Sometimes what goes down must come up. After more than 5 months of losses at the start of the year, we’ve just had about 6 weeks of gains, including a 13% recovery in the S&P 500 and a 19% jump in the NASDAQ.
We don’t yet know if this rally will be a short-term phenomenon in a larger bear market, or if it will turn out to be a more sustained upward movement – but either way, investors can turn to the data to find solid stock picks.
But which data? If there’s one thing that’s always certain in the stock market, it’s that trading activities generate mountains of information. This is where TipRanks Smart Score comes in. This data aggregator and benchmarking tool aggregates facts about each stock, collected and organized by 8 factors, each known to correlate with stock price performance, and distills them into a single score on a scale of 1 to 10. Investors can tell at a glance where a stock stands – a score of 1 or 2 indicates plenty of problems, while a 9 or a “Perfect 10” indicates a stock that stands out for the right reasons.
So let’s dive in Smart resultsand find some perfect 10 picks for investors to consider. These are stocks that boast a set of positive attributes: a consensus Strong Buy rating from analysts, significant upside potential, and that Perfect 10 Smart Score based on ticks across multiple data fields.
The first stock we’ll look at is Tronox, a company that spans the mining, metals and industrial dyes industries. Tronox focuses its mining activities on the discovery and production of titanium ores as well as zircon, which it can then process and use in the production of titanium dioxide and chemical sands. The latter two are vital ingredients in the industrial dyes sector, to which Tronox is a major supplier. The company’s products are used in the manufacture of paints, plastics and papers, and the by-products themselves are useful in the manufacture of gypsum and caustic soda.
Tronox has mining and manufacturing facilities on every continent except Antarctica and distributes its end products globally. The company’s revenues are strong, reflecting the core nature of Tronox products across multiple industries; for the past 6 quarters, Tronox has seen its top line fluctuate between $870 million and $970 million.
For the most recently reported quarter, 2Q22, Tronox posted $945 million in revenue, solid within the recent range. Earnings showed a slightly mixed result, as non-GAAP diluted EPS of 84 cents just missed the forecast of 85 cents — but was still the highest print in two years and up 37% year-over-year. Both earnings and revenue are being supported by the global titanium dioxide market, where prices are rising faster than Tronox’s costs.
These results supported the company’s commitment to return on capital, which was realized in the second quarter with a $50 million share repurchase and a $41 million dividend payout. The dividend is currently set at 12.5 cents per common share. This works out to 50 cents on an annualized basis and gives an above average yield of 3.1%.
A look under the hood at Tronox, JPMorgan analyst Jeffrey Zekauskas sees risks – but more potential reward. According to him, this company should be able to maintain stable free cash flow and occupy an advantageous position in its niche.
“Once recessionary business conditions recover, Tronox’s equity value could be twice what it is today. We estimate Tronox’s free cash flow yield at the current price to be around 26% in 2023. The estimated 2023 EV/EBITDA ratio is 3.7x. The company has new ore mines coming on stream that could lower Tronox’s cost structure by $20-$30 million in 2023. These efforts are part of a broader cost-cutting effort (newTRON) that could lower costs gradually by around $75 million in 2023. The risk for Tronox is lower titanium dioxide prices,” Zekauskas believes.
To that end, Zekauskas rates TROX as overweight (i.e., buy) and sets a price target of $30. At current levels, his target implies a one-year gain of ~96%. (To see Zekauskas’ record, Press here)
Not only does TROX stock receive a Perfect 10 Smart Score, it also has a unanimous Strong Buy consensus rating from Street analysts – 7 positive reviews in recent weeks. Shares are trading at $15.32, and their average target price of $23.86 suggests a ~56% upside over a one-year time horizon. (See TROX stock analysis at TipRanks)
Western Alliance (WAL)
The next Perfect 10 stock we’ll look at, Western Alliance, is a holding company in the banking industry. Based in Phoenix, Arizona, this company’s subsidiaries operate primarily in the Western United States, where they provide a range of services including retail and commercial banking, private banking, real estate financing and specialty financial services. Western Alliance boasts about $65 billion in total assets and is lauded as the No. 2 performing bank among the 50 largest public banks in the United States.
This bank holding company reported its 2Q22 results last month and beat expectations for both revenue and earnings. On the top line, net income of $620 million was up 22% year-over-year and topped forecasts by 7%. Looking at the bottom line, the company reported net income of $260.2 million, or $2.39 per share. That beat expectations of $2.30 and was 10% higher than the year-ago quarter’s EPS result.
Despite financial results showing growth or beating expectations, WAL shares have fallen 29% so far this year. For analyst Piper Sandler Brad Millsapit all adds up to a company that investors should pay attention to.
“For those who are more bullish, we think higher WAL business multiples should be strong enough to offset mortgage headwinds given WAL growth and leverage to higher rates, especially if the forward curve develops as currently expected. We certainly understand that WAL is an “everything needs to go right” type of stock in terms of growth, interest rates and credit, but the stock in the mid-$70s still looks pretty oversold…we think there’s a positive risk/reward with a decent margin to a fault,” Millsap said.
Consistent with this stance, Milsap rates WAL as Overweight (i.e., Buy), and his $103 price target indicates his confidence in ~36% upside potential over the next year. (To see Milsap’s record, Press here)
Overall, WAL stock received 6 analyst reviews, including 5 for Buy and 1 for Hold, for a strong consensus rating of Buy. The stock’s average target price of $93.33 suggests a ~23% upside from the stock’s current price of $75.94 expected over the next 12 months. (Check out the WAL stock forecast at TipRanks)
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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.