No matter how you slice it, 2022 has not been a good year for the stock markets – and the year ahead isn’t looking so great, either. Headwinds that are sure to buffet the markets with varying strength over the coming months include persistently high inflation, continued rate hikes from the Federal Reserve, and the ongoing war in Ukraine. These may be partially offset by a gradual reopening of the Chinese economy, as Beijing pulls back from its zero-COVID policies.
Uncertainty is the only constant here. We don’t really know what will happen, and the current clouded picture makes forecasts even more difficult. As Yogi Bera was fond of saying, ‘it’s tough to make predictions, especially about the future.’ And right now, investors want to know about the future.
Wall Street’s professional stock analysts are also looking toward the future – and they’re looking with an eye toward stocks that have been outperforming, and still have room to run. Now after the heavy market losses we’ve seen this year, ‘outperformance’ is a low bar – but RBC analyst Scott Hanold, who is ranked in the Top Ten of the Street’s analysts, is backing two stocks that managed to post robust gains this year. And he believes they each have potential to gain another 60% or more in 2023.
Hanold is a top-ranked analyst whose record of success puts him head-and-shoulders above his peers. Over the past year, his recommendations have scored a 58% accuracy rate, and investors who followed them would have seen a 20% return.
So let’s follow Hanold’s recommendations. We’ve looked up the latest data on these Buy-rated stocks from the TipRanks database, and we’ll add in some of Hanold’s comments.
We’ll start in Pennsylvania, where Pittsburgh-based EQT operates as the largest of the independent ‘pure play’ natural gas producers on the US scene. The company’s assets are centered in the core of the natural gas-rich Appalachian region, and EQT is active in Pennsylvania, West Virginia, and Ohio. Its footprint in that region covers more than 1 million acres of land holdings and the company can boast of having some 20 trillion cubic feet of proven gas reserves.
Over the past year, while most stock sectors fell into the doldrums, natural gas firms were able to take advantage of rising prices and solid demand, twin factors that have supported the US gas industry. In the last reported quarter, 3Q22, net income came in at $683.7 million, a dramatic turnaround from the $1.97 billion loss reported in the year-prior period. The company had a net cash flow of $1.15 billion, up from $48 million in 3Q21.
More recently, EQT has been hit by the freezing conditions which the company said caused a big temporary drop in production – of up to 30%. The shares dropped too following the news, but even factoring in the decline, EQT shares have gained 54% so far this year.
The company uses its cash to return profits to shareholders, through a share repurchase program and a small dividend. The last declared dividend, of 15 cents per common share, was paid out on December 1; at this rate, it annualizes to 60 cents per share and yields a modest 1.76%. The company’s buyback authorization is currently set at $2 billion.
In Hanold’s view, this company is strongly positioned to continue showing gains going forward, as it builds production to higher levels after facing supply chain headwinds earlier this year. The analyst writes: “EQT is not immune to the midstream and supply chain issues that are impacting Appalachia producers. It may take through mid-2023 to get back to the 500 Bcfe quarterly maintenance level but FCF should remain robust, and management appears committed to stock buybacks,” the 5-star analyst said. “EQT is well positioned with a large asset base focused in the Appalachian Basin. We think the company has some of the most economic natural gas assets in North America and benefits from low royalty rates, low operating costs, and premium geology.”
Hanold has an Outperform (Buy) rating on the shares, and his $55 price target implies an upside of 62% on the one-year time frame. (To watch Hanold’s track record, click here.)
Overall, EQT maintains a Strong Buy consensus rating from the Street’s analysts, based on 13 recent reviews that include 11 to buy and just 2 to Hold. The shares are trading for $33.587and their $60.36 average price target indicates potential for a one-year gain of 78%. (See EQT’s stock forecast at TipRanks.)
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Next up is a Pennsylvania-based natural gas exploration and production company, Range Resources. Range is one of the major players in the Marcellus shale formation, which is spread across the Appalachian mountains of western New York State and Pennsylvania, West Virginia, and Ohio. The Marcellus is the largest natural gas field in the United States, and Range has a leading position in it, of nearly one million acres in southwestern Pennsylvania.
This extensive footprint in one of North America’s leading gas fields has put Range in a sound position to generate revenues, earnings, and cash. In the last quarterly financial release, for 3Q22, the company posted a top line of $1.11 billion, for an impressive 267% year-over-year gain, along with a non-GAAP net income per diluted share of $1.37. This EPS figure’s y/y gain was not as large as the revenue increase, but still strong at 163%. Range’s cash flow numbers were also robust during the quarter. The cash flow from operating activity was a company record, at $521 million.
These results were supported by steady production, which averaged 2.13 Bcfe (billion cubic feet equivalent) per day. Approximately 70% of the production total was natural gas.
Despite a recent pullback, the shares have provided returns of 38% in 2022. The company has supported its stock through a combination of share repurchases and dividend payments. In October of this year, Range’s Board increased the share repurchase authorization by $1 billion, to a total of $1.5 billion. Hanold believes this is a sign the company is in a confident mood. Following the Q3 print, he wrote, “RRC stepped up conviction in its business with higher levels of buybacks and a big increase to its authorization. Debt reduction to $1.0-1.5 billion remains the priority but this can be achieved along with higher shareholder returns by early 2023. Management remains adamant that RRC shares remain attractive given the discount the stock trades to intrinsic value, which we agree.”
Once again, we’re looking at a stock that this top analyst rates as Outperform (a Buy). His price target, which he’s set at $44, shows his confidence in a 75% upside potential in the next 12 months.
Looking at the consensus breakdown, based on 5 Buys, 5 Holds and 1 Sell, the analysts view this stock as a Moderate Buy. The average price target of $35.5 suggests a 42% increase from the current share price. (See Range Resources Corporation’s stock forecast at 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.
