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James Faris
- US stocks are set for another double-digit return in 2024 and can rally again next year.
- This year's gains have been broad-based, as large caps and mid caps are both thriving.
- Here are 12 smaller stocks to buy with up to 94% upside, according to Oppenheimer.
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Investors have been spoiled by US stocks' outstanding returns in recent years, and one firm says they should expect more of the same in 2025.
The S&P 500 is less than two months away from clinching a double-digit return for the fifth time in six years. Barring a massive selloff, the large-cap-heavy index will end 2024 well above what were even the most ambitious Wall Street estimates heading the year.
And it's not just big stocks that are thriving. The equal-weight version of the S&P 500 and mid-cap-focused S&P 400 are also near record highs, as is the Dow Jones Industrial Average.
What seems like a best-case scenario outcome can get even better, according to Oppenheimer. Researchers at the investment firm are confident that this year's robust market rally has legs.
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"Strength across market capitalizations is a key support for the equity cycle and supports higher market highs into 2025, based on our work," Oppenheimer researchers wrote in a recent note.
Naturally, not all parts of the market are clicking. Small-cap-oriented indexes like the S&P 600 and Russell 2000 are modestly below their peak levels, though Oppenheimer's team noted that they're both in bullish uptrends. That's encouraging after smaller stocks stalled out the summer, even though Oppenheimer strategists had said small- and mid-cap companies would break out.
12 stocks to add to your portfolio now
Heading into the final quarter of the year, Oppenheimer updated its list of "SMID-cap standouts," which is composed of small- and mid-sized firms with an outperform rating from their analysts.
Although Oppenheimer still prefers large stocks over SMID-caps, the firm sees ample opportunities in that less-loved part of the market.
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There are 25 stocks on Oppenheimer's latest SMID-cap list, including 12 new entries that weren't on the second- or third-quarter editions.
Those new stocks are below — sorted in alphabetical order by growth theme — along with each one's ticker, market capitalization, sector, growth theme, price target, upside, and commentary. Three stocks also have bullish technical trends: Sunrun, Shift4 Payments, and Beazer Homes.
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1. Chemed
Ticker: CHE
Market cap: $8.9B
Sector: Healthcare
Growth theme: Aging population
Price target and upside: $650; 9.4%
Commentary: "We believe Chemed's unique portfolio, featuring Vitas (hospice) and Roto-Rooter (plumbing and drain cleaning), offers an attractive mix of diversification and growth. Historically, the two segments have taken turns carrying the growth of the parent company. Currently, Vitas is hitting on all cylinders, driven by a recovery from the pandemic lows, an increasingly attractive M&A market, and strong labor trends."
Source: Oppenheimer
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2. Clearwater Analytics
Ticker: CWAN
Market cap: $6.3B
Sector: Technology
Growth theme: AI related
Price target and upside: $31; 22%
Commentary: "Clearwater Analytics has an attractive set up and potential to reaccelerate with upper echelon top-line growth for software companies in 2025 (i.e, 20%+) driven by multiple product cycles, improving sales productivity, new regulations, high win rates, best in class renewal rates, the benefits from lower interest rates, international momentum, a compelling value proposition for a mission-critical solution, and end-market demand that is more secular than cyclical."
Source: Oppenheimer
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3. Onto Innovation
Ticker: ONTO
Market cap: $10.4B
Sector: Technology
Growth theme: AI related
Price target and upside: $260; 23.4%
Commentary: "Onto Innovation (ONTO) is our top pick. With $1 billion in annual sales, Onto is the third-largest provider of semiconductor process control tools that enhance manufacturing yields. It specializes in advanced packaging with its Dragonfly platform, which has been adopted by the two major Nvidia suppliers. The company stands out with its R&D expertise in optics in both front-end wafer manufacturing and back-end advanced packaging — a rare combination."
Source: Oppenheimer
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4. Integral Ad Science
Ticker: IAS
Market cap: $1.7B
Sector: Communication Services
Growth theme: Digital advertising
Price target and upside: $20; 94.4%
Commentary: "IAS is our top near-term SMID cap idea within our coverage, with an enterprise value of $1.7B, trading at ~9x this year's EBITDA. Investors have been cautious after IAS dropped ~40% post-4Q earnings, after management warned it was pursuing certain deals at lower negotiated CPMs in exchange for higher minimum guarantees. We think fears of a price war between IAS & DV have been overblown, and IAS has exhibited strong execution against its strategy YTD."
Source: Oppenheimer
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5. Sunrun
Ticker: RUN
Market cap: $3.7B
Sector: Technology
Growth theme: EV unit growth
Price target and upside: $22; 33%
Commentary: "We view RUN as the leading US platform for delivering grid edge power solutions. Given underlying power demand growth from AI data center, edge device compute, and EV adoption in context of interconnection challenges and accelerated utility scale renewables adoption, we believe delivered power and grid stability prices will continue to move higher."
Source: Oppenheimer
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6. Shift4 Payments
Ticker: FOUR
Market cap: $8.3B
Sector: Technology
Growth theme: Fintech
Price target and upside: $109; 16.2%
Commentary: "Shift4's growth strategy positions it well to gain market share through conversion of its gateway only customers to its end-to-end capabilities, international expansion, new customer growth, and gains from new verticals. Our analysis estimating volume from various growth opportunities suggests for 2025, Shift4 can increase adjusted EBITDA 29% year-over-year, 3% above consensus."
Source: Oppenheimer
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7. Tandem Diabetes Care
Ticker: TNDM
Market cap: $2.6B
Sector: Healthcare
Growth theme: Med-tech innovation
Price target and upside: $58; 47.3%
Commentary: "Tandem Diabetes Care, a global insulin delivery and diabetes technology company, manufactures and sells advanced automated insulin delivery systems aimed at reducing the burden of diabetes management. … TNDM's next-generation Mobi pump launch is underway; an important catalyst following the impact of competitor launches in 2023. We look for a return to new patient adds in 2H24 on the Mobi launch and easier comps."
Source: Oppenheimer
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8. Kymera Therapeutics
Ticker: KYMR
Market cap: $2.8B
Sector: Healthcare
Growth theme: Precision medicine
Price target and upside: $56; 30.3%
Commentary: "We are bullish on Kymera looking ahead into 2025, when we anticipate key clinical updates across its portfolio of inflammation and immunology (I&I) targeted degraders. These clinical readouts, if successful, could add between $25-35/share, or 45-60%, to our model by year-end 2025."
Source: Oppenheimer
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9. Tarsus Pharmaceuticals
Ticker: TARS
Market cap: $1.3B
Sector: Healthcare
Growth theme: Precision medicine
Price target and upside: $63; 82.5%
Commentary: "We're promoting TARS to our top SMID-cap pick, based on Xdemvy's strong momentum and positive outlook from ophthalmologists and optometrists. … Xdemvy has shown strong quarter-over-quarter growth across metrics, and we believe Xdemvy has barely started to scratch the surface in terms of its commercial potential."
Source: Oppenheimer
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10. Soleno Therapeutics
Ticker: SLNO
Market cap: $2B
Sector: Healthcare
Growth theme: Rare disease innovation
Price target and upside: $65; 27%
Commentary: "We see SLNO as a compelling SMID-cap pick ahead of key news flow to materialize over the coming months. We anticipate US approval of the company's drug candidate DCCR for Prader-Willi syndrome around year-end, and expect demand for this first drug that addresses the insatiable hunger and excessive eating that characterize this disorder to drive a strong launch."
Source: Oppenheimer
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11. Beazer Homes
Ticker: BZH
Market cap: $1B
Sector: Consumer Discretionary
Growth theme: US industrial renaissance
Price target and upside: $41; 26.2%
Commentary: "BZH is a homebuilder with a sector-leading growth outlook, from our perspective. The company addressed its previous leverage overhang several years ago, allowing it the flexibility to deploy capital towards product innovation instead of debt service. The benefit of this investment should show up in its financial performance starting in FY25."
Source: Oppenheimer
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12. HA Sustainable Infrastructure Capital
Ticker: HASI
Market cap: $4B
Sector: Real Estate
Growth theme: US industrial renaissance
Price target and upside: $48; 39.3%
Commentary: "We believe HASI shares should benefit from potential lower interest rates in late FY24/FY25, as FY23's stock weakness was essentially all valuation derating attributable to rate dynamics. … We believe 2024 election outcomes should not fundamentally alter HASI's growth prospects, and see the company well positioned to deliver long-term [high-single-digit/low-double-digit] EPS growth via investing in the decarbonization of the US power, transportation and industrial sectors."
Source: Oppenheimer
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