Analysts Say Buy the Dips in These 2 Stocks

Even fundamentally sound stocks can have a bad quarter, and 1H20 has seen a perfect storm of headwinds buffet the markets. But sometimes, it’s not the Big News headlines that determine how a stock trades; idiosyncratic events make a difference, too.

Two interesting stocks have seen their share of these lesser-reported events, and Deutsche Bank analysts are recommending to ‘buy the dip.’ Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for these two names.

Snap, Inc. (SNAP)

First up is Snap, the social media ‘flash in the pan’ that has shown serious staying power. The app has made waves in recent years with rapid growth in monthly average users. Since going public two years ago, the stock has been highly volatile, ranging from $5 to $25. Year-to-date, Snap shares are down

At the same time, the company runs a consistent earnings loss, which deepened in 1H20. The deep losses come even as revenues are growing. SNAP reported $454.2 million in Q2, a 17% gain year-over-year. Daily active users, a key use metric, grew 4% to 238 million but just missed the estimates. And that quarterly net loss per share ballooned to $326 million, an increase of 27% from the year-ago quarter.

The numbers reflect the general hit taken by the advertising industry during the pandemic months. Even digital advertising felt the pain, as the lockdown policies kept customers at home – and not everything can be purchased online. With advertising down, SNAP had a difficult landscape to navigate.

However, Lloyd Walmsley, 5-star analyst Deutsche Bank advises investors to ‘buy the dip.’ Walmsley is encouraged by signs that digital advertising is starting to recover, and says of SNAP, “We see the bull thesis on Snap fully intact with advertising broadly recovering and strong absolute user growth, despite expectations misses on both fronts. We were encouraged to hear that some of that brand ad campaign pauses are behind the company and spend is starting to come back from these advertisers as well as from RoW in early 3Q data. We see 3Q plans for 20% revenue growth as conservative and we expect less uncertainty around holiday ad spend. Christmas is still Christmas.”

To this end, Walmsley gives SNAP a Buy rating, basing his optimism on a clear path forward. His price target, at $28, implies a one-year upside of 28% for the stock. (To watch Walmsley’s track record, click here)

Overall, the analyst consensus rating on SNAP is a Moderate Buy, but the breakdown on that is 20 Buys against 9 Holds and 1 Sell. The average price target is $26.47, and the share price is $21.92, giving an upside potential of nearly 21% for the next 12 months. (See SNAP stock analysis on TipRanks)

Summit Materials (SUM)

Next up is a major supplier to the construction industry, Summit Materials. The company’s products include asphalt, cement, and ready-mix concrete, along with other aggregate building materials. Summit also offers delivery, paving services, and trucking. In short, this is a company that you can’t do without – not if you like driving on a smooth road.

SUM reported better than expected earnings and revenues for Q2. EPS came in at 50 cents per share, up from 31 cents one year ago – and a powerful turnaround from the 48-cent net loss in Q1. Revenues were strong, at $575.2 million, up 4% year-over-year.

Sometimes, however, success can raise the bar too high. While SUM showed good positive growth, the stock has slipped since the earnings release. The general outlook is, with business returning and construction projects restarting and needing to restock supplies and make up for lost time, Summit should have done even better.

That’s the thesis behind the Buy rating from Deutsche Bank’s Seldon Clarke. Clarke gives SUM a $24 price target, indicating confidence in robust 57% growth. (To watch Clarke’s track record, click here)

Backing his outlook, Clarke writes, “We are now several months into covid and SUM has yet to see any meaningful impact to its business, and the outlook for both resi and public highway spending continues to improve from the trough in April. Moreover, state budgets are in a considerably better position with Summit’s top four states – which account for ~60% of net revenue – experiencing little to no impact on state highway spending or letting activity.”

Overall, Summit Materials has a Strong Buy from the analyst consensus, a rating that the current dip didn’t derail. The breakdown is 8 Buys to 2 Holds, a clear sign of confidence. Shares are selling for $15.26, and the average price target of $22.44 suggests room for 47% upside potential this year. (See SUM stock analysis on TipRanks)

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

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