When uncertainty clouds the markets, investors have little room to take confident positions in stocks of their preference. This is precisely the condition of the financial markets today, at a global level. During these circumstances, the prudent approach would be to look to the upgraded stocks of financial analysts and experts. The recommendations put forth by analysts do hold significant weight, as they are the outcome of rigorous technical analysis, and a study of fundamentals, momentum, and wider trends. For this reason, many, especially beginner investors, turn to analysts’ guidance.
The first two quarters of 2022 have both been rocky and unpredictable, by a wide array of metrics. With the market entering into bear territory, many had lost fortunes amassed over several years. Looking toward the next quarter, we observe that there is little to say as to which direction things will take. In light of this, we explore the top 5 stocks analysts recommend for the third quarter of the current financial year.
EMCOR Group
In terms of analyst favorites in the upcoming months, EMCOR Group Inc (NYSE: EME) stands as one of the leading names in upgraded stocks. The company specializes in complex activities in the domain of electrical and mechanical construction at an industrial level. Ever since the performance slowdown during the pandemic in 2020, this specialist contractor has been seeing a surge in both its top and bottom-line figures. While the stock is presently trading at $114, its target price stands at almost $138. Moreover, just in FY22Q2, Sidoti analyst, Brian Russo upgraded the position on EME from neutral to buy.
The extent of impressive performance can be glanced at in its recent quarter two results for 2022. Where analysts had set a consensus quarterly revenue of $2.6 billion, the company managed to successfully deliver $2.71 billion. This reflected an over-achievement amounting to $110 million. Even more impressive was the company’s bottom-line performance. Where analysts expected a quarterly EPS figure of $1.70, EMCOR had gone on to earn an impressive $1.99 per share.
EMCOR Group, owing to its robust market position has been on a rapid growth trend. Its revenue climbed from $7.55 billion to $9.18 billion between 2016 and 2019. This took a dip during the pandemic in 2020, falling to $8.8 billion. 2021 had thus brought an impressive rebound, with revenue climbing up to $9.9 billion, ensuring companies’ position in upgraded stocks. Profitability throughout these periods has also been surging. In just a single year, the company managed to nearly triple its net earnings of $132.9 million in 2020, to an incredible $383.5 million in 2021.
The reason this stock is so favored amongst analysts is due to its trading at discount levels. This is a result of the bear market conditions, where the S&P 500 dipped by 7.85% in the last 12 months. During this time, EME fell by a similar magnitude of 6.89%. A slip by this level is significant, especially given the rock-solid fundamentals and impressive financial growth the company is experiencing.
SeaWorld Entertainment
Another big name stock on the analysts’ radar has been the theme park and entertainment company, SeaWorld Entertainment Inc. (NYSE: SEAS), which operates several theme parks and water park attractions across several US states. Recently, Deutsche Bank labeled SEAS as being a ‘Catalyst Call: Buy Idea’, as a result of its top and bottom-line results being “achievable” for Q2, and the full year. With a present price of $45 per share, analysts have placed the stock’s target at over $78, indicating significant upside potential.
The reason for this shift comes as the company continues to deliver impressive revenue and earnings figures. After the lifting of Covid-related restrictions placed on the industry, SEAS is once again operating at full-blown capacity. It has also managed to increase its potential revenue capacity per person from $66 in 2019 to $80 in its most recent quarter. This explains its impressive topline improvement and its placement in the list of upgraded stocks.
Despite this strong fundamental position, SEAS has fallen from over $76, down to a mere $45, in just the last three months alone. A drop of 40%, without a fundamental deficiency, points to a significant undervaluation, which analysts have evidently identified.
In fact, SeaWorld’s financials are so strong, that its management has been actively seeking to expand through acquisitions. The company had initiated talks with Cedar Fair LP (NYSE: FUN) for an acquisition, earlier this year. Although the talks were unsuccessful, it points to the company’s short and long-term strategic vision geared toward expansion. Moreover, during Q2, SEAS also announced a share buyback program worth $250 million. This indicates its willingness to return value to its shareholders.
Enphase Energy
Enphase Energy Inc. (NASDAQ: ENPH) is one stock that has been in the center of the market spotlight for many investors. Enphase Energy is a solar and home energy solutions company. Despite incredible macroeconomic headwinds, that have forced even corporate giants to shed significant market value, ENPH has performed remarkably. In just the last six months, the stock has almost doubled its price from $140 to $276.
Many have argued that the hype has essentially overvalued ENPH, considering the trajectory of the wider market. However, some highly credible analysts feel that this is no overvaluation, and the price is trading close to the stock’s intrinsic value. Goldman Sachs, for instance, has raised the ENPH target price from its previous $244 to $290. Similarly, Credit Suisse has upgraded its classification of the stock from neutral to outperform, with the target price set at $281. These analyst positions indicate that, despite investor concerns, the stock remains a buy.
These analysts’ stances on the stock are far from unsubstantiated, given some significant tailwinds supporting the wider industry. Enphase Energy, the microinverter market leader in the US, as well as a premium player in America’s MLPE duopoly stands well positioned to soar as a result of these tailwinds. Its capital-light business model, which gives it an edge above its peers in the industry, delivers significant cash flow to support business growth. Additionally, its expansion into new and lucrative business markets, such as the EV charging space, further stands to enhance its upside potential. All of these high-promise opportunities, coupled with the company’s strong execution, as observed in its stellar revenue and earnings growth, reinforces the analysts’ optimism regarding ENPH.
Wingstop Inc.
Analysts appear bullish on the stock of Wingstop Inc. (NASDAQ: WING). The company franchises and operates restaurants across 44 American states, and 7 countries in the world. WING is presently trading at $116, yet its target price has been set at $135, indicating an upside potential of 16%. Brokerage and research firm, Cowen, recently bumped up the target price of WING to $140. This suggests that the upside potential could be as high as 21%, at present levels.
In just the past month, WING gained by 68%, so an additional 21% upside would amount to its price essentially doubling from where it stood in late June of 2022.
Growth at such levels and its position in upgraded stocks comes as no surprise considering Wingstop management’s ambitions and their ability to execute. There is a renewed emphasis on brand awareness through innovative marketing and customer-oriented ads on social platforms. These moves signal a significant jump in the company’s ambitions, to which it will allocate up to $50 million per annum. Moreover, the company leadership has also decided to increase the per restaurant contribution to national marketing from 4% to 5%.
Given that Wingstop stands on the verge of dynamically scaling up, and expanding its business, analysts are confident of the growth trajectory its stock is inevitably going to ride upon.
Exxon Mobil
The final stock we present is that of the globally renowned oil and gas company, Exxon Mobil Corporation (NYSE: XOM). The strength of the stock’s fundamentals, combined with its stock market performance, points to possibly significant upside potential. The last few months have brought in record high levels of crude oil, catalyzed by supply chain disruptions from Eastern Europe, and sanctions on giant oil producer, Russia. The result was soaring levels of inflation, which particularly impacted crude oil.
With market prices of oil reaching new heights, the outcome for oil producers like Exxon Mobil was record-high profit margins. The surge in revenue also improved liquidity figures substantially. Despite such renewed growth opportunity, the stock’s $90 price is still marginally close to its price in 2018, which did not offer such a strong opportunity. This price is lower than anticipated given the drop in global oil prices in the last month. Despite this, however, the future looks extremely bright for XOM.
The company is taking the patient route of using its short-term explosive gains to enhance its longer-term financial sustainability. The CEO of Exxon Mobil has disclosed some of these forward-looking plans in the company’s recent earnings call:
“We are making outstanding progress on our high-value growth developments in Guyana, the Permian and LNG. Our new Corpus Christi Chemical Complex is up and running ahead of schedule and generated positive earnings and cash flow in its first quarter of operations.” He had also gone on to discuss the company’s strategy of pursuing low-carbon, biofuels, and hydrogen-based energy solutions, in light of the global energy transition.
Perhaps these are the factors as to why analysts remain so optimistic regarding XOM and the company have successfully made its place 5 best-upgraded stocks. Earlier in July, Piper Sandler bumped up its target price from $102 to $109, reclassifying it from neutral to overweight. Similarly, in June 2022, Credit Suisse upgraded the stock to an “outperformer” with a target of an impressive $125.
Conclusion
Analyst picks are the guiding light to the uncertain investor during times of turmoil. When market participants lose confidence in their outlook of stocks, the best route might just be to turn to the technical-minded. Analysts employ rigorous valuation models, whilst factoring in relevant trend-related variables. These approaches are usually objectively sound in identifying which stock holds upside potential worth investing in. The stocks discussed above are some of the top upgraded stock picks for Q3 of the present financial year.
