We recently compiled a list of the Oppenheimer’s Favorite Stocks for the Next 12 Months: Top 32 Stock PicksIn this article, we’ll take a look at where CyberArk Software Ltd. (NASDAQ:CYBR) stands against Oppenheimer’s other favorite stocks for the next 12 months.
The end of August appears to be turning a new page for Wall Street. The highlight of the month was the Federal Reserve’s Jackson Hole Economic Summit, where Fed Chairman Jerome Powell was expected to set the tone for the central bank’s rate-cutting cycle. Powell did not disappoint, noting that “upside risks to inflation have diminished. And downside risks to employment have increased,” leading him to conclude that “the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks.”
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Naturally, investors jumped at the chance, with the benchmark S&P flagship index rising 1.01% to just 1% below its July high. Before Chairman Powell’s comments earlier in the month, investment bank Oppenheimer had released its latest list of 32 stocks to watch over the next 12 months. These stocks were selected based on their fundamentals, the firm’s analysts say, and are the “most timely” in the firm’s view.
This latest round of stock picks comes as the firm has become increasingly bullish on the stock market as 2024 progresses. The year began with a report that set a 2024 close target for the main benchmark S&P Index at 5,200. With the index currently sitting at 5,634, it’s safe to say the market continues to defy expectations, largely due to investor mania for artificial intelligence. Citing chief investment strategist John Stoltzfus’s index target of 5,200, analyst James Watt admitted that while 2024 is a crucial election year in America, his firm’s clients should instead be focused on the economy.
The analyst took an optimistic view, sharing that with “growing GDP, a strong jobs picture, moderating inflation and stable interest rates, our economic metrics look good.” Watt also commented on the interest rate scenario, admitting that “long-term interest rates are notoriously difficult to predict.” However, economists were expecting “somewhere between one and three rate cuts,” and these could lead to the “huge amount of money on the sidelines that will ultimately be invested over the next few years,” putting further upward pressure on stocks.
One important factor Watt mentioned is something we’ve also seen in analysis done by other investment firms. He shared that “the universe of investable stocks has shrunk significantly over the years,” and also shared that “there are only 35 companies with a capitalization of over $200 billion and only 83 companies with a capitalization of over $100 billion.” These “are the companies that the vast majority of funds are invested in,” with the analyst warning that the main implication of this could be supply and demand “driving the price of these up dramatically because of limited supply.”
As the second quarter of 2024 drew to a close, Watts’ views on the stock market split based on market cap remained unchanged. In his Q3 2024 overview, the analyst shared that “the NASDAQ and S&P are not particularly diversified in terms of performance.” Since this concentration in just a handful of securities often pushes investors toward a non-diversified stock portfolio, the analyst added that this “anomaly has not always been the case, but the benefits of diversification have remained a consistent way to ride out various market swings over the long term.”
However, by Q3, the financial firm’s views on its benchmark flagship S&P index had changed. By then, Stoltzfus had first raised the target to 5,500 from 5,200 in March, saying that an evolution in investor mindsets “driven less by fear and greed, but by the need to invest for medium- to long-term goals, presents an opportunity for us to revise our target upwards.” As if that wasn’t enough, the strategy chief issued another revision in August.
This raised the target to 5,900 on the back of an upward revision to the P/E multiple to 23.1 from the previous 22. Two additional key factors fueling the strategist’s optimism were an innovation cycle that was both cyclical and secular, driving all 11 S&P sectors, and a generational shift in investment strategies that was driven “not so much by fear and greed, but by the need to invest for a medium- to long-term goal.”
Stoltzfus followed up a month later with an in-depth analysis of the Q2 earnings of the top 500 S&P index companies to see which sectors had performed well despite the mixed economic environment. Note that this analysis came just before his firm released its latest batch of 32 stocks, so it’s important to draw conclusions from the Q2 2024 earnings season. The strategist noted that the four sectors that saw double-digit earnings growth were healthcare, financials, utilities, and consumer discretionary, with earnings growth of 17%, 13%, 15%, and 16%, respectively. Stoltzfus added that nine of the 11 sectors had positive earnings growth, with the overall growth of 8.5% resulting in a surprise increase.
Based on the extensive dataset, the analyst concluded:
“We remain overweight US equities, but retain meaningful exposure to global developed and emerging markets as the US Federal Reserve moves to a more accommodative stance with greater confidence that its efforts to contain unusual levels of inflation are at or nearing completion. Volatility is expected as the economy and markets navigate the transitions in economic and monetary policy in a move toward greater normalization.”
As Oppenheimer closely monitors developments in the US economy and markets, we decided to see which stocks are on their radar.
Our methodology
To compile our list of Oppenheimer’s best stocks, we ranked the most recent list of 32 stocks based on analysts’ average share price growth rate.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds are investing in? The reason is simple: our research has shown that we can outperform the market by imitating the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has delivered a 275% return since May 2014, outperforming its benchmark by 150 percentage points (see more details here).
A data center with a repetitive design of computer servers, demonstrating the company’s efficient and secure IT infrastructure.
CyberArk Software Ltd. (NASDAQ:CYBR)
Share price increase: 10%
Number of hedge fund investors in Q2 2024: 55
Average analyst price target: $308.39
CyberArk Software Ltd. (NASDAQ:CYBR) is a cybersecurity company that enables enterprises to manage the identities of their employees. As a software as a service (SaaS) provider, CyberArk Software Ltd. (NASDAQ:CYBR) benefits from stable recurring revenues that are dependent on its ability to grow its customer base. CyberArk Software Ltd. (NASDAQ:CYBR) is also benefiting from the industry’s rise in cloud adoption and increasing SEC requirements requiring companies to promptly disclose cybersecurity events. Additionally, the broader industry is also seeing increased adoption of multi-factor authentication identity management solutions in the face of increasing cyberattacks. This introduces additional tailwinds for CyberArk Software Ltd. (NASDAQ:CYBR) and the company managed to hedge the broader decline in operating expenses by posting 36% and 34% ARR growth during the fourth quarter of 2023 and the first quarter of 2024, respectively. Oppenheimer believes the company has “established itself as a leader in the privileged account management industry and expanded into new growth areas.”
Another growing area for identity management is machine identity management, as AI creates new opportunities and threats for the industry. Here’s what CyberArk Software Ltd. (NASDAQ:CYBR) management had to say during its Q1 2024 earnings call:
“The world of securing machine identities is changing rapidly. Organizations are grappling with a greater variety and ever-increasing number of machines, from applications to bots to workloads to IoT devices. Each of these machines must be secured and managed across the lifecycle of multiple identity components, from secrets to digital keys to certificates. The proliferation of AI is further accelerating the growth and complexity of machine identities, which is becoming a significant security challenge.
Traditionally, managing machines has often fallen outside the control of security teams. However, this practice exponentially increases risk and is not sustainable in today’s threat landscape. Customers are increasingly realizing that they need to scale their machine identity security programs beyond on-premises vaults, loosely enforced policies, and open-source tools. They need an enterprise-ready machine identity security approach that can scale and is tied to their human identity security program through a single platform. A great win that demonstrated everything I’m describing was with a CyberArk customer who has been with us since 2018. We expanded our long-standing relationship with the UK Department for Work and Pensions to include a comprehensive program while simultaneously establishing a robust secrets management program.”
General CYBR is ranked 19th on our list of Oppenheimer’s favorite stocks for the next 12 months. While we recognize CYBR’s potential as an investment, our conviction is based on the belief that some AI stocks hold more promise for delivering higher returns and in a shorter time frame. If you’re looking for an AI stock that shows more promise than CYBR but trades at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.
