Three Stocks to Watch for the Week of March 28th

Even as investors weighed interest rate hikes and war in Ukraine, the major indexes were able to post a second-straight week of gains last week.  The Dow ticked up 0.3%. The S&P 500 gained 1.8%, and the Nasdaq rallied nearly 2% for the week.

The S&P 500 is now about 3.9% higher in March, more than erasing its losses since Russia invaded Ukraine late last month.  The recovery has come even as the war in Ukraine continues and interest rates rise, with the Federal Reserve set to hike rates several more times this year.

“Equities are rallying despite a hawkish Fed and stagflation concerns, as many believe there is no alternative to stocks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Next week will be an eventful one on the economic data front.  Updated figures for the Fed’s preferred inflation gauge, personal consumption expenditures (PCE), are slated for release on Wednesday. The Labor Department will release its monthly jobs report for March on Friday.  We’ll also get a clearer picture of strength in the housing market following record price growth in 2021.  January’s reading of the S&P Case-Shiller National Home Price Index is on the docket for Tuesday.  

Our team has spotted a few potential opportunities for the week, including a lesser-known company poised to benefit substantially in the multi-trillion-dollar race to reduce carbon emissions. Plus, a tech darling caught up in the recent sell-off and offering an entry that’s too tempting to ignore.

Companies are investing trillions in the race to reduce carbon emissions.  One of the promising, lesser-known names amid the energy transition is Atlantica Sustainable Infrastructure (AY).  Overall, 70% of its portfolio are renewable energy assets essential to a lower-carbon future, including aspects from the full spectrum of clean energy power generation –wind, solar, geothermal, and natural gas – as well as electricity lines and water desalinization plants.

Atlantica aims to invest about $300 million per year on growth-related opportunities, which should drive ~6% annual growth in its cash available for distribution per share through 2025.  It has invested an average of $296 million annually over the last three years, including $480 million last year.  Recent deals include a $198 million investment for a 49% stake in a U.S. wind farm portfolio and $170 million to purchase the third largest geothermal operation in the U.S.

That steadily expanding stream of income should enable Atlantica to continue increasing its 5.1% dividend and help the company generate attractive returns for investors in the coming years.

With some of the pressure off of markets due to Fed clarity, many investors are reevaluating the recent pullback in technology.  One name that could be presenting a particularly attractive opportunity in light of the recent sell-off is  Oracle Corp (ORCL).

With a market cap of nearly $208 billion, Oracle is the second-largest software company in the world.  Oracle provides information technology (IT) products and solutions to governments and companies around the globe. 

In its fiscal year 2022 third quarter, ORCL’s operating income rose to $4.81 billion, and total revenues increased 4.2% year-over-year to $10.51 billion.  The consensus sees a gradual acceleration for ORCL, with $11.71 billion in revenue forecasted for Q4, which would be a 4.3% year-over-year increase.

Last week Oracle announced a data storage deal with TicTok that would further support revenue growth and could serve to inspire other significant relationships for the company as the global movement to secure sensitive data advances.  Plus, Oracle’s expanding presence in the healthcare sector and strong momentum in its Software as a Service (SaaS) business remain a source of encouragement.  

Societe Generale analyst Richard Nguyen upgraded Oracle to Buy from Hold after the company reported Q3 results.  The company’s investment capacity and “excellent execution track record” lead Nguyen to believe the company is poised to gradually step up its revenue growth while maintaining its high profitability. He views the stock as “highly defensive in this uncertain environment.”  In the downturns of 2003, 2009, and 2020, Oracle showed it could preserve and even grow its margins via “excellent execution,” the analyst told investors.

The stock has slumped 7% in price year-to-date and 21% since its December high.  Oracle has a trailing-twelve-months P/E of 16.64 compared to an industry average TTM P/E of 30.13.  Anyone considering a position in this sought-after name might consider now a good time to strike.  The 1.57% dividend is another added incentive.  

Roblox Corp (RBLX) has been hit hard recently as investors have taken a pessimistic view of the company’s growth trajectory.

Per the company’s Q4 2021 earnings presentation, bookings increased by +20% year over year to $770.1 million.  Notably, this was the slowest year-over-year growth in the company’s bookings in the past 11 quarters.  For the sake of comparison, RBLX bookings increased 161% in Q1, 35% in Q2, and 28% in Q3.  

The company could struggle to keep up as it laps its stellar performance from the first quarter of last year. Still, bookings growth seems likely to accelerate in the second half of 2022 as expansion in promising Asian markets is on track to offset weakness in U.S. markets.  RBLX derived 23% of its total daily active users in Q4, up from 15% in Q4 2020.  What’s more, daily active users in two key Asian markets, India and Japan, saw their respective daily active users increase by more than +100% year over year in Q4 2021.

The consensus forecasts currently call for Roblox to grow earnings by a respectable 32.5% in the first quarter of 2022 and to cut its losses in half (to $0.22 per share).  The analysts offering recommendations for the stock rate it a Buy and give it an average price target of $65, implying an increase of 38% from where the stock closed on Friday.

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