Sometimes, what goes down must come up. After more than 5 months of losses to start the year, we’ve just had some 6 weeks of gains, featuring a 13% rebound in the S&P 500 and a 19% jump in the NASDAQ.
We still don’t know if this rally will be a short-term phenomenon in a larger bear market, or if it will turn out to be a more sustained bull run – but either way, investors can turn to the data to find solid stock choices.
But which data? If there’s one thing always certain in the stock market, it’s that trading activities generate mountains of information. This is where the TipRanks Smart Score comes in. This data gathering and collation tool brings together the facts on every stock, compiled and organized according to 8 factors, each one known to correlate with stock price performance, and distills them down into a single score on a scale of 1 to 10. Investors can tell at a glance where the stock stands – a score 1 or 2 shows an abundance of problems, while a 9, or a ‘Perfect 10’ shows a stock that stands out for the right reasons.
So let’s take a dive into the Smart Scores, and find a couple of Perfect 10 choices for investors to consider. These are stocks that feature a suite of positive attributes: a Strong Buy consensus rating from the analysts, a considerable upside potential, and that Perfect 10 Smart Score, based on ticks in multiple data boxes.
The first stock we’ll look at is Tronox, a company that straddles the mining, metals, and industrial dye industries. Tronox focuses its mining activities on the discovery and production on titanium ores, as well as zircon, which it can then process and use in the production of titanium dioxides and chemical sands. These last two are vital ingredients in the industrial dye sector, for which Tronox is a major supplier. The company’s products are used in the manufacture of paints, plastics, and papers, and the byproducts are themselves useful, in the production of gypsum and caustic sodas.
Tronox has mining and manufacturing facilities on every continent except Antarctica, and distributes its end products globally. The company’s revenues are strong, reflecting the essential nature of Tronox’s products in multiple industries; for the past 6 quarters, Tronox has sees its top line fluctuate in a range between $870 million and $970 million.
For the most recent reported quarter, 2Q22, Tronox saw $945 million in revenue, solidly in the recent range. Earnings showed a slightly mixed result, as the non-GAAP diluted EPS of 84 cents just missed the forecast of 85 cents – but was still the highest print of the past two years, and up 37% year-over-year. Both earnings and revenues are finding support from the global market in titanium dioxide, where prices are rising faster than Tronox’s cost inputs.
These results supported the company’s commitment to capital return, which was realized in Q2 with $50 million worth of share repurchases and $41 million in dividend payouts. The dividend is currently set at 12.5 cents per common share. This annualizes to 50 cents and gives an above-average yield of 3.1%.
Looking under the hood at Tronox, JPMorgan analyst Jeffrey Zekauskas sees risks – but more potential reward. In his view, this company should be able to maintain a sound free cash flow, and holds an advantageous position in its niche.
“Following recessionary business conditions into a recovery, Tronox’s equity value may be twice what it is today. We estimate the free cash flow yield of Tronox at the current price is about 26% for 2023. The estimated EV/EBITDA multiple for 2023 is 3.7x. The company has new ore mines that are beginning production, which may lower Tronox’s cost structure by $20-$30m in 2023. These efforts are part of a wider cost reduction effort (newTRON) that may pull costs lower by about $75m incrementally in 2023. The risk to Tronox is lower titanium dioxide prices,” Zekauskas opined.
To this end, Zekauskas rates TROX an Overweight (i.e. Buy) and sets a $30 price target. At current levels, his target implies a one-year gain of ~96%. (To watch Zekauskas’s track record, click here)
Not only do TROX shares get a Perfect 10 Smart Score, they also have a unanimous Strong Buy consensus rating from the Street’s analysts – 7 positive reviews set in recent weeks. The stock is selling for $15.32 and its average price target, at $23.86, suggests an upside of ~56% on the one-year time horizon. (See TROX stock analysis on TipRanks)
Western Alliance (WAL)
The next ‘Perfect 10’ stock we’ll look at, Western Alliance, is a holding company in the banking industry. Based in Phoenix, Arizona, this company’s subsidiaries mostly operate in the Western US, where they provide a range of services including retail and commercial banking, private banking, real estate financing, and specialized financial services. Western Alliance boasts some $65 billion in total assets, and has been lauded as the #2 best-performer among the 50 largest US public banks.
This bank holding company reported its 2Q22 results last month, and beat expectations on both revenues and earnings. At the top line, the net revenue of $620 million was up 22% year-over-year, and beat the forecast by 7%. Looking at the bottom line, the company reported a net income of $260.2 million, or $2.39 per share. This beat the $2.30 expectation, and was 10% higher than the year-ago quarter’s EPS result.
While the financial results show growth or beat expectations, shares in WAL have fallen 29% so far this year. For Piper Sandler analyst Brad Milsap, all of this adds up to a company that investors need to pay attention to.
“For those more bullish, we think WAL’s higher multiple businesses should be strong enough to offset mortgage headwinds considering WAL’s growth and leverage to higher rates especially if the forward curve plays out as currently expected. We certainly understand that WAL is an ‘everything needs to go right’ type of stock in terms of growth, rates and credit, but the stock in the mid-$70s still looks way oversold… we think there is positive risk/reward with a decent margin for error,” Milsap opined.
In line with this stance, Milsap rates WAL an Overweight (i.e. Buy), and his $103 price target indicates his confidence in an upside potential of ~36% for the coming year. (To watch Milsap’s track record, click here)
All in all, WAL shares have picked up 6 analyst reviews, including 5 to Buy and 1 to Hold, for a Strong Buy consensus rating. The average price target on the stock, $93.33, suggests ~23% increase from the current share price of $75.94 is in store for the next 12 months. (See WAL 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.