Last month, the annualized rate of inflation hit 8.6%, the highest in more than 40 years. Last week, in response, the Federal Reserve bumped up its benchmark interest rate by 75 basis points, the largest such hike since 1994. The combination of high inflation and aggressive tightening action by the central bank sent an already jittery stock market to its worst single week since the onset of the COVID crisis, and has economists talking gloomily about a repeat of the late 1970s and early 1980s, when similar inflation and high interest led to market weakness and a deep recession.
For long-term investors, however, the picture may not be so grim. The broad market downturn drove lower prices across the board – and that can offer up opportunities to buy high-quality names in beaten-down sectors. In fact, billionaire investing legend Ron Baron, of Baron Capital, sees today’s environment as a ‘huge once-in-a-generation buying opportunity.’
“Overall, we remain optimistic. We normally don’t give much thought to short-term macro issues like inflation, oil prices, interest rates, and the Russia/Ukraine conflict. Inflation is always with us, yet most people don’t speak of it. In my lifetime, inflation has averaged about 4% to 5% a year. That means prices approximately double every 14 or 15 years. The stock market doubles roughly every 10 or 12 years, or about 7% to 8% per year,” Baron said.
The key for investors, then, is to find stocks that are set to gain going forward, when the bear runs its course, even if they are down now. Using TipRanks’ database, we pinpointed three beaten-down stocks that have earned a “Strong Buy” rating from the analyst community. Not to mention each offers up over 50% upside potential, despite the challenging market environment. Let’s take a closer look.
We will start with Wallbox, a Spanish firm in the electric vehicle (EV) charging market. Wallbox works on both the commercial and residential sides of EV charging, offering range of charging products for home and business use. Charger features include universal plugs and touchscreen controls. Wallbox takes particular pride in offering the first bidirectional charger unit, allowing a fully charged EV to send power to the user’s home, or even to the electrical grid – in effect, turning the EV into a storage battery when it’s not in use as a car.
Wallbox has been on the public markets since last October, when it completed a business merger with a SPAC firm. Since its Wall Street debut, WBX shares peaked at $18.50 in November and were still trading near $17 as 2022 opened – but are down 47% so far this year.
The sharp drop in share price has come even as Wallbox has reported strong financial results. The company’s 1Q22 report, released last month, showed 28.3 million Euro at the top line, for a 192% increase from the year-ago quarter. This was driven by a 180% year-over-year increase in charger sales – some 51,000 units sold in the quarter – and a gross margin that, at 41%, beat internal forecasts. Wallbox is guiding 2022 full-year revenue in the range of 175 million to 205 million Euro, which would translate to y/y annual growth of 145% to 190%.
The company’s fast growth has impressed Cowen analyst Gabriel Daoud, who writes: “With a diverse portfolio of products supporting U.S. expansion and energy management transformation, Wallbox avails itself to $293bn of required investment in hardware globally between 2022 through 2030. Vertical integration within manufacturing allows the company to navigate a harsh supply chain environment and achieve best-in class gross margins of ~40%. We see WBX inflecting to FCF positive in 2026 with additional upside from new software products, such as Sirius.”
Daoud quantifies his outlook on WBX shares with an Outperform (i.e. Buy) rating, and a $14/share price target that implies ~63% upside over the next 12 months. (To watch Daoud’s track record, click here)
Wallbox hasn’t just impressed Daoud; the Strong Buy consensus rating on the stock is backed by 5 recent analyst reviews, which include 4 Buys and 1 Hold. The shares are priced at $8.58 and their average price target of $16.50 indicates a robust upside potential of 92% this year. (See WBX stock forecast on TipRanks)
Generac Holdings (GNRC)
For the second stock, we’ll look at Wisconsin-based Generac, a manufacturer of electrical power generators. The company’s generators are designed as backup units for use in the residential, light commercial, and industrial markets, to provide power in the event of a grid failure. Generac offers a wide range of generator units, from 15 kilowatt devices suitable for home use to multi-megawatt power systems for the industrial sector. Customer can even choose small portable generators, for workshop or camping use.
Generac has always been expanding its product lines, looking for new niches that can make use of backup power generation. In recent weeks, the company released new products for the EV and portable generator markets. The first offers solutions for vehicle charging issues, while the second brings dual-fuel capabilities to the portable generator market with models capable of operating on both LP gas and regular gasoline.
New products in a quality lineup have been the backbone of Generac’s strong sales position. The company has seen its top line rise consistently over the past several years, with 8 consecutive sequential quarterly revenue gains. In the recent 1Q22, Generac reported $1.14 billion at the top line, up 41% year-over-year. The gain was powered by a 43% increase in residential product sales and included a 38% bump in commercial & industrial sales.
At the same time that revenues were growing, earnings slipped. The company reported Q1 adjusted net income of $135 million, down from $153 million in the year-ago quarter. On a per share basis, this translated to a year-over-year reduction from $2.38 to $2.09.
Shares in Generac have seen volatile trading this year, with sharp swings both up and down. Year-to-date, the stock is down by 33%.
The fall in share price has not prevented Northland analyst Donovan Schafer from coming down firmly on the bullish side for this stock. He sees Generac well positioned to move forward, and lays out three reasons why: “(1) GNRC dominates the growing U.S. home standby (HSB) market, with enduring competitive advantages and ~75% market share; (2) is ideally positioned to understand and navigate the terrain of the energy transition and therefore get the most out of its burgeoning clean energy business; and (3) has a large global footprint acquired from 2010-2018 that flies under the radar and could serve as a latent force multiplier.”
Schafer uses these comments to support his Outperform (i.e. Buy) rating on GNRC shares, and sets a price target of $370, implying a 12-month upside potential of 57%. (To watch Schafer’s track record, click here)
Stepping back and looking at the larger picture, we see that Generac has picked up 16 recent analyst reviews – and their 15 to 1 breakdown in Buys versus Hold gives the shares a Strong Buy consensus view. The stock’s average price target is $399.33 and the trading price is $233.50, which suggests it has room for robust 70% upside in the year ahead. (See GNRC stock forecast on TipRanks)
Silvergate Capital (SI)
Last but not least is Silvergate, a commercial bank from California with a focus on digital currency investing. Silvergate got its start in 1988, and has been a leader in digital currency investing for nearly a decade. The company has seen 24 consecutive years of profitability, and offers services to a wide range of institutional investors and digital currency exchanges.
So far this year, Silvergate’s shares have fallen 58%, a steep drop that has coincided with the sharp drops we’ve also seen in the crypto markets.
Despite the difficulties that the crypto market has seen recently, Silvergate’s business in digital currencies has been expanding. The company’s 1Q22 report showed 1,503 digital currency customers at the end of the quarter, compared to 1,381 at the end of Q4, and 1,104 in the year-ago quarter. At the same time, the bank’s Silvergate Exchange Network, its digital currency exchange, saw a decline in transfers in 1Q22, from $219.2 billion in 4Q21 to $142.3 billion.
While the currency exchange transactions were down, Silvergate still saw gains in income. The bank reported net income for Q1 of $27.4 million, an increase of 28% from 4Q21 and an even more impressive gain of 115% from 1Q21. The bank’s income came to 79 cents per diluted share.
Analyst Jared Shaw, in his coverage of Silvergate for Wells Fargo, believes that now is the time for investors to consider SI shares. He writes: “SI has created a strong network effect through its Silvergate Exchange Network (SEN), which is utilized by some of the largest exchanges and institutional clients in the crypto space. As rates rise, higher spread income will come from a zero-cost deposit base, and further growth in SEN Leverage and the rollout of an SI-issued stablecoin payments network represent future opportunities. Continued institutional adoption of crypto and product innovation at SI should help maintain the bank’s growth profile. We believe much of the bear-case is priced in at current levels, which makes for an attractive entry point…”
With that stance, it’s no surprise that Shaw rates the stock an Overweight (i.e. Buy). He gives the shares a $120 price target, showing his confidence in a 93% one-year upside. (To watch Shaw’s track record, click here)
Overall, of the 9 Wall Street analysts who have reviewed this stock recently, 8 have rated it a Buy against just one Hold (i.e. Neutral), for a Strong Buy consensus rating. The shares are selling for $62.32 and have an average target of $175.89, indicating ~182% upside for the coming months. (See SI 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.