Three Stocks to Watch for the Week of August 15th

Stocks rallied into the close Friday, contributing to a solid weekly uptick for the major indices. The Dow gained nearly 3%, while the Nasdaq and the S&P 500 rose over 3%, logging the fourth consecutive positive week – the longest string of weekly gains for the S&P since November 2021. Small-caps outperformed significantly with a 5% increase for the Russell 2000.

The second quarter earnings season continues to wind down. Of the 455 S&P 500 companies that have reported thus far, around 75% have topped profit projections, and roughly 63% have bested revenue forecasts, according to Bloomberg. Year-over-year revenue growth is 14.8% higher, and earnings are up 8.7%.

Retail will be in focus this week, with quarterly results on deck from Walmart, Home Depot, Lowes, Target, and more. The Census Bureau’s release of July’s retail sales data will provide an update on how inflation has affected consumer spending. Market watchers will also be looking for clues on where Fed policy is headed when the central bank releases minutes from the July policy meeting, which resulted in a 75 basis point rate hike.  

Our team has its sights set on three tickers for the week to come, including one of the biggest potential beneficiaries of the IRA bill, expected to be passed by the House in the coming days, plus a small-cap that’s gaining significant traction as it climbs from the wreckage of the recent tech route.  

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Clean energy stocks are catching a boost on the heels of the Senate’s approval of the Inflation Reduction Act, a $430 billion climate bill expected to be passed by the House this week. The bill aims to reduce the budget deficit via tax reform while investing in renewable energy.

Arguably one of the best-positioned names to benefit from the new act,  First Solar Inc. (FSLR) is a leader in the solar industry. Unlike many burgeoning solar companies, they have a rock-solid balance sheet that can handle the challenges of an economic downturn.  

One of the most popular solar stocks to buy, First Solar, provides solar panels and photovoltaic powerplants. What sets the company apart from the competition is its ultra-thin semiconductor technology, which provides enhanced resilience and efficiency for its modules.  

There is plenty of upside in the sector and room for growth. Overall, solar energy only accounts for around 2% of the total grid usage. First Solar is preparing for growing demand as that number is primed to increase.  

FSLR was the beneficiary of multiple upgrades this week, including one from JPMorgan’s Mark Storuce, who upgraded the stock from Neutral to Overweight. “FSLR has nearly 3 GW of US-based module capacity, expanding to 5.9 GW by year’s end 2024 that will qualify for the domestic manufacturing tax credit,” he wrote, adding that the value of the credits could add $931 million to the company’s 2024 net income.  

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Beer, wine, and spirits distributor and manufacturer Constellation Brands (STZ) has more than 100 brands, including Corona, Modelo, Svedka Vodka, Casa Noble Tequila, and Robert Mondavi.   Its robust portfolio of high-quality brands also provides investors with exposure to the cannabis industry via its Canopy Growth (CGC) investment.

As the most prominent beer import company in the US, Constellation has the third highest market share (7.4%) of all major beer suppliers and generates 77% of its consolidated net sales through beer. The company has increased its production capacity four times over the last decade to meet demand and is currently focused on projects in Mexico. With $800 million invested in Mexican Beer Projects in 2022 and renewed support from the Mexican government (via a recent commitment to continued access to government-owned water sources), the expansion is likely to be highly successful.    

Investors will be tuned in during the next earnings report, slated for October 5th, looking for results from management’s recent efforts to increase capital expenditure efficiency. The company eliminated class B common stock in an effort to enhance and simplify the capital structure and corporate governance, a decision that’s expected to save $15-20 million in operating costs related to executive compensation and benefits this year.  

Constellation topped Wall Street’s expectations for both earnings and revenue during its most recent release. The company reported $2.66 per share compared to analyst expectations of $2.51 per share. Revenue was up 16.6% from the same period last year, coming in at $2.36 billion, beating the consensus estimate of $2.16 billion. The company also recently disclosed a quarterly dividend of $0.80, representing a $3.20 annualized dividend and a 1.32%. The yield seems likely to grow with a conservative payout ratio of just 14%.

Equities research analysts predict that Constellation Brands will post $10.91 earnings per share for 2022. Its current price of $243.73 indicates a P/E of 22x STZ seems undervalued compared to competitors like The Duckhorn Portfolio, Inc. with a P/E of 30x and Brown-Forman Corporation with a P/E of 37x. Of 24 analysts offering recommendations for the stock, 19 rate it a Buy, and 5 rate it Hold. There are no Sell ratings. A median price target of $274 represents a 13% upside from the current price.  

Last week, BMO Capital analyst Andrew Strelzik initiated coverage of STZ with an Outperform rating and a $290 price target, which implies a 20% upside. The analyst believes Constellation is an “attractive investment with favorable risk/reward as it balances a solid multi-year growth outlook with a valuation discount to peers that is too wide.”

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Special purpose acquisition companies (SPACs) generally had a weak performance in 2021. Our following recommendation is one of the companies that stumbled out of the gate but has potential so vast that it should not be ignored. This is one stock to watch with an industry-wide acceleration likely this year and several other tailwinds forming.  

Leading global provider of space-based data, analytics, and services, Spire Global Inc. (SPIR), had been in business for nine years before the company went public via SPAC merger in 2021. After stumbling out of the gate and lowering guidance in its first quarter, the stock has fallen 85%, creating a possible buying opportunity for anyone looking to get in on a pure-play space company at a low price. 

The space industry is still in its early stages of development, making space investing speculative and risky. As a pioneer, by the time SPIR made its way to the New York Stock Exchange, its global satellite infrastructure had been fully deployed for some time – and operating at a very high scale.  

The company has more than 110 satellites currently in orbit, collecting powerful insights about Earth and sending them to Spire’s 72 antennas at ground stations in 16 countries. Terabytes of data are then processed and shipped to hundreds of customers worldwide, giving commercial and government organizations the competitive advantage they seek with insights from space. Spire’s subscription-based business model provides predictable income for monetizing that data, where an annual subscription can cost anywhere between tens of thousands of dollars to the very high millions.  

Spire notably booked $43.4 million in revenue in 2021 and ended the year with nearly $71 million in annual recurring revenue, representing 96% year-over-year growth. By 2025 the company expects to expand its customer base and reach $1.2 billion in revenue, which it forecasted in its investor presentation. 

Small-cap Spire’s share price is down 90% from its ATH from September 2021 but has been building steam. Over the past month, SPIR has risen a whopping 44%. The pros remain bullish, with many expecting momentum to continue to build throughout the year. The stock garners an 80% Buy rating from analysts covering it and a median price target of $4, indicating a 139% upside from Friday’s closing price.  

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