Is the bear market over? That’s the question everyone wants to know.
After a near-historic decline in the first half of the year, the stock market has been on a roll over the past month, with the S&P 500 up nearly 9% while the Nasdaq rose 14%.
JPMorgan’s chief global markets strategist Marko Kolanovic has an upbeat message for those worried about the rally’s sustainability.
“Risk-on markets are picking up despite some disappointing data releases, indicating that bad news has already been expected/priced in… While the business outlook remains challenging, we believe the stock’s risk-reward ratio looks more attractive, as we go through 2H,” Kolanovic opined.
Against this background, the banking giant’s analysts pointed to two names that they believe are poised to jump ahead – on the order of 40% or more. In fact, JPM experts aren’t the only ones praising this stock. According to TipRanks platform – they are rated as strong buys by Street analysts. Let’s take a closer look.
We’ll start with Olin, a company whose roots go all the way back to 1892 as a small supplier of blasting powder. Since then, it has grown significantly to become a global manufacturer and distributor of chemical products. In fact, it is now the world’s largest producer of chlorine and caustic soda and their derivatives, and with ~6% market share holds the number 1 spot in the global chlorine/caustic soda market.
Late last month, Olin published its latest quarterly report – for 2Q22. Revenue rose 18% year over year to $2.62 billion, while the company delivered diluted earnings per share of $2.76, beating the Street’s call for $2.57. But beyond the headline numbers, of particular interest to shareholders is the company’s buyback activity.
After rebuilding its balance sheet in 2021, the company is now leveraging its cash flow to benefit its shareholders and aggressively shrinking its share base. The company repurchased 7.4 million shares in the second quarter, allocating $426.5 million to the venture, and combined with purchases in the first quarter, spent $689.7 million on repurchases in the first half of the year.
With a new $2 billion share buyback program just announced that complements the $362.5 million remaining from a previous program, these purchases inform JP Morgan’s Jeffrey Zekauskas‘ bull’s eye.
“We estimate that Olin will spend $1.4 billion this year on share repurchases,” the analyst wrote. “Olin conducts its share repurchase efforts with free cash flow and does not use financial leverage. We also see no reason why this buyback pattern won’t continue at the same pace in 2023 or beyond if Olin’s stock price doesn’t rise significantly. However, we believe Olin is comfortable with buying back its stock until at least the mid-$60s based on its public comments.”
To that end, Zekauskas rates Olin as Overweight (i.e. Buy), while his $85 price target gives the stock room for ~67% upside. (To see Zekauskas’ record, Press here)
Overall, Olin shares have a Strong Buy rating from the analyst consensus, indicating that Wall Street agrees with Zekauskas’ assessment. The rating is based on 9 buys and 2 holds determined in the last 3 months. Shares are trading at $51.01, and the average price target of $71.91 suggests ~41% upside potential. (See the Olin stock forecast at TipRanks)
GFL Environment (GFL)
From chemical products it is a very short transition to waste management services. GFL – which stands for Green for Life – provides waste solutions and soil remediation services. The company serves residential, municipal, commercial, industrial and institutional customers spread across Canada and has customers in more than half of the US states. With over 19,000 employees, GFL is the fourth largest diversified environmental services company in North America.
The company has been very busy on the acquisition front, making 28 outright acquisitions since the start of the year, not that it appears to have had a significant negative impact on the bottom line.
In the recent second quarter report, cor. EBITDA came in at C$453 million, falling short of Wall Street’s C$427 million estimate. Top performance complements revenue profile; revenue was C$1.708 billion, also beating the consensus estimate of C$1.559 billion.
More good news was offered with the outlook, as the company raised its 2022 revenue guidance by C$400 million in the midpoint, while increasing its adjusted EBITDA forecast by C$20 million in the midpoint.
Although JP Morgan Stephanie Yee notes the impact the costs are having on margins, she sees enough other positives to keep the bull case intact.
“Management continues to see opportunities for more deals to compact the company’s footprint,” Yee wrote. “While cost headwinds have shifted the company’s timeline toward achieving higher margins, we still see the overall business growing double digits in 2022 and high single digits in 2023, generating more dollars that can be invested in work. We also see the stock as attractively valued at current levels.”
These comments support Yee’s Overweight (ie, Buy) rating and $42 price target. If this figure is achieved, investors will have a return of 47% per annum from now. (To watch Yee’s record, Press here)
And what about the rest of the street? Everyone is on board. The stock boasts a strong consensus rating of Buy based on a unanimous 8 Buys. The forecast calls for 12-month gains of 39%, given the average target price of $39.65. (Check out the GFL stock forecast at TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.