After an extended rally which has sent the S&P 500 and NASDAQ indexes to fresh new highs on a regular basis, the markets appear to be cooling down somewhat.
Wednesday was a down day for some of the mega caps which resulted in the Nasdaq 100’s worst performance in 2 weeks, while the S&P suffered its third consecutive day of losses. The Dow also pulled back further from last month’s peaks.
Fears a slowdown in the economic recovery will sour the mood amidst some lofty valuations are playing their part, while concerns the Covid-19 delta variant will continue to spread and a tapering of the Fed’s stimulus program might also be weighing on investors’ minds.
Is the pullback a harbinger of things to come or just a pause to the never-ending bull run? Hard to say, but either way, for those looking in the right places, there are always opportunities.
And here the analysts at RBC Capital can give a helping hand. Some of the firm’s top experts have pinpointed two names which they believe are primed for some strong gains over the coming months – in fact, they see upside of at least 50% here. We delved into the TipRanks database to see what the rest of the Street thinks. Turns out both are Buy-rated and are projected to show impressive growth in the year ahead. Let’s take a closer look.
Oatly Group (OTLY)
We’ll start off with Oatly, which as the name suggests deals with oat-centric products. This Swedish company offers a varied line up of plant-based alternative dairy products from oatmilks, oatgurts, and chocolate oatdrinks to cold coffee, frozen desserts, cooking cream and ice creams. Apart from Sweden, the company counts Germany and the U.K. as key markets but also caters to a customer base in the Netherlands, North America, Finland and others. You can find Oatly’s offerings in 60,000 retail stores and 32,200 coffee shops across the globe, with Starbucks now serving its products nationwide.
While the company has been around since the mid-90s – when its founders invented oatmilk – Oatly has only been on the public markets since May. Its IPO was priced at $17 per share with the company raising more than $1.4 billion. The stock began trading on May 20 at $22.12, 30% above the IPO price, and climbed higher initially but has since pulled back.
Turning to the recent financials, the company’s 2Q21 results missed expectations – although only just. Revenue increased by 53% year-over-year to $146.15 million, coming in $0.83 million shy of the consensus estimate. There was a 1 cent miss on the bottom-line as the company delivered EPS of -$0.11.
The lack of profitability is not a concern for RBC’s Nik Modi, who expects the top-line growth to “drive OTLY shares.” The analyst considers Oatly’s branding as particularly strong and believes the stock’s sell-off creates an “attractive buying opportunity.”
“In our view,” said the 5-star analyst, “The fundamental story and brand positioning of Oatly is unchanged, as is our thesis (that the brand will continue growing nicely while maintaining premium positioning). While we expect it will take a few more quarters of executing the capacity roll out for the stock to catch up to its fundamental prospects, we believe the current risk-to-reward of the shares is too attractive to ignore.”
Accordingly, Modi rates OTLY an Outperform (i.e., Buy), and has a $28 price target for the shares. Investors are looking at upside of a handsome 66% from current levels. (To watch Modi’s track record, click here)
OTLY gets decent support from Modi’s colleagues although not all are on board. The stock’s Moderate Buy consensus rating is based on 8 Buys vs. 5 Holds. That said, there’s plenty of upside projected; the average price target stands at $27.9, just a fraction below Modi’s target, and implies gains of 65% could be in store over the next 12 months. (See Oatly stock analysis on TipRanks)
PG&E (PCG)
Next up we have an entirely different proposition. PG&E operates in the utilities sector and delivers and sells electricity and natural gas to the residential, commercial, industrial, and agricultural segments in California, catering to 5.4 million electricity and 4.3 million natural gas customers. PG&E is one of six regulated, investor-owned electric utilities (IOUs) in the Golden State.
At the end of July, the company released its 2Q21 earnings, which showed mixed results. There was a beat on the top-line, as revenue increased by 15.2% year-over-year to $5.22 billion, coming in ahead of the estimates by $410 million. Non-GAAP EPS just missed, however, at $0.27, coming in 1 cent below the Street’s call.
From a more headline grabbing perspective, over the past few years, PG&E has been in the media spotlight and not for positive reasons. The California Department of Forestry and Fire Protection said the company was mostly to blame for two separate ruinous wildfires in California in 2017 and 2018. The company has come under scrutiny again recently, as a PG&E power line is suspected to have been behind the Dixie fire.
These issues are a concern for RBC’s Shelby Tucker. However, considering shares have already shed 25% of their value in 2021, the analyst believes there is an opportunity at play.
“While PCG remains a risky investment within a utility context due to ongoing concerns with wildfires, we think that the risk/reward is currently skewed to the upside,” noted the 5-star analyst. “In some ways, we are going out on a limb, believing that management can navigate through this challenge in a way that preserves stock price upside. But we also consider the entry point to be particularly attractive… Moving beyond wildfire risk, we see strong rate base growth driven by the need to prepare California’s electric grid for net zero carbon requirements.”
To this end, Tucker has an Outperform (i.e., Buy) rating for this stock, backed by a $14 price target, suggesting shares will gain 50% over the next 12 months. (To watch Tucker’s track record, click here)
Wildfire overhangs or not, most on the Street remain in PG&E’s corner; based on 4 Buys and 1 Hold, this stock qualifies with a Strong Buy consensus rating. Analysts see shares changing hands for a 56% premium a year from now, given the average price target clocks in at $14.5. (See PG&E stock analysis 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.
