"Interim periods could be a positive catalyst for stocks in Q4," says RBC.  Here are 2 stock picks with at least 70% growth

Covering the stock scene for RBC Capital, head of U.S. equity strategy Lori Calvasina identified the upcoming U.S. midterm elections as a major positive catalyst for stocks heading into the year. This may sound counterintuitive – US politics is anything but positive these days – but Calvasina makes a strong case for a market rally in Q4.

“The mid-term elections are a potential positive catalyst later this year. Not only do stocks tend to rally in the 4th quarter of midterm election years, but Congress is expected to return to Republican control, which is good news for stocks, as the S&P 500 tends to post the most his strong comeback in years when the president is a Democrat and control of Congress is divided or Republican,” Calvasina explained.

Against this backdrop, Calvasina’s fellow RBC stock analysts picked two stocks they see as strong winners in the coming months — gains of 70% or more. We searched for these stocks using TipRanks platformto find out what sets them apart.

Liberty Energy (LBRT)

RBC’s first pick is Liberty Energy, an oil services company in the North American hydrocarbon sector. Oilfield services are the support services required by production companies to extract oil and gas resources from the ground. Producers find the oil and drill wells; service companies such as Liberty provide the necessary support: the engineering know-how in water, sand, chemicals, piping and pumping necessary for efficient fracking operations.

Liberty operates in some of the most energy-rich producing regions of the US and Canada, including the Appalachian gas fields in Ohio, West Virginia and Pennsylvania, as well as the oil and gas fields of the Gulf Coast, Great Plains and Rocky Mountains. In total, Liberty has a presence in 12 US states and 3 Canadian provinces.

Oilfield maintenance costs are extremely high, and Liberty had a steady net loss until the second quarter of this year. In its 2Q22 financial release, Liberty reported diluted earnings per share of 55 cents. That compares favorably to 1Q22’s loss of 3 cents and even better to 2Q21’s loss of 29 cents. The profit was derived from high revenues; top line grew 62% year-over-year to reach $943 million, the highest level in two years.

These results, especially EPS, beat expectations. EPS was forecast at 17 cents; the reported 55 cents is more than three times that figure. Liberty shares have also outperformed this year; where the overall markets are down near bear territory, LBRT has gained 45%.

Company excellence is a key factor for RBC’s 5-star analyst Keith Mackie, who wrote: “Liberty’s 2Q12 results were well ahead of our expectations on strong activity levels and pricing. We believe the investment case in Liberty is becoming increasingly compelling… In our view, Liberty should trade at a premium to most pressure pumping companies in our coverage group due to its size, strong balance sheet and broad exposure to key North American basins.”

By “premium,” Mackey means 73% upside potential. The analyst gives a $25 price target on LBRT shares to support their Outperform (i.e. Buy) rating. (To watch Mackie’s record, Press here)

Wall Street appears to broadly agree with Mackey, as Liberty shares maintain a Strong Buy rating from the analyst consensus. There are 8 recent analyst reviews, including 6 buys and 2 holds. The average share price target of $22.38 suggests ~59% upside potential from the trading price of $14.11. (See the Liberty stock forecast at TipRanks)

Callon Petroleum (CPE)

RBC is a Canadian investment bank, and Canada is a leader in the global energy market, so it’s no surprise that the firm’s analysts are keeping a close eye on North American energy companies. Callon Petroleum is one of the industry’s independent operators based in Houston, Texas and with acquisition, exploration and production activities in the Permian Basin and Eagle Ford shale formations in its home state. The company’s assets include approximately 180,000 net acres spread across the two regions.

Callon won’t release its Q2 figures until tomorrow, but we can get a sense of the company’s performance by looking back at Q1. Looking back, we should note that last fall Callon completed the acquisition of Primexx’s leasing interests and oil, gas and infrastructure assets in the Delaware Basin. The deal, done in both stock and cash, was valued at $788 million. At the same time, Kahlon divested non-core acreage in the Eagle Ford play for a total of $100 million.

With that in mind, we find that Callon reported total hydrocarbon revenue of $664.8 million in Q1, more than double the prior year. This supported solid adjusted EPS of $3.43 per diluted share – again, this was more than double the 1Q21 result. Callon’s results, both top and bottom line, show solid growth from the second quarter of 2020, reflecting both a return to business as pandemic closures ease and the rising price of oil and natural gas in open markets .

An important point for investors to note is that Callon carries a heavy debt load, including $712 million, almost half of the $1.6 billion limit on the company’s secured credit facility. The company generated free cash flow in Q1 of $183.3 million and is openly working to deleverage its balance sheet.

According to Scott Hannoldanother of RBC’s 5-star analysts, CPE has significantly underperformed its peers over the past year, and that opens up an opportunity for investors.

“CPE shares have underperformed significantly over the past year related to investor preferences around scale/shareholder returns, but also following the Primexx acquisition. The results of the acquisition exceeded our expectations and deleveraging continues to occur faster than expected. We believe this positions CPE as one of the most attractive SMid constraints in our coverage,” Hannold explained.

Consistent with his bullish stance, Hannold rates CPE as Outperform (i.e. Buy), and his $75 price target suggests ~70% upside potential over the next 12 months. (To watch Hannold’s record, Press here)

Overall, while RBC is trending to the upside, the Street looks more cautious. There are 8 recent analyst reviews for Callon and they break down into 3 buys, 4 holds and 1 sell – for a hold rating from the analyst consensus. However, the average upside potential remains high as the stock is trading at $44.18 and their average target of $76.25 indicates ~73% upside potential. (See the Callon stock forecast at TipRanks)

To find good ideas for trading energy stocks at attractive valuations, visit TipRanks’ The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.

Rebuttal: 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.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *