The bear run of 2022 was brutal on stock investors, in fact, it was the worst market year since the Great Recession of 2008. But – some of the Street’s strategists are predicting that this year has a recovery, or at least a partial rebound, in store.
Even though the S&P 500 lost nearly 20% last year, inflation is still running at more than 7% annualized, and the Federal Reserve has bumped interest rates up to 4.25% in response, John Stoltzfus, Oppenheimer Asset Management chief investment strategist, is still taking the upbeat outlook on the New Year.
“We continue to see 'the glass half full' as the end of a period of 'free money and overstimulation of the economy suggest better times ahead,” Stoltzfus said in a recent note, in which he also predicts a 15% gain for the S&P by year’s end.
“Fed Funds hike cycles are never much fun; they can produce different levels of discomfort and market volatility but ultimately have proven in the past to have positive effect for the economy and markets in uncovering excesses stemming from problems at their source and providing an exit regime that can lead to a sustainable economic recovery," Stoltzfus added.
And if we’re looking at current economic policy makers setting up the conditions for a ‘sustainable economic recovery,’ then some stocks are going to lead the way. Oppenheimer’s top analysts point to two stocks in particular that could take off in the next twelve months. We ran the tickers through the TipRanks database to see what makes them stand out.
The first Oppenheimer pick we’re looking at is XPO Logistics, a Connecticut-based firm in the freight hauling business, specializing in less-than-truckload, or LTL, shipping. This is a vital link in the supply chain, comprising freight consignments that are too large for parcel shippers but don’t completely fill a semi-trailer truck. In late summer of 2021, and in November of 2022, XPO spun off its logistics and transport brokerage businesses; in its current configuration, the company is a pure-play LTL firm. As an LTL shipper, XPO can reach 99% of US postal zip code areas, as well as large parts of Canada and Mexico.
XPO’s last financial release, for 3Q22, showed a strong bottom line result – operating income came in at $185 million, up 65% year-over-year. This result was derived from the top line of $3.04 billion. It’s important to note the gain in operation income came while total quarterly revenue was down 7%, and that despite the drop in revenue, the operating income was a company quarterly record. The company reported diluted earnings from continuing operations of $1.13, far above the mere 19 cents recorded in the year-ago period.
On the balance sheet, XPO provided additional sound results, with $265 million in cash from operations – a total that included $142 million in free cash flow. XPO had $544 million in cash and cash equivalents on the books as of the end of 3Q22, plus another $1 billion in available credit, for more than $1.54 billion in total liquidity.
For Oppenheimer’s Scott Schneeberger, a 5-star analyst, XPO is a company with a clear path forward in the coming months. He writes, “We're incrementally constructive on XPO's opportunity to optimize LTL operations via its technological capabilities, which have advanced significantly in recent years. XPO's a Top 4 industry competitor with solid growth prospects and operating ratio improvement opportunity via anticipated volume gains/pricing over inflation/operating costs optimized through technology/ linehaul insourced from third parties."
"We consider XPO Logistics' North American Less-Than-Truckload (LTL) business attractively positioned for operational/financial improvement. XPO's pursuing multiple self-improvement initiatives within an industry with solid pricing characteristics,” Schneeberger added.
Looking forward, Schneeberger extrapolates his stance to an Outperform (i.e. Buy) rating, and a $45 price target that suggests a one-year upside potential of ~35% for the shares. (To watch Schneeberger’s track record, click here)
Oppenheimer's take is not an unusual one on Wall Street; based on 11 additional Buys and 3 Holds, the stock boasts a Strong Buy consensus rating. The shares are selling for $33.40 and their $50.13 average price target implies a 50% potential gain on the one-year time-frame. (See XPO stock forecast on TipRanks)
For the second stock on this list, we’ll shift over to the fast food delivery niche and look at Papa John’s, the third-largest pizza delivery chain in the world. The company, which maintains headquarters in both Atlanta, Georgia and Louisville, Kentucky, boasts over 5,500 locations in 49 countries globally. Papa John’s has been in business since 1984.
The company’s revenues are remarkably stable, having held at or near $500 million per quarter for the last couple of years. In 3Q22, the last reported quarter, the company had a top line of $511 million; this was down $2 million from the prior year’s Q3.
At the bottom line, the company remains profitable, although earnings are under pressure. Papa John’s showed a non-GAAP adjusted EPS of 54 cents for 3Q22; this was down from the 83 cents reported in 3Q21, or a decline of 34%.
The company opened 18 new units in 3Q22, and is on track to net 240 to 260 new units for the full year 2022.
Brian Bittner, another of Oppenheimer’s 5-star analysts, has looked under the hood at Papa John’s, and what he saw indicated a possible path forward for the pizza chain, despite the recent drop in earnings.
“After a challenging year in '22 related to elevated costs and declining margins, we believe the earnings setup could improve in '23 and beyond... PZZA remains highly confident in its target to add 1,400–1,800 net new units between 2022–2025, fueled by international growth. This implies +380–520 units per year for '23–'25 relative to +250 [in 2022]… Overall, sales appear solid, unit growth is in acceleration mode and drivers for margin improvement are surfacing. We believe this creates a more attractive setup into 2023,” Bittner opined.
Plenty of sales potential, and plan for expansion, gave Bittner reason to rate PZZA shares an Outperform (i.e. Buy). His $105 price target indicates room for ~28% share appreciation by the end of 2023. (To watch Bittner’s track record, click here)
Overall, there are 11 recent analyst reviews on file for Papa John’s, favoring Buys over Holds (i.e. Neutrals) by an 8 to 3 margin for a Moderate Buy consensus rating. The stock is selling for $82.05 and its $96.50 average price target suggests ~18% one-year upside potential. (See PZZA 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.
