Stock Analysis & Ideas

‘Long-term investors should turn back toward stocks’: J.P. Morgan says inflation has peaked and suggests 2 stocks to buy

For well over a year now, we’ve been seeing headlines about inflation. The rate of price increases is running at its highest level since the early 1980s, although the October numbers, just released, showed it cooling off to 7.7% over the past 12 months.

Covering the markets from investment giant JPMorgan, asset management investment chief David Kelly believes the trends are favorable looking forward. From June to October, the annualized inflation rate dropped from 9.1% to 7.7%, leading him to say, “Inflation has already peaked. I think it is going to gradually fall.”

A pullback in inflation would help boost stocks, and Kelly believe, “This is a time to be overweight equities for the long-term investor.”

The stock analysts at JPMorgan are following Kelly’s lead, and picking out equities that they see as likely winners in the long-term. After running two of these stocks through TipRanks’ database, we found out that the rest of the Street is also on board. Let’s take a closer look.

Perrigo Company (PRGO)

We’ll start with Perrigo, a leading manufacturer of generic label over-the-counter drugs, a major niche when you consider that 9 out of 10 US prescriptions are filled with generics. A large part of Perrigo’s product lineup comes from its dermatology portfolio; Perrigo has the largest portfolio of generic dermatological products in the US.

The company realized total revenues of $1.1 billion in the recently reported 3Q22, for a 5.5% year-over-year gain. On earnings, the adjusted diluted EPS came in at 56 cents, up 24% y/y. The consumer self-care segment led the company’s revenues, with $722 million of the total; upper respiratory medications came in second, with $132 million. The skin care portfolio brought in a total of $49 million in revenues.

While Perrigo brought in solid revenues, investors were disappointed that the results missed the forecast. The top line as reported missed by ~3%, while the diluted EPS missed its 67-cent estimate by ~16%.

In a bright spot for investors, Perrigo’s miss on earnings and revenues did not prevent the company from keeping up its reliable dividend. The 26-cent common share payment is scheduled to go out on December 20; at its current rate, the dividend annualizes to $1.04 and yields 3.2%. That’s 1.5x higher than the market average for dividend yields – and the company has a 9-year history of gradually increasing the payment.

Covering Perrigo for JPMorgan, analyst Chris Schott is upbeat overall on the company’s path forward.

“We continue to see several positive tailwinds that should eventually translate into improved results (full HRA contribution and synergies, pricing gains, gross margin improvements, etc.). And while [the] setback on earnings is disappointing, PRGO is again trading well below consumer peers despite a pathway to very health margin recovery/earnings growth over the next several years,” Schott noted.

In line with this optimistic stance, Schott gives PRGO shares an Overweight (i.e. Buy) rating, with a $51 price target that suggests it has a 53% upside potential in the coming year. (To watch Schott’s track record, click here)

Wall Street must be in agreement with JPM’s bullish stance on Perrigo, as the company’s stock has picked up 4 recent analyst reviews – and they are unanimously positive for a Strong Buy consensus rating. The stock is trading for $33.08 and its current average price target, $48.25, implies a one-year gain of 45%. (See PRGO stock analysis on TipRanks)

TPI Composites (TPIC)

Now we’ll turn to the industrial sector, where TCI Composites has built a name for itself in the composite materials niche. These are high-tech manufacturing materials, used in applications, such as sailboats and motorboats, that require lightweight, high-strength, high-performance structural components. The company’s materials are also found in wind turbine blades; TCI is a leader in the global market for high-end composite turbine blades, and has manufactured over 75,000 such blades over the past two decades. The company sells approximately 32% of all wind turbine blades use globally, outside of the Chinese market.

Despite holding a strong position in wind turbine market – a market that can boast of strong support from social and political pressures – TPI reported a y/y decline in revenues in a 3Q22 report that showed the top line missing estimates and the bottom line coming in at a loss.

The company reported revenues of 459.3 million, down 4.2% y/y, and a net loss per common share of 39 cents. This second metric was actually not as severe as the 83-cent EPS loss reported in the year-ago period; but it was deeper than the 30 cents analysts has expected.

JPMorgan’s 5-star analyst Mark Strouse points out that this interesting industrial firm is facing headwinds due to restrictions in the Chinese market, and is restructuring in response.

Nevertheless, Strouse sees a path forward for TPI, and goes on to say, “Encouragingly, visibility into 2024 and beyond has begun to improve, aided by a new agreement (soon to be formally contracted) with GE for US manufacturing to benefit from the Inflation Reduction Act, and extensions of all international contracts that were previously slated to expire at year-end. Despite the still weak environment, we are encouraged by the improved long-term outlook, which we expect to enhance further in early-23 once the US Treasury provides IRA guidelines…”

“We continue to recommend TPIC to value investors seeking exposure to the Alt Energy space and to the US IRA,” the analyst summed up.

Strouse thinks the stock has some way to go, and by some way, we mean 96% of upside. Those are the returns investors are looking at, should the stock make it all the way to Dolliver’s $21 price target. No need to add, the analyst’s rating is an Overweight (i.e. Buy). (To watch Strouse’s track record, click here)

Overall, TPI has earned a Moderate Buy consensus rating from the Street’s analysts, based on 8 recent reviews that include 5 Buys and 3 Holds. The shares have a trading price of $10.70 and their $17.86 average price target implies a gain of ~67% on the one-year horizon. (See TPI stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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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