In 2022, the S&P 500 fell 20%, inflation hit 7%, and the Fed pushed interest rates to 4.25%. Despite this, the chief investment strategist at Oppenheimer Asset Management, John Stoltzfus, pointed out that the main index could rise 15% this year and there are two actions indicated by these experts to bet on them according to TipRanks in Yahoo Finance: XPO Logistics and Papa Johns Intl.
“We continue to see ‘glass half full’ as the end of a period of ‘free money and overstimulation of the economy suggesting better times ahead,’” Stoltzfus said in a recent note, also forecasting a 15% gain. for the S&P at the end of the year.
“Fed funding cycles are never very fun; they can produce varying levels of market discomfort and volatility, but have ultimately shown in the past to have a positive effect on the economy and markets by uncovering excesses stemming from problems at their source and providing an exit regime that can lead to to a sustainable economic recovery,” added Stoltzfus.
And if we look at current policy makers setting the conditions for a “sustainable economic recovery,” then a few actions are going to lead the way. Oppenheimer’s top analysts point to these two stocks in particular that could take off in the next twelve months.
XPO Logistics
XPO Logistics is a Connecticut-based company in the freight forwarding business, specializing in Less-than-Load, or LTL, shipping. This is a vital link in the supply chain, comprising freight shipments that are too large for package carriers but do not completely fill a semi-truck. In late summer 2021 and in November 2022, XPO spun off its transportation brokerage and logistics businesses; in its current configuration, the company is a pure LTL firm. As an LTL carrier, XPO can reach 99% of US ZIP code areas, as well as much of Canada and Mexico.
XPO’s latest financial report for 3Q22 showed a strong bottom line: operating income was $185 million, up 65% from the prior year. This result was derived from the upper line of $3.04 billion. It is important to note that the gain in operating income occurred when total quarterly revenue fell 7% and that despite the revenue decline, operating income was a company record quarterly. The company reported diluted earnings from continuing operations of $1.13, well above the mere 19 cents posted in the same period a year earlier.
On the balance sheet, XPO delivered additional strong results, with $265 million in cash from operations, a total that included $142 million in free cash flow. XPO had $544 million in cash and cash equivalents on the books at the end of 3Q22, plus $1 billion in available credit, for more than $1.54 billion in total liquidity.
For Oppenheimer’s Scott Schneeberger, a 5-star analyst, XPO is a company with a clear path forward in the coming months. “We are increasingly constructive about XPO’s opportunity to optimize LTL operations through its technology capabilities, which have advanced significantly in recent years. XPO is a top 4 industry player with strong growth prospects and operating relationship improvement opportunity through anticipated volume gains/above-inflation pricing/optimized operating costs via technology/transportation line internal third party”.
“We believe XPO Logistics’ North America less-than-truckload (LTL) business is in an attractive position for operational/financial improvement. XPO is pursuing multiple self-improvement initiatives within an industry with strong pricing characteristics,” Schneeberger added.
Looking ahead, Schneeberger extrapolates his stance to an Outperform (ie Buy) rating and a $45 price target that suggests 35% upside potential for the stock in one year.
Oppenheimer’s opinion is not unusual on Wall Street; based on 11 Add Buys and 3 Holds, the stock has a Strong Buy consensus rating. The shares are selling for $33.40, and their $50.13 average price target implies a potential gain of 50% within one year.
XPO Logistics closed Wednesday at $33.40 and the moving averages of 70 and 200 periods remain above the price. Meanwhile, Ei indicators are mostly bearish.
Papa John’s International
Papa John’s is the third largest pizza delivery chain in the world. Headquartered in both Atlanta, Georgia and Louisville, Kentucky, the company has more than 5,500 locations in 49 countries around the world. Papa John’s has been in business since 1984.
The company’s revenue is remarkably stable, having hovered at or near $500 million per quarter for the past two years. In 3Q22, the last reported quarter, the company had a top line of $511 million; this was $2 million less than the third quarter of the prior year.
In short, the company remains profitable, although earnings are under pressure. Papa John’s posted non-GAAP adjusted EPS of 54 cents for 3Q22; this was lower than the 83 cents reported in 3Q21, or a 34% decrease.
The company opened 18 new units in 3Q22 and is on track to net 240-260 units for the full year of 2022.
Brian Bittner, another of Oppenheimer’s 5-star analysts, looked under the hood of Papa John’s and what he saw indicated a possible way forward for the pizza chain, despite the recent drop in profits.
“After a challenging year in 2022 related to high costs and declining margins, we believe the earnings setup could improve in 2023 and beyond… PZZA remains confident in its goal of adding 1,400–1,800 net new units between 2022–2025 , driven by international growth. This implies +380-520 units per year for 23-25 relative to +250 [in 2022]…Overall sales look strong, unit growth is in accelerated mode and drivers for margin improvement are emerging . We think this creates a more attractive setup for 2023,” Bittner opined.
Huge sales potential and an expansion plan gave Bittner a reason to rate PZZA stock an Outperform (i.e., Buy). His $105 price target indicates room for 28% stock appreciation by the end of 2023.
Overall, there are 11 recent analyst reviews on file for Papa John’s, favoring Buys over Hold (ie, neutral) by a margin of 8 to 3 for a Moderate Buy consensus rating. The stock is selling for $82.05 and his $96.50 average price target suggests 18% upside potential in one year.
Papa Johns Intl closed yesterday at $82.08 and the moving averages of 70 and 200 periods are surrounding the price. Meanwhile, Ei indicators are also mostly bearish.