There’s been a lot of rhetoric the last few days about the President’s slapping extra tariffs on $200 billion worth of Chinese goods. But the talks haven’t had much of an impact on the investment spirit, by and large, other than a few tremors at around the time the media starts talking about it.
It’s more or less well known that the U.S. sells fewer goods to China than it imports from the country, making counter tariffs a less effective strategy for China.
Of course, there are other levers China could pull, such as ignoring U.S. sanctions on Iranian oil purchase. But since it isn’t in anyone’s interest to promote another nuclear nation, especially one that hasn’t proved its ability to exercise restraint, this may not be in China’s long term interest either. China’s Belt & Road initiative, a direct route to the sea through Pakistan may also see other challenges, as Pakistan secures funding from Saudi Arabia, potentially reducing its dependence on the Chinese.
So as far as the U.S. is concerned, the strong jobs report, other positive economic data and the Fed’s independence are positives for investors. So growth and employment remain at record levels, driving strong earnings reports reflected in soaring share prices.
Here are a few stocks that prove the point-
Sunworks, Inc. SUNW
Solar power system design, installation and management provider Sunworks caters to commercial, agricultural and residential customers. Formerly known as Solar3D, the company is based in Roseville, United States.
Solar is one of the hottest markets right now because of multiple tailwinds not only in the U.S. but also internationally (particularly China).
One of the biggest drivers in the U.S. is the solar investment tax credit for solar system installations on residential and commercial properties. The credit was extended in 2015, with the goal of phasing it out gradually (30% in 2019, 26% in 2020, 22% in 2021 and 10% (only commercial) in 2022. So there’s something of a rush to build out.
Second, the California Energy Commission has mandated solar installations on all new homes being built from 2020 onward. Other states may follow suit especially considering the fact that most (barring Texas and Florida) have moved beyond the initial adoption phase.
Third, supporting tools and mechanics for things like storage and integration with the existing grid are now more easily available and the industry is working on smoothing out the permitting and inspection processes.
Fourth, Section 201 solar tariffs implemented in Feb 2018 caused some utilities (accounting for 58% of all domestic installations) to reassess project timelines, pushing out fulfillment dates to 2019.
China, which cut back on solar installations in the second quarter of 2018 by imposing disincentives like installation caps and reduced feed-in tariff (FiT) for solar projects, also did a reassessment by the end of the year. China recognizes the importance of continuing installations, but a huge subsidy backlog forced the state to slow down. But with energy demand being so high, it was finally decided that government support would be accelerated in 2019.
Sunworks is naturally a beneficiary of these positive industry developments, evident from the numbers given below-
Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Industry (solar) Rank 24 (top 29%)
Last EPS Surprise 100.00% (next report on May 14)
P/E (F1) 31.72X (industry 30.35X)
Enphase Energy, Inc. ENPH
Petaluma, California-based Enphase Energy, Inc. delivers semiconductor-based microinverter technology to increase the productivity and reliability of solar modules. Its technology converts DC-AC electricity at the individual solar module level. Sales are made directly to solar installers, OEMS and through distributors for resale to installers.
Spurred by very strong demand, Enphase recently reported revenue that topped the Zacks Consensus Estimate by 7.2% in what is usually a seasonally weak quarter and despite component shortages. Its earnings came in line with expectations. Guidance was better than expected.
Zacks Rank #2 (Buy)
Zacks Industry (solar) Rank 24 (top 10%)
Last EPS Surprise 60.00%
P/E (F1) 35.04X (industry 30.35X)
WW International, Inc. WW
New York-based Weight Watchers International (renamed WW), the world’s largest provider of scientifically-designed weight control programs, operates through weekly meetings, enlisting group support and education about healthy eating patterns, behavior modification and physical activity. It sells products like bars, snacks, cookbooks, kitchen tools and other products through its e-commerce platform and mail.
The company licenses its knowhow in food, beverages and other consumer products and services. It also generates income from magazine subscriptions, publishing and third-party advertising in publications.
The positive price action was driven by the company’s ability to better align cost with a weak top line as well as better-than-expected new subscriptions. This helped it beat the Zacks Consensus on both revenue and earnings. The raised guidance also helped.
An overall positive for the long term that didn’t, however, help just-reported results was the rebranding and reconceptualization of the company as a wellness brand rather than one focused solely on weight loss.
Another positive was the growing engagement with its app for digital and studio-plus-digital members. WW is working on this experience as well as the notably weaker studio business, but because of significant seasonality (around 40% subscriptions are in the first quarter), a slower start to the year will have a lasting impact.
Zacks Rank #1
Zacks Industry (consumer services-miscellaneous) Rank 57 (top 23%)
Last EPS Surprise 38.46%
P/E (F1) 14.43X (industry 15.64X)
Anika Therapeutics Inc. ANIK
Bedford, Massachusetts-based Anika Therapeutics is a global, integrated orthopedic medicine company. Anika offers therapies to patients with degenerative orthopedic diseases and traumatic conditions along the continuum of care, from palliative pain management to regenerative cartilage repair. Anika's orthopedic medicines alleviate pain and restore joint function while also helping with cartilage repair and regeneration.
The jump in share prices was related to strong revenue (up 16.0%) and earnings (31 cents compared to loss of 46 cents a year ago) that topped the Zacks Consensus Estimates by 14.6% and 47.6%, respectively. Additionally, management allotted $30 million toward an accelerated share repurchase program that will commence at the middle of this month and be completed by the second quarter of 2020.
New products with potential for future growth include Cingal (alleviates pain and restores joint function by replenishing depleted HA, ready for Phase III trial), bone repair therapy ($250-300 million opportunity in the U.S.) to launch in the second half of 2019, Hyalofast (for cartilage repair and regeneration) 55% enrollment for Phase III trial ($500 million+ opportunity in the U.S. market).
Zacks Rank #2
Zacks Industry (medical-biomedical and genetics) Rank 72 (top 29%)
Last EPS Surprise 47.62%
P/E (F1) 32.48X (industry 57.29X)
Materion Corporation MTRN
Materion Corp. of Mayfield Heights, Ohio, operates through wholly-owned subsidiaries to produce and sell high-performance engineered materials in the U.S. and internationally. Its product portfolio includes precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty engineered beryllium alloys, beryllium and beryllium composites, and engineered clad and plated metal systems.
The recently reported revenue was in line with the Zacks Consensus Estimate. Materion saw strength in defense, energy and telecom infrastructure end markets, which were however partially offset by weakness in consumer electronics.
The huge beat on the bottom line came from a favorable mix (by focusing on higher value added sales in the defense, energy, telecommunications infrastructure and commercial aerospace end markets and by trimming some lower-margin business in the Asia/Pacific) as well as operational efficiencies, which therefore also benefited the gross and operating margins. Margin expansion has been consistent over the last few years and management’s goal is to continue along that path.
Zacks Rank #1
Zacks Industry (mining-miscellaneous) Rank 73 (top 29%)
Last EPS Surprise 36.67%
P/E (F1) 23.65X (industry 8.09X)
Arcosa Inc. ACA
Dallas, Texas-based Arcosa, recently spun out of Trinity, is a manufacturer of infrastructure-related products and services for construction, energy and transportation markets.
Revenues grew 15.9%, net income 24.8% and adjusted EBITDA 21.1% in the last reported quarter. The construction market was the strongest, growing revenue 51% and EBITDA 23%. It was followed by energy, which while growing revenue just 7% was able to grow adjusted EBITDA by 39%. The transportation segment also grew revenue by 9% but its adjusted EBITDA dropped 8%.
Zacks Rank #1
Zacks Industry (building products miscellaneous) Rank 169 (bottom 32%)
Last EPS Surprise 81.25%
P/E (F1) 17.93X (industry 10.96X)
Business remains good across most industries as evident from the above. Besides, there are always opportunities, even in a down market. The money is in timing the purchase right and making sure that it’s in an attractive industry so you have protection in case you timed in wrong. Add a Zacks buy-ranked stock into that mix for triple insurance.
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Anika Therapeutics Inc. (ANIK) : Free Stock Analysis Report
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