Investors have a rare opportunity today. At a time of sharp market declines, raging inflation, and growing fears of a general economic recession, that may seem a counterintuitive statement – but it’s true. While the macro picture may be grim, at least one economic/technological sector is offering a real chance to get in on the ground floor of a radical sea-change.
There’s a growing realization that fossil fuels are polluting and that we cannot go on depending on them indefinitely. The result: an array of new companies popping up in recent years to take advantage of new openings in the energy sector.
Canaccord analyst George Gianarikas notes the basic opportunity on tap for investors: “We see the world’s energy transition away from fossil fuel technologies as not only necessary to save our planet, but also as one of the greatest investment opportunities since the internet and communications revolution. The capital formation, innovation, and profit potential ahead should be vibrant and, literally, world-changing.”
Getting into some finer detail, Gianarikas lays out some particular paths investors can take, writing, “With significant capital being allocated to the sector, we see several pockets of innovation and potential technological breakthroughs that have us energized, including improvements in battery chemistry, autonomous driving, carbon capture and storage, and small nuclear reactors.”
In addition to taking a broad-based look at the emerging segments of the energy sector, Gianarikas has also tapped several specific stocks as solid Buys for investors. We’ve used the TipRanks database to pull up the details on three stocks which the analyst sees with 50% upside in the coming year, or better. The rest of the Street also backs these tickers, with each sporting a “Strong Buy” consensus rating. Here are the details.
First up is a stock that Gianarikas describes as a ‘charging bull.’ Wallbox, a Spanish company traded on Wall Street, lives in the electric vehicle (EV) charging market, and has developed a range of smart charging devices for both private and commercial EV users and owners. The company’s charger units bring high-end features such as universal plugs and touchscreen controls, and even bidirectional use that allows fully charged EVs to send power back onto the grid or the user’s home.
So far this year, Wallbox’s shares have fallen 50% even as revenues have shot up. In its 1Q22 results, released this past May, the company showed 28.3 million Euros at the top line, up a whopping 192% year-over-year. The increase was driven by a 180% jump in the number of chargers sold, to 51,000 for the quarter. The sales growth necessitated a workforce growth, and Wallbox reported hiring 104 new people in the quarter, to reach some 1,000 workers in its global workforce.
Looking ahead, Gianarikas sees several advantages for Wallbox, including unique features of its product line and its potential for cashing in on US Federal largesse. Of the first of these factors, the analyst writes, “The company’s internally developed myWallbox app and public charging software tools like Electromaps help to differentiate the company’s offerings. Management also estimates it can steadily increase software-related revenue. Wallbox plans to develop a suite of hardware and software solutions to eventually position itself as the provider of ‘all-in-one renewable energy solutions with the charger at the center.’”
Turning to the issue of Federal support, the analyst adds, “The Biden administration in November signed into law a ~$1T infrastructure bill that included $7.5B to build a national network of charging stations for electric vehicles…. Wallbox, with its American-made, DC fast charger, Hypernova, is in a strong position to potentially win a reasonable amount of business from this rollout. Meaningful orders could be a gamechanger for Wallbox.”
Taken together, this adds up to a Buy rating from Gianarikas, whose $14 price target suggests a one-year upside gain of ~70%. (To watch Gianarikas’ track record, click here)
The Canaccord view on Wallbox is bullish, but Wall Street generally is even more so. The stock has 6 recent analyst ratings, including 5 to Buy and 1 to Hold, for a Strong Buy consensus view. The shares are selling for $8.25, and their average price target, currently at $16.92, implies a jump of 105% in the next 12 months. (See WBX stock forecast on TipRanks)
MP Materials (MP)
EV chargers are great, but like much of modern tech’s gadgets, they depend on rare earth metals. And that’s where MP Materials comes in. While most of this vital mining sector is locked down by China, MP Materials is working to put the US back on the map as a source of these essential elements. The company’s Mountain Pass site is the only rare earths mining and processing facility in North America, features extraction, separation, milling, and finishing operations. By combining these ops into one location, MP Materials gains a significant cost efficiency over similar rare earth mines.
The metals produced at MP’s facility find uses in a wide range of applications, from conventional and electric vehicles to clean energy wind turbines to digital tech, including electronic components, LCD screens, and glass polishing, to military uses in communications and guidance systems. The company’s operations currently supply some 15% of the global stock in rare earths.
This past April, MP Materials announced a partnership with General Motors to open a magnet making facility in Texas. Permanent magnets, incorporating rare earth metals, are an essential component in most rare earth applications, and the Texas facility will give MP a strong entry into this niche. Production should commence in late 2023.
The current year saw MP get off to a powerful start, with quarterly records in revenue and net income. The top line came to $166.25 million, up 177% from the $59.97 million reported in the first quarter of 2021. At the bottom line, net income was reported at $85.55 million, more than 5x higher y/y than the 1Q21 result. The company’s diluted EPS came in a 50 cents, a gain of 37 cents y/y.
Gianarikas notes that the company is benefiting from a solid strategic plan to continue boosting revenues, writing, “MP management has laid out a three-stage plan to move up the magnet value chain and leverage the $1.7B in investments made by previous owners of the Mountain Pass mine. The move involves transitioning from rare earth concentrate (stage 1) to oxides (stage 2) to magnets (stage 3). Each incremental stage presents investors with the potential for increased revenue, margin and high ROIC.”
Following from these expectations, Gianarikas sets a Buy rating on MP stock with a $44 price target to indicate room for a 50% upside this year.
Overall, the Street is coming down with the bulls on this mining firm. MP has 9 recent analyst reviews, breaking down 8 to 1 in favor of Buy over Hold for a Strong Buy consensus rating. The average price target is $50.89, implying ~74% upside on the one-year time frame. (See MP stock forecast on TipRanks)
Fluence Energy (FLNC)
Last on today’s list is Fluence Energy, a company working in the energy storage realm, where, in Gianarikas’ words, it has become a ‘trailblazer.’ Fluence has developed the Fluence Cube, the base unit of a modular, highly configurable, scalable energy storage system. The Fluence system, based on its Cube, offers capabilities for rapid delivery and deployment on top of cost-effective builds. The storage battery system can be designed for installations of 1 megawatt all the way up to 500 megawatts.
In addition to the Cube system, Fluence also offers customers its Fluence OS, an operating system to control the energy storage system, whether it be a single installation or multiple networked 500 megawatt grids. The OS can be paired with the Fluence IQ, an AI platform that improves performance of the operating system and energy storage units through faster decision processes.
Finally, customers can select a range of service packages for maintenance of the Fluence energy storage systems. Packages include varying levels of training and maintenance, shared between the customer and Fluence.
Writing on Fluence, Gianarikas points out two main factors: the importance of energy storage, especially for the renewable energy production sector, and the peculiar attributes of Fluence’s system: “As costs have continued to decline for renewables technologies like wind and solar, a major impediment has remained: intermittency. With storage, the electric grid can become more reliable, more stable - allowing for full renewables penetration - and more efficient - allowing for the replacement of “peaker” plants…. The Cube product is battery-agnostic, which means that today it can accept lithium-ion supply from multiple suppliers with varying chemistries – a key competitive differentiator for Fluence. Management has secured ~20 GWh of contracted battery supply expected through 2024, with the vast majority through battery vendors in Asia.”
These comments support the analyst’s Buy rating, and his $16 price target shows his confidence in a 58% upside for the coming year. (To watch Gianarikas’ track record, click here.)
Once again, we’re looking at a stock with a Strong Buy from the analyst consensus, this time based on 6 recent Buy ratings against 2 Holds. The shares carry an average price target of $17.94, which gives an 82% upside potential from the current trading price of $9.85. (See FLNC stock forecast on TipRanks)
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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.