sufficient to maintain the Strong Buy rating on SLGL, and his price target, of $10, suggests a robust one-year upside of 187%. (To watch Wilbur’s track record, click here)
There are only 2 analyst reviews on file right now for Sol-Gel, but both are positive – making the Moderate Buy consensus unanimous. The shares have an average price target of $14.50, implying a huge gain of 317% from the current share price of $3.48. (See SLGL stock forecast)
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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.
