This month marks an anniversary of sorts, as it was three years ago that the current bull market got started. Aside from the short, albeit deep, turndown in Feb/March of 2020, when the corona truck hit us, stock markets have been rising steadily since January 2019. And despite the pandemic, the market’s rate of increase was steeper after the short 2020 recession than before it.
In a recent note, Raymond James CIO Larry Adam says it’s time to ‘adjust our aim’ to take into account the dynamics of a bull market’s third year. He writes, “[The] returns in the third year of a bull market are historically more muted in comparison to those for the first and second…”
Even so, Adam points out that we’re still looking at ‘above-trend economic growth,’ which will be supportive of stocks. He notes that the macroeconomic backdrop may end up supporting overall EPS growth of 14%, in which case “the S&P 500 could easily reach the 5,050 milestone.” That would translate to a 9% annual gain for the index. Adam adds that stocks should remain attractively priced, even at increased valuation, given that we’re still (for now) operating in a low interest rate environment.
In a final comment on the bull market, Adam emphasizes “the importance of selectivity and identifying key long-term growth catalysts.”
The stock analysts at Raymond James have been following this advice, picking out equities which they believe will win in the current market conditions. We’ve used TipRanks’ database to pull the details on a couple of those stocks, Strong Buy choices with plenty of upside potential, at least 50%, for this year. Let’s dive in and check out what makes them so compelling.
ReneSola, Ltd. (SOL)
Connecticut-based ReneSola is a holding company whose subsidiaries work at developing, building, operating, and selling solar-electric power projects in the US and European markets. The company has worked to diversify its approach, including not just solar power project development and electrical power generation, but also the design and building of solar modules and balance-of-system components, and contracting for construction and management of solar projects. The company is also an independent power producer, with more than 173 megawatts of solar power production in operation globally.
Solar power is known for its volatility as an energy source – it is only reliable during daylight, and everything from dust to snow can block the panels – and ReneSola’s quarterly results do reflect this aspect of the business. The last report, for 3Q21, is a good example; the company showed over $15.5 million at the top line, which was simultaneously up 59% year-over-year and 23% below the market expectation. Earnings results also showed mixed results. The quarter was the sixth profitable quarter in a row, with EPS of 2 cents – but the market had been estimated a 4-cent EPS, and one year earlier, the company had achieved 5 cents.
Looking forward, however, ReneSola has fine prospects for continued expansion. The company in December entered an agreement to sell 12 megawatts worth of power projects in Spain, and earlier this month it closed on a sale of 38 megawatts of solar projects in Poland. Back in November, ReneSola launched its first solar power project in Italy.
These are just a few of the company’s recent expansionary moves – but even so, the stock is down 76% over the past 12 months. According to Raymond James’ 5-star analyst Pavel Molchanov, however, investors can use this as an opportunity.
“Among U.S.-listed solars, ReneSola stands out for its substantial European footprint — comprising more than two-thirds of the project pipeline — making it one of the most direct ways for investors to get exposure to energy transition in Europe, bolstered by the world’s strongest climate policy. As a downstream pure-play with a predominantly build-and-sell business model, capital intensity is low, but the flip side is that revenue is lumpy from quarter to quarter. Following the stock’s 2021 underperformance — despite exceeding margin expectations, even amid input cost inflation across the value chain — we are raising our rating from Outperform to Strong Buy.”
That Strong Buy rating comes with a $12.50 price target, which suggests a strong upside of 105% in the year ahead. (To watch Molchanov’s track record, click here)
Overall, SOL gets a Strong Buy rating from the Wall Street consensus, too, with 3 positive reviews for a unanimous view. The shares are selling for $6.17 and their $12.50 average price target matches Molchanov’s, for a 105% one-year upside potential. (See SOL stock forecast on TipRanks)
First Watch Group (FWRG)
The second stock on Raymond James’ radar, First Watch, is an award-winning dining chain, serving breakfast, brunch, and lunch on a made-to-order basis. The chain uses fresh ingredients sourced daily, and offers a mixed menu of well-known favorites like pancakes, omelets, and salads next to specialty items like the Quinoa Power Bowl. The chain boasts over 430 locations in 28 states.
First Watch, based in Bradenton, Florida, has been in business since 1983, and took advantage of the rising market environment to go public this past October. The stock entered the NASDAQ index on October 1 with an initial price of $18 per share and over 10.8 million common shares made available. The offering raised over $195 million in gross proceeds.
In November, the company released its first quarterly report as a public entity, and showed strong growth in several key metrics. Same-store sales grew 46% year-over-year, and restaurant traffic was up 40%. Total revenue reached $157.4 million, for 57% yoy growth, and earnings came in at a net positive of 2 cents per share. In its forward outlook, the company is expected full-year fiscal 2021 same-store sales growth in the range of 31.5% to 33.5%, and is predicting adjusted net earnings in the range of $10.2 million to $11.2 million.
All of this adds up to an opportunity for investors, in the view of Raymond James analyst Brian Vaccaro. In his coverage of this stock, Vaccaro writes: “First Watch is a rapidly growing, full service restaurant concept with a strong track record of generating positive comps and attractive ROI’s on new unit growth that has been replicated across many markets. We believe the company is well positioned to continue gain share in the growing breakfast category, while sustaining 10% unit growth for the foreseeable future. We also believe the stock is reasonably valued in light of the company’s attractive growth prospects.”
To this end, Vaccaro rates FWRG an Outperform (i.e. Buy), and his $24 price target implies an upside of 58% in the next 12 months. (To watch Vaccaro’s track record, click here)
While the consensus view on FWRG is not unanimous, the 10 reviews do include 8 Buys that outweigh the 2 Holds, for a Strong Buy rating. Shares are priced at $15.18 and their $25.80 average price target suggests an upside of 69% from that level over the course of 2022. (See FWRG stock forecast on 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.