Market conditions these days are best described as “volatile”. Inflation was lower in the October print but remains stubbornly high, while the Fed’s reactive interest rate policy is pushing up the cost of capital but has not yet curbed retail or other purchasing activity – or inflation. Other headwinds include continued difficulties in global supply chains, exacerbated by China’s repeated COVID-19 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 move to offensive stocks.
“As momentum investors, we are aware that offensive stocks with a low momentum score, in this case growth stocks, are likely to be bid higher when the final market breakout develops. This leads us to think that the bigger risk to our portfolio is that our exposure is not sufficiently upside. We believe that holding relatively strong stocks, those that fit 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 stock analysts are firmly bullish on three interesting stocks, predicting double-digit upside potential despite tough economic indicators. We have reviewed these names TipRanks database to see what other Wall Street analysts have to say about them. Let’s take a closer look.
Shoals Technologies (SHLS)
We’ll start with Shoals Technologies, a company focused on Electrical Balance of Systems (EBOS). These are vital components for solar energy products; combination boxes, junction boxes, junction boxes, in-line fuses, racks, photovoltaic wires, cable assemblies, recombiners and wireless monitoring systems that make it possible to set up and connect solar energy installations. Shoals has 20 patents in this technology and over 40 gigawatts of capacity under construction, under contract or in operation, making the company the largest EBOS supplier in the world.
The combination of social and political momentum pushing solar energy forward has also propelled Shoals to record revenue levels. The company reported a 52% YoY increase in top line in 3Q22 to $90.8 million. This was driven by 80% year-over-year growth in systems solutions revenue, which reached $69.5 billion and accounted for 77% of total profit.
Earnings also hit a record in the third quarter. Adjusted net income was $16.6 million, up 43% from the prior period, and adjusted EPS was 10 cents per diluted share, up 42% from the 7 cents figure reported in 3Q21. The company’s high revenues and profits were supported by a solid backlog and awarded orders, which represent future work commitments. These categories combined saw growth of 74% year-over-year to a record $471.2 million.
Among the fans is Oppenheimer Colin Rush, who is impressed with Shoals’ ability to execute on revenue. The 5-star analyst wrote, “With SHLS posting strong numbers across the board, including award and booking growth of $144 million in the quarter, we believe investors will be increasingly confident in SHLS’ growth trajectory. We believe the value of shortened construction timelines and skilled labor savings are driving tremendous growth, complementing an environment of strong solar demand where higher electricity prices are outpacing the costs of inflation and increased interest rates.”
“We expect bookings/awards to accelerate through the end of the year to 2023 as more customers become familiar with these products. We remain bullish on SHLS stock,” Rush concluded.
Turning these comments into quantifiable terms, Rusch gives SHLS an Outperform rating (i.e., Buy) and a $41 price target, suggesting ~35% upside in the coming months. (To watch Rusch’s record, Press here)
As for the rest of the street, opinions are about equally divided. With 4 buys, 4 holds and 1 sell in the past three months, the word on the street is that SHLS is a moderate buy. (See the SHLS stock forecast at TipRanks)
Home Depot, Inc. (HD)
Oppenheimer’s second choice is one of the most recognizable names in retail, Home Depot. This company is a global leader in the big box or supermarket home improvement retail niche and serves the DIY crowd as well as large and small contractors and the average home owner with a small project list.
Earlier this month, the company reported solid 3Q22 results. The top line grew 5.6% year-over-year, or $2.1 billion, to total $38.9 billion. Globally, the companies grew by 4.3%, while in the US market they increased by 4.5%. This performance was achieved despite the pressure of persistently high inflation and despite higher interest rates that limit consumer access to credit.
The positive sales numbers found support from home builders as well as professional builders and contractors. Professional customers, according to HD sources, report solid accumulations supporting their business purchases.
Along with increased revenue, Home Depot reported increased revenue. Net income rose year-over-year from $4.1 billion to $4.3 billion; on a per-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 latest 3rd quarter dividend payment of $1.90 per common share. This payment is scheduled for release on December 15th and will mark the fourth payment at this level. With annual interest of $1.90, the dividend yields 2.4%, slightly above the market average. Home Depot has maintained a reliable dividend payout since 1987.
Oppenheimer Brian NagelA 5-star analyst and expert in the home improvement retail sector, is bullish on the company’s prospects given its leading position in the niche.
“We view indications of continued sales and earnings strength at HD as evidence of the company’s operating strength and Home Depot’s positioning within the still buoyant home improvement market. . . . In our view, it is increasingly likely that any economic weakness will short-lived. live and shallow and give way to a continued, structurally sound backdrop for the HD and home improvement space, anchored by favorable demographic trends, an aging housing stock and underlying healthy consumer dynamics,” Nagel said.
Consistent with this view of HD’s underlying strength, Nagel rates the stock as Outperform (i.e., Buy), with a $470 price target, implying 12-month upside of ~45%. (To watch Nagel’s record, Press here)
With 20 analyst reviews on record, which boil down to 15 buys versus 5 holds, Home Depot shares receive a strong buy from the analyst consensus.(See TipRanks HD stock forecast)
Lowe’s Companies (LOW)
Last but not least is Home Depot’s main competitor within the home improvement retail space, Lowe’s. Lowe’s is the second-largest home improvement company in the U.S., and over the past year, the company has taken a series of steps to improve the retail’s fundamentals. Chief executive Marvin Ellison, who took the helm in 2018, has committed to a hands-on approach, focusing on improving customer service, merchandising and inventory – while pursuing a series of tough cost-cutting measures, including major layoffs and closing non-performing locations.
In recent years, Lowe’s performance has shown the results of Ellison’s initiatives. The company has consistently shown year-over-year growth on both the top and bottom lines. In its latest quarterly report for the third quarter, Lowe’s had revenue of $23.5 billion, up from $22.9 billion in the prior quarter, with adjusted diluted earnings per share of $3.27 — up more than 19% year-over-year.
Lowe’s also pays a regular dividend. The latest statement is for a payment of $1.05 per common share, which will come out on February 8 next year. At this rate, the dividend is flat on an annualized basis to $4.20 and a yield of 2%, almost exactly the market average. Lowe’s maintains a solid dividend history dating back to 1980.
Again, we’ll check in with industry expert Brian Nagel, whose position on Lowe is strikingly similar to his position on HD; apparently Nagel believes the home improvement retail space is big enough to support two giants.
“We take a very favorable view of recent trends at NISCO and believe that the chain’s consistent sales and profit and growth reflects management capitalizing well on a still-strong home improvement backdrop and significant internal repositioning efforts that have taken place over the past few years. As indicated in previous reports, although risks to LOW and the home improvement sector persist, we increasingly view the market’s concerns about an impending, significant deterioration in trends as overly pessimistic,” Nagel noted.
Going forward, Nagel gives LOW stock an Outperform (ie, Buy) rating, 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.
In total, Lowe’s has collected 18 recent analyst reviews; they include 11 buys, 6 holds and 1 sell for a moderate consensus rating of buy. (Check out TipRanks LOW stock forecast)
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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.