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This seasoned analyst highlights 3 stocks to buy that will bring you success in Q4 2022

Jamie Cameron
10. 10. 2022
6 min read

A seasoned analyst has presented 3 stocks to buy that will be great choices for the rest of 2022, but easily well beyond that horizon. The selection may surprise you, but these are quality companies where he sees significant discounts and undervaluations of up to 30%, which is already a decent discount and investment opportunity.

Dave Sekera

Who is Dave Sekera? Strategist, investor, former CEO and analyst with over 25 years of experience in the securities markets. I was personally surprised by his top 3 stock picks as they are both high potential and higher risk stocks. Each stock in this selection is significantly undervalued in his opinion and offers decent potential for further upside, of course he also gives reasons that lead him to this belief.

Zimmer Biomet $ZBH-0.9%

Shares of $ZBH-0.9% have lost -35.65% since the beginning of the year.

$ZBH-0.9% is a company in the healthcare sector that has been in business for a really long time, dating back to 1927.

Dave Sekera: We think there are a lot of attractive options within med tech, but we see a lot of undervalued opportunities out there today. So while healthcare is one of those sectors that is much closer to fair value than some of the cyclical sectors, I think I definitely see some undervalued stocks in the tech space. The first would be Zimmer Biomet, for example. So this is a stock that trades at a 36% discount to our fair value. One of the things that's been going on there is during the pandemic you had a lot of patients that have been putting off their health issues for the last few years because of covide, that should change in the near term. Our guess is that the backlog of pending claims will drive them higher based on these conditions + the natural growth in the industry.

  • In addition, hospitals are less busy treating covidu and are accepting many more claims for "elective" orthopedic procedures such as knee and hip replacements. ZBH is directly benefiting from these problems.
  • ZBH may currently be behind the competition, but this has been caused by covid and people's fear of the treatments that are currently taking off again.
  • ZBH is the market leader in the hip and knee implant category, reportedly holding more than 30% market share worldwide.

Illumina $ILMN-2.3%

Shares of $ILMN-2.3% have lost -42.92% since the beginning of the year.

The next pick is a bit riskier, but Dave Sekera says $ILMN-2.3% has some really good, strong, longer-term catalysts that could ultimately mean strong growth. Illumina, he says, is trading at a discount of around 35% to its fair value. $ILMN-2.3% is one of those stocks he has identified that he thinks could have exponential growth opportunities in the future. So specifically they have a product in the liquid biopsy space where it is expected to come to market in the next few years. Supposedly it can screen for up to 50 different types of cancer and that could really change the game in cancer screening.

  • Covid-19 derailed Illumina's progress in 2020, but 2021 has generated more than expected, with fiscal year 2021 revenue growth expected to be 36%, driven by backlog fulfillment, easy competition, renewed genome sequencing initiatives, and increased demand for cancer testing.
  • Fourth quarter revenues increased 26% year-over-year, with sequencing instrument revenues up 29%. Non-GAAP EPS, although down 59.09% compared to the same period in 2020, exceeded analysts' consensus by 26 cents.
  • As a point of interest, Illumina's capital structure consists of 96.1% equity, 0.1% short-term debt, and 3.8% long-term debt, and the company is able to cover its short-term obligations.
  • As a leader in the genome sequencing industry, Illumina has shown the world a lot of potential in this area and the uncertainty of bringing new technologies to market. The value of the addressable market is estimated at $20 billion and the company has barely scratched the surface. On the other hand, looming antitrust challenges and increasing competition, especially in oncology, will be the company's main risk.

Zoetis $ZTS+0.2%

Shares of $ZTS+0.2% have lost -35.72% this year.

Zoetis develops, manufactures and distributes animal care products, which further includes various drugs, vaccines and diagnostics. Since its spinoff from Pfizer in 2013, Zoetis has grown significantly and has become a leader in the animal health care industry.

Dave Sekera: And finally, another company in the healthcare sector, which is Zoetis. Zoetis, in my opinion, is actually a leader in innovative therapeutics for pets. This stock is trading at a 20% discount to our fair value.

The vision here is simple - The analyst and his team see potential in this sector as it is proven that human nature and pet care has changed (positively) over the years, which has and will continue to contribute to their spending on their pets and their care and health. It's actually an area where they see an opportunity for long-term growth.

  • According to research, the pet health care market in North America is expected to grow at 10.2% per year. As a leader in a variety of positions, Zoetis will clearly lead the way and benefit from this growth.
  • Their revenues have grown 10% per year over the last 5 years and EBIT margin has grown from 24% in 2013 to 36% in 2022.
  • The dividend has grown at 21% per year over the last 5 years. In addition, they regularly buy back shares where they expect to continue to reward shareholders for the foreseeable future.
  • The diversified revenue portfolio is also great news, where Zoetis' top two products in 2021 were APOQUEL and Simparica Trio, each with approximately 10% of group revenue. The rest of its revenues are diversified, with the other three products accounting for only 13% of total group revenues and the other five products only 14%. As a point of interest, the company is well on its way to approving additional products, which are reaping initial success in the animal vaccination space.

Conclusion

Personally, I find all 3 stocks interesting, however, I would think the most of Zoetis as I find it attractive in terms of financial numbers, product, competitiveness, innovation, it pays a dividend, does share buybacks and is one of the market leaders. I agree with analyst Sekera's point and see it the same way - People are changing their attitude and are continually spending on the care and health of their pets on a much larger scale than they once did. I'm not dismissing Illumina and Zimmer, the potential is high, but the same can be said for the risks and a lot of competition behind their backs.

  • How do you like these companies?

Please note that this is not a financial advisory business. Every investment must go through a thorough analysis.

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