Investors looking to get into the markets today are busy coping with a bewildering array of signals. We’re looking at a possible return to the stagflation of the late 1970s, with 1Q22 GDP growth contracting by 1.4% and inflation annualizing to more than 8.5%. At the same time, the jobs situation is giving both positive and negative vibes. On the plus side, people are returning to work in large numbers. On the negative side, the economy is still short well over 1 million jobs from the pre-pandemic level, and wage growth, at 5.5% annualized, has not kept pace with inflation.
All in all, it makes for a market that’s just plain hard to read. However, at least one top analyst is picking out stocks that are primed for gains despite the confusing market environment. We can check in with Oppenheimer’s 5-star analyst Colin Rusch, who holds the #4 spot in the TipRanks database, and find out how he would navigate this tangle of cross currents.
Rusch brings an expert eye to the market, and record of success in evaluating the stock market. Investors who followed Rusch’s recommendations over the past year would have realized ~55% rate of return. So let’s check out the details on two of Rusch’s picks, which he believes are poised to double, or more, in the year ahead.
Enphase Energy (ENPH)
We’ll start with Enphase Energy, a well-known maker of solar inverters, one of the solar power field’s pieces of essential hardware. Inverters convert the direct current (DC) power put out by photovoltaic panels into the alternating current (AC) power that is used in the electric grid, its infrastructure, and our various applications. Enphase holds a leading position in the solar inverter market, in part due to its status as the first company to make commercial-scale inverters widely available.
In addition to its line of microinverters, Enphase also markets its IQ battery systems, for energy storage connected to solar power installations. The IQ battery line includes smart technology to manage the power load, setting priorities among high-consumption and essential appliances. In addition, the battery system operates on a low-voltage DC system that presents less risk of fire than high-voltage systems.
Enphase has seen a surge in business in recent months, as the Ukraine war, which has disrupted natural gas supplies into Europe, prompted major European governments to look into expanding solar installations as a power source. This was reflected in the company’s record quarterly revenue in 1Q22, of $441.3 million.
It’s also reflected by Enphase’s recent announcements of new installations and contractual agreements. In April, the company announced its first installer network in France, and earlier in May Enphase expanded its solar energy deployments in the Netherlands. The company has also seen increased shipments of batteries to Germany and Belgium.
All of this caught the eye of Oppenheimer’s Rusch, who wrote of this company: “ENPH is making strong progress in EU as fears of Russia cutting off natural gas supply (as evidenced in Poland/Bulgaria) are escalating solar/battery demand with microgrid functionality. We note the company is investing for growth at the OpEx level but is still showing incremental operating leverage. We see potential for accelerating top-line growth and margin expansion as ENPH transitions to its IQ8 platform over the next several quarters. With its supply chain largely balanced and derisked, we remain bullish…”
In line with his optimistic approach, Rusch gives ENPH shares an Outperform (i.e. Buy) rating and his $307 price target suggests an impressive 109% potential upside for the coming year. (See Rusch’s track record, click here)
Rusch is bullish here, but he’s not only one. This ‘green’ stock has picked up 13 recent share reviews which break down 10 to 3 in favor of Buy over Hold, backing the Strong Buy consensus rating. The average price target of $225.08 indicates potential for ~53% upside from the current share price of $147.08. (See ENPH stock forecast on TipRanks)
Local Bounti Corporation (LOCL)
The second stock we’ll look at, Local Bounti, is a Montana-based produce company that is new to the public trading markets. Local Bounti started trading on Wall Street last November, after completing a SPAC merger transaction with Leo Holdings III.
Local Bounti specializes in indoor farming, and markets a line of greenhouse-grown lettuce and other leafy greens, making these nutritional foods available year-round. The company aims to provide the freshest foods possible – but also to grow them in the most efficient manner possible, taking up fewer ‘food miles’ than traditional farming. The company uses controlled environment agriculture and a combination of vertical farming and hydroponic greenhouse methods for a sustainable operation.
In 1Q22, the company saw $282,000 in sales, compared to $57,000 in the year-ago quarter. Local Bounti is in a strong position to quickly increase this production and sales value – in April of this year, the company announced completion of its acquisition of Pete’s (the operating name of Hollandia Produce Group), a California-based indoor farming company. Pete’s saw its stand-alone business produce sales of $5.9 million in 1Q22 – and that operation will now be supporting Local Bounti. The Montana company spent $122.5 million, in a cash and stock transaction, to make the acquisition.
In addition to the Pete’s acquisition, Local Bounti is moving to expand its own production. It’s Georgia facility is continuing to progress, and is on track for a scheduled July start to operations, and another facility, in Pasco, Washington, is also advancing. Local Bounti has $76.4 million in cash and other liquid assets to fund these operations going forward.
Oppenheimer’s Colin Rusch is impressed with Local Bounti’s execution in recent months, writing: “With LOCL demonstrating the efficiency of its Stack + Flow technology and closing its acquisition of Pete’s ahead of schedule, we are particularly encouraged by the acceleration of its learning cycles. The company indicated its current crop turns had reached 26/year, up from 17-22x in Dec 2021. We believe the company is outpacing internal targets and demonstrating the potential leverage in its model. We consider this metric demonstrative of the platform’s potential for advantaged unit economics and capacity for growth in advance of peers.”
“Its existing customer base could support ~12-15x growth from 2022 revenue projections, and we see the opportunity for LOCL to charge a premium given its longer shelf life,” the analyst summed up.
Rusch uses these comments to back up his Outperform (i.e. Buy) rating on LOCL, while his $13 price target implies a 12-month upside of ~161% by next spring. (To watch Rusch’s track record, click here)
This relatively new stock has picked up 4 analyst reviews since going public, with a 3 to 1 split of Buys against Holds for a Strong Buy consensus rating. The stock’s average price target is $11.38, suggesting an upside of ~129% from the share price of $4.99. (See LOCL 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.
