NRG Energy stock (NYSE: NRG)
“Despite headwinds earlier this year from Winter Storm Uri, which came shortly after NRG’s acquisition of Direct Energy, another large competitive electric/gas retailer, we still see a path for multiple expansion moving forward given NRG’s strong free cash flow generation, benefits and synergies from the Direct Energy acquisition, and capital allocation via share buybacks,” Goldman’s Michael Lapide said.
Demand spikes and power plant outages in Texas during Winter Storm Uri in February harmed the company in the first quarter, sending its stock lower. However, shares have risen by more than 20% in the last three months.
Goldman Sachs believes that normalized operations and share buybacks will result in strong cash flow in the future. NRG Energy is expected to repurchase 19% of its market capitalization by the end of 2023, according to the firm. According to Goldman, this cash flow should help the company improve its capital allocation.
The firm raised its earnings and revenue forecasts for NRG Energy for 2021, 2022, and 2023.
“Longer term, we see potential for a multiple re-rating as NRG works towards achieving investment grade credit metrics and may trade more in line with low growth, consumer facing businesses like consumer staples or telecom — implying upside to our target multiple and target price,” Lapides said.
In 2021, NRG Energy shares are up nearly 12%.
Tech stock picks
The firm cautioned against taking an “extreme” position in either value or growth stocks — so-called value stocks are typically priced lower than the rest of the market, whereas growth stocks are expected to grow rapidly but are frequently more expensive. It comes as some analysts argue that the rotation away from value stocks may be coming to an end, with investors returning to growth stocks.
Instead, Jefferies analysts suggested investing in the “middle” and developed three screens: stocks with growth at a reasonable price, stocks with quality at a reasonable price, and stocks with growth at a reasonable yield, all of which have earnings momentum, according to a research note published Monday by the analysts led by Desh Peramunetilleke.
Its picks come from a variety of industries, with the bank overweight on technology, materials, and consumer goods and underweight on “extremes” like financials and real estate.
Here are some of its top picks in tech hardware, software, and semiconductors:
Hardware for technology
Along with Taiwanese companies Delta Electronics, Unimicron Technology+, and Nan Ya PCB, both Samsung Electronics and its affiliate, battery company Samsung SDI, are stock picks on Jefferies’ growth at a reasonable price list.
BOE Technology Group, a Chinese electronics components firm, is on the same list, as is PC-maker Lenovo, which is on Jefferies’ growth at a reasonable price screen. In the United States, Apple, as well as European favorite Ericsson, produce high-quality products at reasonable prices.
Venustech, a Chinese company, is on Jefferies’ list of quality stocks with reasonable growth, while Tech Mahindra, an Indian firm, is on its list of growth at a reasonable yield.
In the United States, cybersecurity firm NortonLifeLock makes Jefferies’ list of quality stocks.
Taiwanese manufacturer TSMC and Korean memory semiconductor company SK Hynix are both picks on the investment bank’s growth at a reasonable price screen. Meanwhile, the Taiwanese firm Novatek Microelectronics appears on the list of quality at a reasonable price.
Texas Instruments, Skyworks Solutions, KLA, and Qorvo are among the US semiconductor stocks on Jefferies’ quality at a reasonable price list.
STMicroelectronics and BE Semiconductor Industries are among the European companies on the bank’s quality list (Besi).
“Avoiding the extremes and following earnings is one way to avoid the distraction of the value versus growth moves,” Jefferies analysts stated. “In fact, earnings revisions have been a consistent outperformer this year across most regions, outperforming both this year and the previous three months. At the same time, the most improved style has been quality, which has outperformed significantly over the last three months. As a result, we recommend focusing on quality/growth at a reasonable price,” they said.
Carnival stock (NYSE: CCL)
As the highly contagious delta variant spread and Covid-19 cases increased, investors shifted away from stocks linked to the economy’s reopening. Carnival shares are down more than 13% in the last three months, compared to a 5.4 percent gain in the S&P500 during the same period.
“Following the recent share price pullback due to concerns about the COVID delta variant, we see the current price as a great entry point,” said Citi analyst James Ainley in a note Friday.
Ainley believes the current fiscal year will be difficult for Carnival, but that the period leading up to fiscal 2022 will improve as vaccination progresses and cruise lines move closer to pre-pandemic operations. Carnival announced last month that it would resume guest cruises with 75 percent of its total fleet capacity by the end of the year.
According to Citi’s analysis of web traffic, consumer demand is also improving. The bank anticipates a full sailing schedule by the summer of 2022.
Ainley acknowledged the risk of predicting Covid developments, but emphasized several advantages for Carnival, including pricing power.
“While the rate of normalization will remain uncertain and present downside risks, we see upside risks from stronger-than-expected pricing…and greater operating efficiency,” Ainley said.
Carnival shares are up 4% this year, trailing the S&P500′s gain of nearly 18%.
Bank of America top stocks
“We anticipate a brisk residential pool season through the fall of 2021, which will result in increased demand for pool chemicals, cleaning/maintenance supplies, and pool accessories,” said Elizabeth Suzuki of Bank of America.
Leslie’s stock was upgraded to a buy rating from neutral by Bank of America in a note titled “Time to hold your nose and jump in.”
Pool owners are expected to keep their pools open for at least one to two weeks longer than usual this year, according to the bank. The highly contagious delta variant, according to BofA, will drive many families away from air travel, public pools, and sporting events. Furthermore, according to the firm, last September’s colder-than-usual weather should allow for easy year-over-year comparisons for Leslie’s.
Higher commodity costs, such as chlorine, should boost Leslie’s same-store sales growth in the next fiscal quarter, according to Bank of America, because pool maintenance supplies are a necessity, and Leslie’s should be able to pass on inflation to customers through price increases.
“As the category’s largest retail chain, LESL also has a competitive advantage in sourcing products with limited availability,” Suzuki explained.
According to the bank, new pool demand will continue to rise as Google search activity for “pool installation” and “hot tub” remains high.
Furthermore, BofA believes Leslie’s shares are currently undervalued in comparison to historical valuations.
Leslie’s shares are down more than 18% in 2021.