It’s no secret that the stock market has rallied this year, with year-to-date gains near 17% on the S&P 500 and 35% on the NASDAQ. There’s also talk that this rally could turn into a true bull market, putting investors in an upbeat mood and providing a welcome counterpoint to the widespread belief that the US will see a recession later this year.

Watching the market situation from Goldman Sachs, Vice President Deep Mehta sees two paths to take advantage of the current rally: growth and margin expansion. Regarding the growth path, Mehta writes, “We believe the recent outperformance of growth creates scarcity of high growth that is still reasonably valued and should drive investors preference for stocks that are poised to grow into their multiples.” Turning to margins, Mehta adds, “We believe margins will remain in focus through 2023 and into 2024. While operating margins are expected to expand for our broader coverage through 2024E, the dynamics are likely to vary by company. As such, we expect companies that are able to deliver top-line growth alongside margin expansion as better positioned.”

Hunting for growth opportunities, Goldman’s analysts have been picking out stocks they see primed to jump. In fact, the analysts see a particular pair of stocks delivering gains of up to 85% in the year ahead. To gauge the consensus among other analysts, we’ve used the TipRanks database. Here are the details.

BioMarin Pharmaceutical (BMRN)

We’ll start in the biopharmaceutical sector, where BioMarin is working on new treatments for genetically-based rare diseases. The company is currently focused on commercializing a line of approved drugs while also maintaining an active research pipeline. BioMarin’s approved product line generates the funds needed for ongoing research. In fact, the company reported more than $2 billion in total revenues last year.

BioMarin, which is one of the growth picks on Goldman’s list, boasts a commercial footprint in 78 countries. This footprint includes Vimizin, a treatment for the genetic enzyme disorder Morquio A, which causes severe damage to bone, cartilage, and ligament tissues; Naglazyme, a treatment for the progressive wasting condition Maroteaux-Lamy syndrome; and Roctavian, a treatment for adults suffering from severe hemophilia A, by controlling bleeding.

A look at BioMarin’s 1Q23 results reveals the solid foundation the company has built, thanks to its extensive product line. The company experienced a 5% year-over-year increase in enzyme product revenues, reaching $448.1 million. This overall result includes a 3% y/y growth in Vimizin revenues, totaling $189.2 million. Notably, revenues from Voxzogo, a medication used to treat children under the age of 5 with achondroplasia, a genetic condition causing extreme short stature, spiked by 346% y/y, reaching $87.8 million.

Overall, BioMarin brought in $596.4 million in total revenues for Q1, a figure that translated to a 15% year-over-year gain, and was $26 million ahead of the forecast. The company’s bottom line was profitable – a non-GAAP EPS of 60 cents, that was 20 cents per share more than had been anticipated.

Looking ahead, BioMarin is predicting Voxzogo will be its lead revenue generator this year, bringing in between $380 million and $430 million, with the recently approved Roctavian generating between $50 million and $150 million.

These numbers indicate solid growth potential for BioMarin, and that growth potential caught the attention of Salveen Richter, one of Goldman Sachs’ 5-star analysts.

“We view BMRN as attractive as a profitable-growth play at current levels — noting the commercial business ex-Roctavian is ~$95/share per our DCF assuming peak $1.2bn in sales for Voxzogo, which appears conservative… Recent US approval for Roctavian in severe hemophilia A sets up for a solid launch in 2H. Plus we see potential for expansion of Voxzogo in achondroplasia for younger patients and in other genetic causes of short stature,” Richter opined.

Quantifying her position, Richter rates BMRN shares as a Buy, and her price target, which she has set at $159 per share, implies a one-year upside potential of 85%. (To watch Richter’s track record, click here)

Overall, BioMarin gets a Moderate Buy consensus rating from Wall Street. This rating is based on 19 recent analyst reviews, which include 14 Buys, 4 Holds, and 1 Sell. The shares have an average price target of $117.65, which suggests a 37% upside potential over the next 12 months. (See BMRN stock forecast)

Vertex, Inc. (VERX)

It comes around every spring, no matter how much everyone would prefer to avoid it – tax season, everyone’s time to duly report their income, tax requirements, tax withholdings, payments, or debts to the IRS. And along with tax season comes the requirement to collate regular reports and keep the business books up to date. Vertex, based in Pennsylvania, offers a line of products tailored to the tax compliance needs of businesses, particularly through the automation of indirect tax processes.

The company takes a broad approach to its target audience, creating tax software that can be scaled to businesses of any size. Vertex’s tax compliance software lines includes the Vertex TaxCalc, allowing accurate tax calculations across jurisdictions; Vertex TaxCompliance, to streamline filings, online sales, and cross-border commerce; and Vertex TaxInsight, designed to ‘proactively handle risk.’ Altogether, these products offer solutions for most of the common tax issues faced by companies throughout the economy.

The ever-increasing reach of governmental tax regulation keeps Vertex relevant, and the company has witnessed a clear pattern of steady revenue growth in the past few years. In the last reported quarter, 1Q23, Vertex recorded a top line of $132.8 million, reflecting a 15.5% year-over-year gain. The company’s revenue slightly exceeded forecasts by ~$724,000. On the bottom line, Vertex reported an EPS of 8 cents based on non-GAAP measures, which aligns with analyst expectations.

Vertex is among Goldman’s margin picks for the coming year, so a quick look at the firm’s non-GAAP gross margin in relevant. This metric came in at 71.8% in Q1 of this year, a sound result that was up 2.3% y/y.

Goldman’s Adam Hotchkiss notes the margin performance as a key point for the stock’s potential, noting, “We continue to expect gross margins to be a key driver here as the company leverages its accelerated infrastructure investments over the last two years, while we also believe that successful ERP modernization ending in 2Q23 will help to drive other operating expense leverage in the second-half of this year and beyond.

“We see this as one of the rare stories in software where there are significant, structural near-term margin tailwinds across operating expense items & gross margins that we believe are being missed in consensus. While VERX shares have outperformed the market YTD, we think the risk-reward continues to skew to the upside,” Hotchkiss summed up.

Hotchkiss’ comments alongside his Buy rating on the stock, and his $25 price target indicates his belief in a 33% upside for the year ahead. (To watch Hotchkiss’ track record, click here)

Overall, VERX shares get a Moderate Buy rating from the analyst consensus on Wall Street. The stock has 10 recent analyst reviews, breaking down to 6 Buys, 3 Holds and a single Sell. The shares are trading for $18.78 and their $23.56 average price target suggests that they will gain ~25% going out to the one-year horizon. (See VERX stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

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.


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