The Street’s experts build their reputations by the quality of their market and stock assessments, and they’re coming out in force now to give their interpretations of the strong start we’ve seen in 2023. The S&P 500 index is up 5%, while the teach-heavy Nasdaq has gained nearly 10%. It’s a welcome reprieve from last year’s downward trends; the question is, will it hold?
Watching the situation from investment firm Evercore ISI, strategist Julian Emanuel has his doubts. He’s recommending that investors start allocating portfolio resources toward defensive and value positions, looking for stocks that have reputations for holding up during recessionary periods, and are trading at discounts – or better, both. He tells investors not to focus on today’s gainers, but to look for stocks that are set up for gains, no matter where the economic chips fall. Specifically, he’s pointing to consumer staples and energy stocks as likely outperformers for the rest of this year.
Against this backdrop, Evercore’s analysts have made two specific picks, and we’ve used the TipRanks database to find out just where they stand. Let’s take a closer look.
New Fortress Energy Inc. (NFE)
The first Evercore pick we’re looking at is New Fortress Energy, a natural gas company operating in the LNG niche, or liquified natural gas. New Fortress focuses on the provision and transport of LNG into the global supply networks. The company boasts 15mm+ gpd in throughput capacity in its network, has 15 LNG ships across the globe, and has completed over 650 ship transfer operations and more than 8,000 rail and truck loading operations. Overall, New Fortress serves more than 100 enterprise customers around the world.
New Fortress is expanding its operations, and is on track to deploy 5 new floating LNG (FLNG) ship facilities in the Gulf of Mexico, in both Texas and Mexico.
In the last reported quarter, 3Q22, New Fortress showed a top line of $731.9 million, more than doubling its revenues year-over-year. For the first 9 months of 2022, the company had revenues of $1.82 billion, compared to just $674.2 million in the same period of 2021. Rising prices and continued and high demand are supporting New Fortress’s revenues.
Earnings were more volatile, but even so, the company showed a strong y/y gain. In 3Q21, NFE’s earnings per share came to a net loss of 5 cents; in 3Q22, the adjusted EPS was up to 29 cents profit, even after accounting for a $24 million one-time impairment charge on an asset sale, made in Q2.
On interest to investors, especially investors planning to move into defensive stocks, New Fortress in December announced an update to its dividend policy – one that would see a significantly increased capital return to shareholders. In line with the new policy, the company paid out a dividend of $3 per common share on January 13. At the new rate the dividend yields 7.8%, and the company’s Board will evaluate whether to pay out these high dividends every six months. The new dividend policy is based on company expectations for $11 billion in liquidity over the next three years, a windfall that will be used to accretive acquisitions and increased capital returns.
Covering this stock for Evercore, 5-star analyst Jonathan Chappell has written extensively on the new FLNG projects, and their prospects for increasing New Fortress’s presence in the US and Mexican gas export markets. In his words, “NFE is uniquely positioned to build LNG export assets, with relatively unlimited commitments for near-term spot gas production, offering high near-term margin potential… management stated they believe there is 80% of unused capacity that could potentially help provide feed gas to the Altamira FLNG platform at a cost comparable to U.S. export gas from the existing export infrastructure in the U.S. Gulf of Mexico Coast.”
“We urge investors (who may have been waiting on the sidelines before) to take a serious look at NFE now because FLNG, we believe, is coming soon and the broader market doesn’t likely fully appreciate the potential upside to NFE,” Chappell summed up.
To this end, Chappell gives NFE shares an Outperform (i.e. Buy) rating, and his price target, now set at $74, implies a one-year upside potential of ~96%. (To watch Chappell’s track record, click here)
Overall, there are 5 recent analyst reviews for NFE stock, and they include 4 Buys against 1 Hold, for a Strong Buy consensus rating. The shares are trading for $37.80 and their $63.40 average price target suggests a gain of ~68% over the next 12 months. (See NFE stock forecast)
The Kroger Co. (KR)
The next Evercore pick is a long-time leader in the consumer staples segment, with a readily recognizable name. Kroger Company is one of the country’s largest supermarket chains, with 44 distribution centers supporting more than 2,700 stores, 420,000 employees, and operations in 35 states plus DC. Kroger saw more than $137 billion in total sales in its last full fiscal year, 2021, and is on track to beat that total, with $113.4 billion in revenues as of fiscal 3Q22, the last quarter reported.
In that quarter, the company showed a top line of $34.2 billion, up 6.4% year-over-year, and had earnings of 88 cents per diluted share, up almost 13% y/y. The company’s digital sales saw 10% y/y growth in the quarter.
Following the strong quarter, Kroger management declared its next dividend payment for March 1, at 26 cents per common share. The dividend payment annualizes to $1.04, and gives a yield of 2.3%. Kroger has a long history, stretching back to 2011, of keeping up reliable payments.
Kroger, like many of its peer competitors, has dealt with increasing inflationary pressures since the fall of 2021. Rising prices increase store operation costs, cut into profit margins, and put pressures on consumers to buy less. Kroger is insulated from these effects, to a limited degree, as it is primarily a grocery chain, dealing in foods and beverages which consumers continue to need even as prices rise.
This big-name grocer has caught the attention of Evercore analyst Michael Montani, who writes of it: “Kroger offers pass through power, improving market share trends, and an M&A kicker amidst an inflationary backdrop, with the risk reward appealing in our view. In a base case we see above trend industry growth and Kroger improving its market share performance in CY23 a reason for multiple expansion.”
Looking ahead, Montani gives KR shares an Outperform (i.e. Buy) rating, with a $57 price target implying a gain of ~27% on the one-year time frame. (To watch Montani’s track record, click here)
All in all, KR shares have 14 recent analyst reviews on file. These include 6 Buys, 6 Holds, and 2 Sells, for a Moderate Buy consensus rating. The shares have a trading price of $44.13 and their $52.57 average price target implies a gain of 19% for the year ahead. (See Kroger stock forecast)
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.