With the world gripped by an increasingly long list of negative macro trends, the market has followed suit, showing a decidedly bearish slant in 2022. Investors have been trying to make sense of the chaos. At times it has appeared as if no stocks can withstand the gloomy macro developments.
This kind of market behavior, however, creates opportunities for investors willing to seize a bit of risk. Plenty of sound stocks lose share value just because they get carried along by the general currents. Finding them, and keeping them out of the undertow, is the mark of a savvy investor.
We've gotten that finding process started, using the TipRanks database to look up the details on two stocks that have 'Strong Buy' ratings from the analyst community, and boast plenty of upside for the coming year. Let's dive in for a closer look.
Sunnova Energy International (NOVA)
We'll start in the renewable energy sector. Sunnova provides energy and energy storage in the residential solar market. The company's products include every step of the solar installation process, from the rooftop panels to the storage batteries to roof replacement if needed, as well as insurance and maintenance plans on the installation and financing to fund the purchase. As of the end of 1Q22, the company boasted over 915 dealers and subdealers, across 37 states and territories, serving more than 207,000 customers.
The company's peak earnings quarter is typically Q3, in the late summer months - which makes sense for a solar energy firm. In 1Q22, however, Sunnova saw a 59% jump in revenue from the year-ago quarter. The top line in Q1 came to $65.7 million, and the company added 15,300 customers during the period. While Sunnova typically runs a net loss each quarter, that loss mitigated last time around. The loss fell from $24.1 million in the same period a year ago to $20.6 million. Despite the net loss, Sunnova finished the quarter with solid cash assets, restricted and unrestricted, totaling $325 million.
All of this adds up to a company that Northland analyst Abhishek Sinha believes is poised for further gains. Sinha writes, "We believe NOVA offers a compelling entry point for investors looking for exposure to the residential solar market. In our view, NOVA is a high-quality business with very strong and dependable cash flows. The company has a well-oiled dealership-based business model which is ready to burgeon with the growing solar demand."
"Currently all the solar stocks have been hit hard amid a confluence of events including rising rates, roiling equity market and looming uncertainties over government policies. However, when the dust settles down, we believe NOVA should spring back up, fueled by solid residential demand," Sinha added.
In line with these bullish comments, Sinha initiated coverage of NOVA stock with an Outperform (i.e. Buy) rating, along with a $30 price target to imply forward growth of ~73% this year. (To watch Sinha's track record, click here.)
Sinha's view is hardly the only positive take here - the stock has 11 recent analyst reviews, and all are bullish, for a unanimous Strong Buy consensus rating. The shares are selling for $17.29 and their $36.64 average price target indicates a robust 112% one-year upside. (See NOVA stock forecast on TipRanks)
US Foods Holding (USFD)
For the second stock, we'll move over to the food service industry. US Foods is a holding company, distributing through its subsidiaries a range of fresh, frozen, and dry food products to foodservice customers. The company boasts over 300,000 clients, its customer base made up of healthcare facilities, hotels, restaurants, schools, and government offices.
The size of the business can be seen from a look at the annual revenue numbers. Even during the pandemic crisis year of 2020, when much of the economy was locked down, US Foods brought in a total of $22.89 billion. That number increased to $29.48 billion, up 28%, when economic conditions improved in 2021.
The gains appear to be continuing this year. 1Q22 revenue came in at $7.8 billion, up 23% y/y. The company's quarterly gross profit, of $1.2 billion, was up 19% y/y. This translated to an adjusted EPS for the quarter, at 36 cents, that was triple the year-ago value and beat the 22-cent forecast by a wide margin.
US Foods has not been standing still. The company is working to expand its footprint, and this month opened a new CHEF'STORE in South Carolina. This 33,000 square foot warehouse store joins three existing locations in that state. In addition, US Foods entered into a partnership with Kalera, a leader in hydroponic indoor vertical farming, to expand its product line in fresh produce by providing fresh leafy greens year-round.
Analyst Alok Patel, of Berenberg Bank, sees US Foods in an enviable position to expand its stake in the market, writing: "We expect US Foods to grow revenue faster than the broader foodservice distribution industry in the long run. After a difficult year of declining sales due to the COVID-19 pandemic, US Foods has recovered its top line and is poised to return to profitable growth, in our view."
"We believe meaningful margin improvements should be realized by: 1) adding new customers (preferably independent restaurants); 2) increasing wallet share at existing customers; 3) further differentiating by adding additional cash-and-carry units in untapped regions; and 4) realizing synergies through opportunistic M&A. We believe US Foods' risk/reward profile offers potential for asymmetric upside," Patel added.
These comments support Patel's Buy rating for USFD shares, while his price target, set at $53, suggests the stock has a one-year upside of 73%. (To watch Patel's track record, click here)
Overall, there are 9 analyst reviews on record for this stock, and they include 7 Buys against just 2 Holds, for a Strong Buy consensus view. USFD has an average price target of $45.13, giving it a 47% upside potential from the current trading price of $30.63. (See USFD 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.