Waiting for an escape? Oppenheimer says these 3 stocks are poised to turn a profit

Market conditions today can best be described as ‘unstable’. Inflation was lower in the October push but remains stubbornly high, while the Fed’s reactive interest rate policy is driving up the price of capital but has not yet curbed retail or other buying activity – or inflation. Other headwinds include ongoing bottlenecks in global supply chains, exacerbated by China’s recurring COVID lockdown policies, and Russia’s ongoing war in Ukraine.

So should investors stick to a defensive approach? Not according to Ari Wald, head of technical analysis at Oppenheimer. Wald believes that investors should abandon the obvious defensive strategy and focus on offensive stocks.

“As momentum investors, we are aware that offensive stocks with low momentum scores, in this case growth stocks, are likely to be bid higher as the latest market breakout develops. This leads us to believe that the greater risk to our portfolio is that our exposure is not bullish enough. We believe owning relatively strong stocks, appropriate to our discipline, in low momentum industries should help balance this risk,” Wald explained.

So bullish enough or not, that is the question. Oppenheimer’s top equity analysts are taking solid bullish positions on three interesting stocks, predicting double-digit upside potential despite tough economic indicators. We ran these names through TipRanks’ database to see what other Wall Street analysts have to say about them. Let’s take a closer look at that.

Shoals Technologies (SHLS)

We start with Shoals Technologies, a company that focuses on electrical balance of systems (EBOS). These are essential components for solar energy products; the combiner boxes, junction boxes, splice boxes, in-line fuses, racks, PV cables, cable assemblies, recombiners, and wireless monitoring systems that enable the setup and connection of solar energy installations. Shoals has 20 patents on this technology and more than 40 gigawatts of power under construction, under contract or in operation, making it the world’s largest EBOS supplier.

The combination of social and political pushes for solar has also pushed Shoals to record sales levels. The company reported a 52% year-over-year increase in revenue in 3Q22, to $90.8 million. This was driven by an 80% year-over-year gain in system solutions revenue, which amounted to $69.5 billion and accounted for 77% of total revenue.

Profits also reached a record high in the third quarter. Adjusted net income was $16.6 million, up 43% from the same period a year ago, and adjusted earnings per share were 10 cents per diluted share — up 42% from the 7 cent figure reported in 3Q21. The company’s high revenues and earnings were supported by a solid backlog and awarded orders, representing future work commitments. These categories combined were up 74% year-over-year to a record high of $471.2 million.

Fans include Oppenheimer’s Colin Rusch, who is impressed by Shoals’ monetization ability. The 5-star analyst writes, “With SHLS posting strong numbers across the board, including pricing and booking growth of $144 million in the quarter, we believe investors will gain increasing confidence in SHLS’ growth trajectory. We believe the value of shortened construction timelines and savings in skilled labor drives excessive growth, complementing an environment of strong solar demand where higher electricity prices outweigh the cost of inflation and higher interest rates.

“We expect bookings/grants to accelerate towards the end of the year in 2023 as a greater number of customers become familiar with those products. We remain bullish on SHLS stocks,” Rusch summarized.

Putting these comments into quantifiable terms, Rusch gives SHLS an Outperform rating (i.e. Buy) and a price target of $41, implying ~35% upside in the coming months. (To view Rusch’s track record, click here)

As for the rest of the street, opinions are almost evenly divided. With 4 Buys, 4 Holds and 1 Sell allotted in the last three months, the word on the street is that SHLS is a Moderate Buy. (See SHLS Inventory Forecast on TipRanks)

Home Depot, Inc. (HD)

Oppenheimer’s second pick is one of the most recognizable names in retail, Home Depot. This company is the world’s leader in home improvement big boxes, or superstore, retail niche, catering to the DIY crowd, as well as large and small contractors and the casual homeowner with a list of small projects.

Earlier this month, the company reported solid results for 3Q22. Revenue grew 5.6% year over year, or $2.1 billion, to a total of $38.9 billion. Worldwide Comps grew 4.3%, while in the US market they were up 4.5%. This performance was achieved despite the pressure of stubbornly high inflation and despite higher interest rates straining consumers’ access to credit.

The positive sales figures were supported by DIY enthusiasts as well as professional builders and contractors. Professional customers reported solid backlogs to support their business purchases, according to HD sources.

Along with increased revenue, Home Depot saw increased revenue. Net income grew from $4.1 billion to $4.3 billion year-over-year; on a share basis, the increase was 8%, from $3.92 per diluted share to $4.24.

Along with the quarterly results, Home Depot also announced its final dividend payment, for 3Q, at $1.90 per common share. This payment is scheduled for release on December 15th and marks the fourth payment at this level. With an annual rate of $1.90, the dividend yields 2.4%, slightly above the market average. Home Depot has maintained a reliable dividend payout dating back to 1987.

Oppenheimer’s Brian Nagel, a 5-star analyst and a home improvement expert, is optimistic about the company’s prospects given its leadership position in the niche.

“We view indications of continued sales and earnings strength at HD as a testament to the company’s operational prowess and Home Depot’s positioning within the still-vibrant home improvement market…In our view, any economic slowdown will increasingly prove short-lived to be. lived and superficial, giving way to an ongoing, structurally solid backdrop for HD and the home improvement space, anchored in favorable demographic trends, aging housing stock and underlying healthy consumer dynamics,” Nagel opined.

In line with this view of HD’s underlying strength, Nagel rates the stock an Outperform (ie Buy), with a price target of $470, implying a 12-month upside of ~45%. (To view Nagel’s track record, click here)

With 20 recorded analyst reviews broken down to 15 Buys vs. 5 Holds, Home Depot’s stock gets a Strong Buy from the analyst consensus. (See HD stock forecast on TipRanks)

Lowe (LOW) companies

Last but not least is Home Depot’s main competitor within the major home improvement retail space, Lowe’s. Lowe’s is the second-largest home improvement niche company in the US, and over the past year the company has taken a series of steps to improve retail fundamentals. CEO Marvin Ellison, who took over in 2018, took a hands-on approach, focused on improving customer service, merchandising and supply – while also implementing a series of tough cost-cutting measures, including major layoffs and closures of non -performing locations.

In recent years, Lowe’s achievements reflected the results of Ellison’s initiatives. The company showed consistent year-over-year growth, both at the top and bottom. In its most recent quarterly report, for Q3, Lowe’s had revenue of $23.5 billion, up from $22.9 billion in the year-ago quarter, with adjusted diluted earnings per share of $3.27 – an increase of more than 19% year-on-year.

Lowe’s also pays a regular dividend. The most recent statement is for a payment of $1.05 per common share, to go out February 8 next year. At that rate, the annualized dividend will be $4.20 and yield 2%, almost exactly the market average. Lowe’s has a reliable dividend history dating back to 1980.

We’ll be reaching out again to industry expert Brian Nagel, whose stance on Lowe’s is remarkably similar to his stance on HD; it is clear that Nagel believes the home improvement retail space is large enough to support two giants.

“We are very supportive of recent trends at LOW and believe that the chain’s continued sales and earnings strength and upside are a reflection of management capitalizing well on a still healthy home improvement backdrop and significant internal growth. repositioning efforts that have taken place in recent years. As indicated in previous reports, while risks to LOW and the home improvement sector persist, we increasingly view the market’s concerns about an imminent, meaningful deterioration in trends as overly pessimistic,” Nagel noted.

Going forward, Nagel gives LOW stock an Outperform rating (ie Buy), along with a $300 price target. If the target is met, the stock could deliver a potential total return of ~40% over the next 12 months.

Overall, Lowe’s has picked up 18 recent analyst ratings; these include 11 buy, 6 hold, and 1 sell, for an average buy consensus rating. (See LOW stock forecast on TipRanks)

To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock insights.

disclaimer: The opinions expressed in this article are solely those of the named analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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