The savvy investor knows that the best time to buy is when a stock is priced low – it’s just the old game of ‘buy low and sell high,’ the age-old advice on how to make money. But markets have been rising lately, even taking some recent fluctuations into account. But with the S&P and the NASDAQ at or near record levels, it’s hard to tell when a stock is priced low.
The key is just to take them as individuals. The stock market is the world’s greatest real-time experiment in averaging over large mass numbers. The markets as a whole can go up, while a few individual stocks are slipping to the bottom. And when a stock hits bottom, as long its basics are sound, it becomes a buying opportunity.
Wall Street’s analysts make their reputations by finding these opportunities, and bringing them to our attention. Prices fall for reasons, but not all of those reasons bode ill for the stock. We used the TipRanks database and pulled up the analyst commentary on two low-priced stocks that have attracted attention for the right reasons.
Heritage Insurance Holdings (HRTG)
We will start with Heritage Insurance Holdings, a property and casualty provider based in Florida. Heritage provides actuarial services, adjusting, claims processing, distribution, and underwriting in the residential and single-family homeowners, condo, and rental markets.
So far, 2020 has been a difficult year for Heritage, with mixed results in profits and loss. On the negative side of the ledger, the company saw a significant increase in weather losses during Q3, with such payouts up to $47.3 million compared to $18.7 million in the year-ago quarter. On the positive side, the company expanded its homeowner insurance into Delaware, bringing it to 15 active states, and the company reported a 17% increase in gross premiums written, to $278.2 million.
Even with the increase in gross premiums – a trend that has persisted all year – the stock performance as been highly volatile this year. The shares are currently down 25% year-to-date.
Covering Heritage for JMP Securities, analyst Matthew Carletti notes that the company has initiated partnerships this year with several national names (GEICO, Liberty Mutual, and others), allowing it to expand beyond its Florida base.
At the bottom line, Carletti writes, “We note that Heritage’s operating leverage is currently quite low for its line of business (circa 1:1), meaning that there is substantial headroom for its insurance subsidiaries to grow without the need for additional capital generation. While we see the potential for acquisition of an ongoing whole company as unlikely, we would not be surprised to see an opportunistic deal involving renewal rights or a similar structure as many of Heritage’s Florida peers are struggling against deteriorating results, regulatory capital shortfalls, and limited prospects for new capital.”
These comments back Carletti’s $16 price target and Outperform (i.e. Buy) rating. At current prices, his target implies an upside of 66% for the coming year. (To watch Carletti’s track record, click here)
Overall, Heritage’s stock retains a Strong Buy rating from the analyst consensus, based on a unanimous 3 recent Buy reviews. The stock is selling for $9.65 and has an average price target of $15, making the one-year upside potential 55%. (See HRTG stock analysis on TipRanks)
LexinFintech Holdings (LX)
From insurance, we move over to online consumer finance, a niche with enormous appeal to China’s fast-growing – and increasingly wealthy – middle class. Nevertheless, this demographic cannot always access traditional sources of capital in China’s banking system. LexinFintech, a holding company with subsidiaries offering wealth management, monetary loans, and installment payments as an online service, fills the gap.
LexinFintech reported some strong metrics in the third quarter. Loan originations rose by 30% in the quarter, while the number of orders placed using the company’s platform rose by 49% year-over-year, to 84.4 million. The user statistics were especially strong: active platform users with a loan rose by 21% yoy, to 7.4 million, and total registered users hit 106 million for an impressive 69% you increase. On the financial side, revenues were up ~6% yoy, to reach RMB3.15 billion ($480 million in US currency). Gross profits and net income, however, were both down. Profits fell by 42% yoy, and income dropped 52% compared to Q3 2019. These were the metrics investors took away. LX shares are down 55% year-to-date.
In a note on LX for Credit Suisse, analyst Yiran Zhong notes the negatives and positives from Q3: “QoQ decline in net profit was primarily driven by sequentially higher provisions for credit losses, reflecting legacy asset quality impact from COVID-19 and more volatile risk performance for customers acquired in 2H19.” Moving on from there, Zhong also points out the company’s upbeat stance on forward performance: “Lexin reaffirmed its full-year volume guidance of Rmb170-180 bn, on the back of good momentum in consumption-driven customer acquisitions. It is also shifting swiftly towards profit-sharing loan facilitation model, which has reached 50% of total volume in Oct.”
In Zhong’s view, the positive outweigh the negatives. The analyst concluded, “Lexin remains well-positioned to benefit from post-pandemic recovery in household consumption, supported by its new consumption platform strategy.”
To this end, Zhong rates LX an Outperform (i.e. Buy) along with a $9.70 price target. This figure suggests 54% upside in the next 12 months. (To watch Zhong’s track record, click here)
With 3 recent Buy reviews, the analyst consensus rating on LX is a unanimous Strong Buy. The stock is selling for $6.33 and it has a $10.49 average price target that implies a one-year upside of 66.5%. (See LX stock analysis 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.