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The Ratings Game: Netflix, Workday, Costco, Caterpillar and more: These stocks are Cowen’s favorites for 2023


Across the market, Cowen & Co. analysts see undervalued stocks.

They rolled out their individual best picks late in the week, highlighting their takes on compelling plays in healthcare, technology, industrials, and more.

Cigna Corp.

offers opportunity stemming from the margin potential of biosimilars, one reason why the stock is Cowen analyst Gary Taylor’s top pick for the year.

But that’s not the whole bull case: “Cigna trades at the lowest multiple in [its] group, has the second-lowest percentage of sell-side buy ratings and its key fundamental risk (recession unemployment) is most overtly/visibly discounted by the market.”

Costco Wholesale Corp.

makes the cut because it has low prices, a history of managing inventory in an “agile” manner, and a setup that looks favorable in the current economic backdrop, now that customers across the income spectrum are looking for good deals.

“We believe Costco’s volume focused sales, item driven (rather than category driven) assortment, and large scaled operations position the company ahead of competitors in an environment of inflation and supply-chain challenges,” Cowen’s Oliver Chen wrote.

In media, Cowen’s John Blackledge sees big potential in Netflix Inc.
which had a rough year amid competitive intensity in the streaming market and a continued hangover from the streaming heyday enjoyed during the earlier part of the pandemic.

But Netflix is an evolving company as it moves into 2023, armed with a new advertising-supported tier of service and a plan to cut down on perhaps 100 million global accounts that are sharing passwords.

Read: Netflix will crack down on password sharing next year — here’s how it will work

“We acknowledge that investors have likely started to price in some of the benefit from the ad tier,” Blackledge wrote, but “potential upside from these efforts is likely still underappreciated.”

Raytheon Technologies Corp.

could be another winner.

“Investors don’t fully appreciate likely aftermarket recovery in 2023 or defense lift in 2024-25,” analyst Cai von Rumohr wrote.

Then there’s Biomarin Pharmaceutical Inc.
which Cowen’s Phil Nadeau says has the potential to be a “top performer.”

“During 2023 we expect Voxzogo’s strong launch to continue, and Roctavian to be approved by the FDA.” Strong launches for both of those could drive compound annual growth in revenue of 17% through 2027, “among the highest in biotech.”

He added that Wall Street seems “overly cautious on the chances of FDA approval of Roctavian, while our clinical and regulatory consultants think approval is very likely.”

Voxzogo is for children with achondroplasia, while Roctavian is for severe hemophilia.

Iveric bio Inc.

has a nice 2023 story as well, according to Cowen’s Ken Cacciatore.

The company’s Zimura drug “has shown significant reduction in GA [Geographic Atrophy] lesion growth in two pivotal trials, with an exceptionally clean safety profile,” he said in a note to clients. “Our clinician discussions continue to reinforceour belief that this is well in excess of a $2B+ opportunity for Zimura, even in a competitive market.”

Cacciatore offered that he’s “encouraged by all aspects of the story” and thinks “there continues to be a valuation disconnect.”

AstraZeneca PLC


is Steve Scala’s “best idea,” given the backdrop of the company’s “promising new products and pipeline.” In addition, he noted that AstraZeneca’s growth in earnings per share “appears to be among the best in the industry, with upside possible,” though the stock price doesn’t reflect that performance or potential, in his view.

Two compelling technology picks include Workday Inc.

and Analog Devices Inc.

“We think investors under-appreciate how much WDAY has diversified its business vs. initial COVID days when WDAY’s business was more acutely disrupted,” wrote Cowen’s Derrick Wood, who named the stock his top pick. “We also think investors under-estimate the durability in back office spend in this environment.”

For colleague Joshua Buchalter, who tabbed Analog Devcies, the draw is “one of the best and cleanest capital return stories in semis.”

Buchalter likes the company’s “best-in-class margins and capital return profile with a fab-lite model that we believe is well positioned to sustain 10% annual dividend growth and a material repurchase program through-cycle.”

Speaking of cycles, Caterpillar Inc.

could be at the beginning of a nice one.

“We’ve long held that this cycle’s peak will come in 2024 or later for CAT. We think the Street is just starting to warm up to this view,” wrote Cowen’s Matt Elkott. “Recent checks suggest that infrastructure projects are beginning to trickle into the machinery sector, likely kicking off a multiyear cycle.”

Other favorites include Deciphera Pharmaceuticals Inc.
TFI International
ABB Ltd.
and SunOpta Inc.

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