Entering the second half of the year, market sentiment is becoming clearer. First, there is a feeling that the 1H collapse may be bottoming out – or at least plateauing and pausing before further declines. Second, there is a growing consensus that a recession is imminent, within a year or possibly less. A minority opinion argues that a real downturn is already upon us; but we won’t know for sure until second-quarter growth figures are released later this month.
What does this mean for investors? In the opinion of MKM Partners Chief Economist Michael Darda, the gloomy sentiment could have some upside. Darda sees this as an indicator that tough times are already entrenched in current conditions – he believes that current prices are already two-thirds of the way to go to account for a recession.
Expressing his views in advice to investors, Darda says: “Our point here is that markets have already priced in significant recession/earnings decline risk and there may not be a recession this year. Even if there is a recession, markets move first and investors are very unlikely to be able to time the bottom.
With that in mind, we used the TipRanks database to identify 3 stocks that were too cheap to ignore. Basically, we looked for 1) stocks with a “Strong Buy” analyst consensus; 2) strong upside potential (i.e. more than 30%). And on top of that, each of these stocks is trading at low valuations. Let’s take a closer look.
Capri Holdings (ICRP)
The first is Capri Holdings, a fashion holding and retail company with multinational reach. Capri has over 1,200 outlets, including stand-alone stores and in-store boutiques. The company offers and sells a wide range of premium branded items including apparel, footwear and accessories under the well-known names of Versace, Jimmy Choo and Michael Kors.
Capri has shown strong sales growth in recent months, and in the company’s financial report for the fourth quarter of fiscal 202 – the quarter ending April 2 – it posted a profit of 1.49 billion dollars. That figure was up about 24% year-over-year, and by management, it was a record for the company. Gross margins also reached a record high for the company, at 64.1%. Capri’s adjusted net income for the quarter was $152 million, or diluted EPS of $1.02. This was more than 2.5 times higher than the previous year’s result.
At the end of fiscal 2022, Capri held more than $1.09 billion in inventory, an increase of nearly 49% year-over-year, and in line with the company’s stated goals of hold more basic inventory on a regular basis and receive seasonal products. inventory earlier in the cycle.
Capri has an active share buyback program and the company repurchased some 5.1 million shares during the quarter, spending some $300 million to do so. The company’s board has since revamped the buyback program, replacing the remaining authorization of $500 million with a new authorization of $1 billion over the next two years.
Despite all this, Capri’s share price is down. The stock has lost around 34% so far this year.
These significant losses left the luxury retailer with a relatively low share price and put it in a position that caught the eye of 5-star analyst Robert Drbul.
In his memo for Guggenheim, Drbul wrote, “As the company faces numerous near-term macroeconomic and global headwinds, we continue to see an opportunity for CPRI to generate $7 billion in revenue and a margin of operating by 20% over the long term. Trading at just 7.1x our new FY23 EPS estimate, we believe CPRI offers one of the cheapest and most attractive ways to invest in the ongoing (but non-linear) reopening of the global economy with an expectation of higher demand for occasion-based handbag categories. , footwear and clothing for social events, travel and back to the office. »
Drbul is following up on those comments with a Buy rating and a price target of $90 on the stock, showing confidence in a 109% upside this year. (To see Drbul’s background, Click here)
That’s not the only bullish view on Wall Street’s Capri, as analysts’ breakdown of the stock’s 14 recent reviews makes clear. These include 12 buys against just 2 takes, for a strong buy consensus rating. Shares are selling for $43.04; with an average price target of $73.21, they have a 70% for the coming year. (See CPRI stock forecast on TipRanks)
ArcBest Corporation (ARCB)
With the second stock on our list, we will be shifting into high gear in the transportation sector. ArcBest is another holding company, but this time in the transportation industry; its subsidiaries are trucking companies, operating in the Less than Truckload (LTL) segment, a vital part of the maritime business. LTL companies move loads of freight too large for parcel shipping but not enough to completely fill a tractor-trailer, and they move them the full gamut of routes, from long-haul interstate to last urban kilometer.
A quick look at some numbers tells us just how big the ArcBest niche is. The company has more than 80,000 active freight carriers, 14,000 employees and generated more than $4 billion in revenue in 2021. Of that, the company has invested some $150 million in technology and innovation, especially in strategic projects.
All of this has given ArcBest a strong start to 2022, with first-quarter revenue of $1.34 billion, a 61% year-over-year gain. High incomes have also boosted profits. 1Q22 net income was $79.8 million, for diluted EPS of $3.08. Total revenue and diluted EPS were the best in more than two years, and ArcBest’s gains were broad-based, reflected across all operating segments of the company.
Even so, ArcBest stock has lost 36% this year. It boils down to a stock that investors need to pay more attention to – according to Credit Suisse analyst Ariel Rosa.
“ARCB is the cheapest stock in our coverage… It has an attractive free cash yield of 12% (the highest in our coverage). The company has demonstrated strong performance over the past few years, but its current multiple reflects significant skepticism about the sustainability of these results, in our view… If it can sustain these results as demand normalizes, particularly an LTL breakeven ratio below 90%, it could see a considerable upside of its share price,” Rosa said.
To that end, Rosa rates ARCB as an outperformer (i.e. a buy), unsurprisingly in light of his comments, and sets a price target of $102 which suggests a 33% year-on-year upside. for action. (To see Rosa’s track record, Click here)
Overall, Strong Buy’s unanimous consensus rating on this stock, backed by 4 recent analyst reviews, clearly shows that Rosa is not the only one with a bullish view. The mid-price target here, $129.50, is even more optimistic, suggesting around a 70% upside from the current trading price of $76.23. (See ARCB stock forecast on TipRanks)
Open Loan Company (LPRO)
In recent years, the automotive sector has found significant support from customer financing, which has boosted sales of new and used cars as prices have risen. Going forward, this support will only become more important, but also more complicated as interest rates rise. Our next title, Open Lending, focuses on this sector.
The Texas-based company provides a range of services to financial institutions and lenders, including automated loan analytics, risk-based pricing and risk modeling, and automated decision technology for auto lenders. Open Lending operates across the United States and has been in business since 2013. The company went public in 2020.
Since entering public markets, shares of Open Lending have risen rapidly to peak above $40. The stock has remained at or near this level for most of 2021, but in September of last year it began to decline. Year to date, LPRO shares are down 57%.
A look at the numbers may help explain the decline in Open Lending’s share. The company is facing headwinds from inflation and rising interest rates, which are making vehicle purchases more expensive for customers. Still, the most recent quarter, 1Q22, posted revenue of $50.1 million, up 13% year-over-year. Activity remained strong in the first quarter, with the company certifying 43,944 loans versus 33,318 in the prior year quarter, a gain of nearly 32%. Net profit also increased from $12.9 million to $23.2 million, or more than 79% year-over-year.
In his note on Open Lending, JMP analyst David Scharf, who holds a 5-star rating, writes: “The company had a very strong first quarter, with both revenue and result, as well as better than expected results. loan certification volumes (certs). Additionally, we believe the reiteration of full-year revenue, EBITDA and cert guidance will be viewed positively in light of investor sentiment which painted a bleaker picture for auto loan demand in 2022…We believe the unprecedented supply chain headwinds that have weighed on dealer inventory and lending volumes, as well as the effects of credit normalization on carrier profit sharing, are valued in LPRO stock.
Standing squarely in the bullish camp, Scharf rates LPRO as an outperformer (i.e. a buy), and his price target of $28 implies a robust upside of 189% for the next 12 months. (To see Scharf’s track record, Click here)
Overall, out of 9 analysts who have weighed in on LPRO shares recently, 7 rated it a buy, while only 2 rated it a hold, giving the stock its consensus strong buy rating. The mid-price target of $26.22 suggests an upside of around 171% from the current stock price of $9.69. (See LPRO stock forecast on TipRanks)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.