While stocks have been softer lately, following a bear market rally that began in June, not all experts are convinced that investors are trapped in a downward spiral.
Investment strategist Jim Paulsen, of the Leuthold Group, believes better times are ahead – and in the short term. Paulsen bases his bullish outlook on recent improvements in trend inflation and estimates of future earnings.
“I think inflation is clearly heading south and will continue to do so. And whenever we go out a few more months, they’ll be lower than they are today. I think this will be increasingly bullish for stocks in general… If earnings hold together [and] “Inflation continues to fall, I think the rally will find its feet again but in the balance of this year,” Paulsen said.
Whether Paulsen is right or wrong, one thing is certain: investors have an opportunity to get in at discount prices. Many healthy stocks are trading at prices too cheap to ignore.
We used the TipRanks platform to gather the latest scoop on two such stocks. Both are “Strong Buy” stocks with recent positive reviews from the Street and plenty of upside potential. Here’s a closer look, along with analyst commentary.
PetIQ, Inc. (PETQ)
First up is PetIQ, a manufacturer and distributor of health and wellness products for the cats and dogs that share our lives. The company operates in 42 of the lower 48 states and offers a wide range of products and services, including flea and tick controls, dental treatments and educational aids, as well as a network of affiliated veterinary clinics. These latest services include VetIQ Pet Wellness Centers, located in participating Walmart and Meijer stores, as well as a 41-state network of stand-alone community clinics.
In its recently reported second quarter for this year, PetIQ reported top-line declines, with revenue falling 7% year-over-year, from $271 million to $252 million. This included a nearly 10% decline in product division net sales, which was partially offset by year-over-year growth in industrial products (28%) and services (17%).
While revenue fell in the second quarter, net income rose to $4.7 million, or 16% year over year. That translated to reduced EPS of 16 cents, down from 14 cents in the prior quarter.
PetIQ stock has lost 50% this year. This results in a stock that investors should pay more attention to – according to Truist analyst Bill Chappell.
“The Produce segment (85% of total sales) slowed this quarter, primarily due to reduced volume due to the delayed start of flea and tick season from the cold weather and consumers trading in cheaper brands, while the company reduced center’s wellness initiatives, in its service sector, once again because of the workforce shortage,” Chappell noted.
Looking ahead, however, Chappell sees a clear path forward for the company, adding: “Overall we view the weather issue as transitory and consistent with comments from other seasonal businesses in our coverage, so we believe the story is getting to the bottom and PETQ it is now shifting towards becoming more of a product-oriented company — something we believe will be better understood by investors as we move into FY23.”
To that end, Chappell sets a $30 price target on the stock, indicating his belief in a strong 165% one-year upside, and rates the stock a Buy. (To follow Chappell’s history, Click here)
In total, this small-cap retailer has garnered 4 recent analyst reviews – and all of them are positive, collectively supporting a consensus rating of Strong Buy. The stock is selling for $11.35 and the average price target of $27 implies ~138% upside over the next 12 months. (See PetIQ Stock Prediction on TipRanks)
For the second stock, we’ll move into the digital world and look at Perficient, a global digital consultancy that helps big brands connect with customers and manage business. Perficient brings experience, agility and speed to its consulting services and boasts more than 300 Fortune 1000 companies among its clients, a 90% repeat business rate and annual revenue of over $760 million. The company works with clients on a wide range of topics including information technology, management consulting, marketing and digital strategy, mobile applications and creative services and platform implementations.
In terms of revenue, Perficient posted consistent top-line gains from 2020 to Q1 2022 – but revenue flattened in 2Q12. The top line during the latest quarter came in at $222.7 million, up 21% year-over-year, but almost the same as the $222.1 million from the first quarter. Earnings fared better, with net income rising an impressive 68% from $16.6 million to $27.8 million. Unadjusted GAAP EPS rose 26% to $1.06.
Shares of Perficient have been volatile this year, but the downside is clear – the stock is down 37% year-to-date and is trading near its 52-week low.
Needham’s 5-star analyst Mayank Tandon describes the risk/reward on PRFT as “favorable” and writes: “While we are disappointed that increased cancellations and delays are weighing on revenue, we remain positive on PRFT given its solid profitability outlook and healthy booking momentum… Shares trade at a FY23 P/E multiple of ~19.5x, a discount to a peer group of IT services stocks. We believe this creates a favorable risk reward for small-cap GARP investors…”
Consistent with that stance, Tandon rates the stock a Buy and a $120 price target implies a 48% upside over the next year. (To follow Tandon’s history, Click here)
Overall, the Strong Buy consensus rating for this stock is supported by 8 recent analyst reviews, which include 6 Buys and 2 Holds. The stock is selling for $81.08 and the average price target of $115.25 suggests that there is room for a 42% share appreciation in the future. (See PRFT Stock Prediction on TipRanks)
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Denial of responsibility: The views 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.