Stock Analysis & Ideas

2 “Strong Buy” Stocks That Are Too Cheap to Ignore

While stocks are running softer lately, after a bear market rally that started back in June, not every expert is convinced that investors are trapped on a downward slope.

Investment strategist Jim Paulsen, of Leuthold Group, believes that better times are ahead of us – and in the near-term. Paulsen bases his upbeat outlook on recent improvements in the trend of inflation and forward earnings estimates.

“I think inflation is clearly headed south and it’s going to continue to do that. And every time we get out a few more months, it’ll be lower than it is today. I think that’s going to be more and more optimistic for stocks in general… If earnings hold together [and] inflation keeps coming down, I think the rally will regain footing yet in the balance of this year,” Paulsen opined.

Whether Paulsen is right or wrong, one thing is certain: investors have a chance to get in at discount prices. Plenty of sound stocks are trading at prices too cheap to ignore.

We’ve used TipRanks’ platform to pull up the latest scoop on two such stocks; both are ‘Strong Buy’ stocks with recent positive reviews from the Street and plenty of upside potential. Here’s a closer look, alongside the analyst commentary.

PetIQ, Inc. (PETQ)

First up is PetIQ, a manufacturer and distributor of health and wellness products for the cats and dogs that share our lives. The company operates in 42 of the lower 48 states, and offers a wide range of products and services, including flea and tick controls, dental treatments, and training aids, as well as a network of affiliated veterinary clinics. That latter services include the VetIQ pet wellness centers, located in partnering Walmart and Meijer stores, as well as a 41-state network of stand-alone community clinics.

In the recently reported second quarter for this year, PetIQ reported declines at the top line, with revenue falling 7% year-over-year, from $271 million to $252 million. This included a near-10% drop in product segment net sales, which was partly offset by y/y growth in manufactured products (28%) and services (17%).

While revenue was down in Q2, net income rose to $4.7 million, or 16% year-over-year. This translated to a diluted EPS of 16 cents, up from 14 cents in the year-ago quarter.

PetIQ stock has lost 50% this year. What this comes down to, is a stock that investors need to pay more attention to – in the view of Truist analyst Bill Chappell.

“The Product segment (85% of total sales) saw a slowdown this quarter, primarily from reduced volume due to delayed onset of the flea and tick season from cold weather and some consumer trade down to cheaper brands, while the company scaled back its wellness center initiatives, in its services segment, once again because of labor shortages,” Chappell noted.

Looking forward, however, Chappell sees a clear path for the company, and adds, “Overall we view the weather issue as transitory and in line with commentary from other seasonal businesses in our coverage, and thus we believe the story is bottoming out and PETQ is now pivoting toward becoming more of a product oriented company — something that we believe will be better understood by investors as we head into FY23.”

To this end, Chappell sets a $30 price target on the stock, indicating his faith in a robust 165% one-year upside, and rates the shares a Buy. (To watch Chappell’s track record, click here)

Overall, this small-cap retailer has picked up 4 recent analyst reviews – and they are all positive, collectively supporting a Strong Buy consensus rating. The stock is selling for $11.35 and its $27 average price target implies ~138% upside in the coming 12 months. (See PetIQ stock forecast on TipRanks)

Perficient (PRFT)

For the second stock, we’ll move to the digital world and look at Perficient, a global digital consultant firm that helps major brands connect with customers and manage business. Perficient brings experience, agility, and speed to its consultancy, and can boast that it has more than 300 Fortune 1000 firms among its clients, a 90% repeat business rate, and annual revenues upwards of $760 million. The firm works with its clients on a wide range of issues, including information tech, management consulting, marketing and digital strategy, mobile apps and creative services, and platform implementations.

On revenues, Perficient saw steady gains at the top line from 2020 through the first quarter of 2022 – but revenues flattened out in 2Q22. The top line in that most recent quarter came to $222.7 million, up 21% y/y but nearly identical to the $222.1 million from Q1. Earnings showed a better gain, with net income rising an impressive 68% from $16.6 million to $27.8 million. Non-GAAP adjusted EPS rose 26% to $1.06.

Shares in Perficient have been volatile this year, but the falling-off is clear – the stock is down 37% year-to-date, and is trading near its 52-week low.

5-star analyst Mayank Tandon, of Needham, describes the risk/reward on PRFT as ‘favorable,’ and writes: “While we are disappointed that elevated cancellations and delays are weighing on revenue, we remain positive on PRFT given the steady profitability outlook and healthy bookings momentum… The shares are trading at a FY23 P/E multiple of ~19.5x, a discount to a peer group of IT services stocks. We believe this creates a favorable risk-reward for small-cap GARP investors…”

In line with this stance, Tandon rates the shares a Buy, and his $120 price target implies a 48% upside for the next year. (To watch Tandon’s track record, click here)

All in all, the Strong Buy consensus rating on this stock is supported by 8 recent analyst reviews, which include 6 Buys and 2 Holds. The stock is selling for $81.08 and its $115.25 average price target suggests it has room for 42% share appreciation going forward. (See PRFT stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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.

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