Every rule has an exception, and a key to successful investing is knowing when to follow the rule – and when to follow the exception. So, while it’s true that past performance won’t ensure future gains, stocks that have shown strong and sustained gains, frequently show that past gains can build up a reliable momentum for further gains.
The key is in the profile. Investors can look for stocks that offer a combination of two factors: solid, sustained gains and strong fundamentals.
Based on that profile, we’ve pulled up two stocks using TipRanks’ database. Both have shown great momentum this year, and amassed enough bullish calls from analysts to be given “Strong Buy” consensus ratings. Let’s take a closer look.
First up is CECO Environmental, a green economy company involved in the development and installation of environmental air pollution control technologies, energy technologies, and fluid handling and filtration technologies. CECO’s products and solutions have found uses in a wide range of industries, and can be found in sectors as varied as automotive, aerospace, brick making, cement, chemicals, fuel refining, and glass manufacture.
The company will release Q2 numbers in the second week of August, but a look at Q1’s details will give an idea of where CECO currently stands.
The company’s Q1 top line came in at $92.4 million, up 29% year-over-year. The y/y gain was powered by a 75% increase in total orders, to a company record of $160.9 million. Non-GAAP net income rose 61% to $5 million, or 14 cents per diluted share. EPS beat the 5-cent forecast by a wide margin, and was up 55% y/y.
The most impressive number, however, may be the share appreciation. CECO shares are up 66% over the past three months. And if that's not enough, CECO in May announced a commitment to supporting the share price though a $20 million share repurchase program. The program is authorized to run through April of 2025.
On the expansion side, CECO completed its purchase of Compass Water Solutions in May. The acquisition was made for a total price of $12.5 million, funded by a combination of cash and debt. That was one of two recent M&A moves; in June, the company announced its acquisition of Western Air, a UK-based dust and fume extraction expert. The cost of the acquisition was not disclosed, but CECO has said that it will increase its addressable market in air purification by some $150 million.
Analyst Rob Brown, who holds a 5-star rating from TipRanks and is ranked in the top 10% overall among Wall Street’s analysts, covers this stock for Lake Street and takes a bullish position.
“The company continues to execute a strategic transition from a cyclical, project-driven business to a more predictable and higher-margin diversified environmental and pollution control equipment business. We expect acquisition activity to continue and believe this can be a catalyst," Brown wrote.
"The next 2-3 years should see accelerating revenue growth and FCF as strong orders and double-digit backlog growth converts to revenue and the company executes its acquisition strategy. Through a combination of organic growth and acquisitions, we estimate CECO can become a $550-$600 million revenue business generating $70-$75 million in EBITDA,” the analyst added.
Stepping logically from these comments, Brown rates CECO a Buy, and his $14 price target suggests the stock has room for a robust 77% one-year upside potential going forward. (To watch Brown’s track record, click here)
Overall, there are four recent analyst reviews of this stock and they are all in agreement, seeing an upside ahead, for a unanimous Strong Buy consensus rating. The shares are priced at $7.90 and their $12 average price target implies ~52% gain for the next 12 months. (See CECO stock forecast on TipRanks)
The next momentum stock we’ll look at, Photronics, is part of the semiconductor chip industry – and an essential one, at that. Photronics designs and produces the photomask technology required in the manufacture of integrated circuits from silicon wafers. The company has been around since 1969, and has seen the evolution of the semiconductor niche from it beginnings to its position today as one of the world’s vital technologies. Photronics is a pure-play photomask maker, and its products have found important use in the global manufacture chain for both integrated circuits and flat-panel displays.
From an investor’s perspective, Photronics is one of the rare ‘recession proof’ companies. While the semiconductor chip market is vulnerable to consumer demand, chips still need to be manufactured, and they simply cannot be manufactured without photomask technology, the very niche that Photronics leads. Keeping that in mind, it’s easy to understand the recent pattern of the company’s revenues and earnings: Photronics has seen 6 consecutive quarters of rising revenues, and 5 of rising earnings.
We can see that clearly in the company’s most recent quarterly release, for the second quarter of fiscal year 2022, the quarter ending this past May 1. The top line came in at $204.5 million, for a 28% gain from the year-ago quarter. EPS showed similar gains; the Q2 result of 49 cents per diluted share was up an impressive 188% year-over-year. The gains were driven by a 30% y/y increase in integrated circuit revenue, to $145.8 million.
It's easy to see now why shares in PLAB rose 60% over the past 3 months, and why the stock caught the attention of D.A. Davidson’s 5-star analyst Thomas Diffely.
“We believe PLAB could be immune to a potential industry downturn for a few reasons: 1) PLAB’s business is design driven as opposed to CapEx or unit-driven. Typically, customers maintain new product iterations or even speed up new product introductions in order to drive sales. 2) Industry photomask capacity is limited and market demand is under-served, particularly in the mainstream IC. We believe PLAB is operating at 25% deficit in its capacity to market demand, which provides some cushion to the business in case demand rolls over,” Diffely opined.
In line with these comments, Diffely sets a Buy rating on PLAB, along with a $30 price target indicating his confidence in a one-year upside of ~22%. (To watch Diffely’s track record, click here)
Once again, we’re looking at a stock that gets a unanimous approval from the Street’s analysts. PLAB has 3 positive reviews supporting its Strong Buy consensus rating, and its average price target of $26.33 suggests a one-year gain of 7% from the current trading price of $24.69. (See PLAB 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.
