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Traders Say These 2 Stocks Could See Double-Digit Upside In The Near Term

Traders Say These 2 Stocks Could See Double-Digit Upside In The Near Term

These 2 stocks look ready to rebound. Here’s how much upside could be on the horizon.

Two stocks that have seen big gains this year could be in for more upside ahead.

Both Ulta Beauty (NASDAQ: ULTA) and Salesforce (NYSE: CRM) have risen higher in recent months, with both stocks seeing rising sales amid the coronavirus crisis.

Since their March lows, Ulta shares have gained 89%, while Salesforce has gained an eye-popping 112%.

DA Davidson initiated coverage of Ulta this week with a Buy rating, calling the retailer the “Ulta-mate of all reopening trades” as shoppers have binged on beauty and wellness products.

Telsey Advisory Group’s Dana Telsey recently reiterated on Outperform rating on Ulta and boosted her price target on the stock from $280 to $295 – 23.5% higher than the price as of this writing.

Telsey wrote in a note that the company’s robust digital revenue show “both the underlying demand for Ulta’s consumable product offering and the benefits of the company’s investments in its digital capabilities. Its off-mall footprint is also an advantage as demonstrated by 20% of e-commerce orders coming through buy online and pick up in store (BOPIS) and curbside pickup.”

And Miller Tabak’s Matt Maley said this week that Ulta’s chart points to gains on the horizon.

Ulta “had a nice run like every other stock did off the March lows, but then it pulled back at the beginning of the summer,” Maley, Miller Tabak’s chief market strategist, said. “But, when it did, it created a much higher low and a very nice base there, and then it’s rallied back up. Now it’s trying to push up and follow that higher low with a key higher high.

Source: TradingView.

If Ulta shares can breakout to a higher high, the downtrend it has been in will see a reversal.

“If it can break above the $255 – $260 range, not only will it make it a higher high, but it will also break it above its trend line going back to the 2019 highs back in the summer of last year,” Maley added. “If we get it above $260, it’s going to get another nice leg higher and would give it a lot of momentum through the end of the year.”

Ulta closed at $234.73 on Thursday, and a move to $260 implies upside of nearly 11% before the stock starts its next leg higher.

As for Salesforce, the cloud-based enterprise software provider is down -14% from it’s high reached at the beginning of the month. However, Ascent Wealth Partners’ Todd Gordon says the stock is poised to rebound. 

“With so many technology companies going to the subscription model, their potential market just continues to grow, plus they increased revenue by selling add-on services,” Gordon said. “They have a very deep moat. It’s really hard to penetrate, they’re really a first mover, really sticky relationships. They are the premier SaaS… software as service stock. They have a long history of posting record revenue quarter over quarter.”

For its most recently reported quarter, Salesforce posted revenue of $5.15 billion, up 29% from a year ago, beating analysts’ estimates for $4.9 billion, and adjusted profits per share of $1.44, crushing Wall Street’s forecast for $0.69.

CEO Marc Benioff said in a statement that the company’s fiscal second quarter was “one of the best quarters in Salesforce’s history.”

“We hold CRM in our global growth portfolio, we are considering adding here,” Gordon added. “If you don’t own the stock, this may be a time to do so. If you’re an option player and you’d like to do it, I’ve got kind of an interesting strategy set up for you here.”

Gordon said one way to play Salesforce is through a put credit spread.

“What you can then do is take that credit and apply it to the purchase of an upside call so selling a 250 put, buying a 230 put so it would be a credit received for which you’ll apply to the upside 280 call,” Gordon explained.

But for a simpler options trade, Gordon suggested traders buy an at-the-money call, purchasing a 250 call and selling a 280 call.

Such a move is a bet that the stock can climb as high as $280 – 14.5% higher than the current price.

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