Despite brief periods of respite, the markets have mostly trended south in 2022, with the NASDAQ’s 28% year-to-date loss the most acute of all the main indexes.
So, where to look for the next investing opportunity in such a difficult environment? One way is to follow in the footsteps of the corporate insiders. If those in the know are picking up shares of the companies they manage, it indicates they believe they might be undervalued and poised to push higher.
To keep the field level, the Federal regulators require that the insiders regularly publish their trades; the TipRanks Insiders’ Hot Stocks tool makes it possible to quickly find and track those trades.
Using the tool we’ve homed in on 3 stocks C-suite members have just been loading up on – ones that have retreated over 40% this year. Let’s see why they think these names are worth a punt right now.
First out of the gates, we have Carvana, an online used car retailer known for its multi-story car vending machines. The company’s ecommerce platform provides users with a simple way to search for vehicles to purchase or get a price quote for a vehicle they might want to sell. Carvana also offers add-on services such as vehicle financing and insurance to customers. The company operates by a vertically integrated model – that is, it includes everything from customer service, owned and operated inspection and reconditioning centers (IRCs), and vehicle transportation via its logistics platform.
Carvana has been growing at a fast pace over the past few years, but it’s no secret the auto industry has been severely impacted by supply chain snags and a rising interest rate environment.
These macro developments - along with a rise in high used-vehicle prices and some more company-specific logistics issues - resulted in the company dialing in a disappointing Q1 earnings report.
Although revenue increased year-over-year by 56% to $3.5 billion, the net loss deepened significantly. The figure came in at -$506 million compared to 1Q21’s $82 million loss, resulting in EPS of -$2.89, which badly missed the analysts’ expectation of -$1.42.
Such an alarming lack of profitability is a big no-no in the current risk-free climate, and investors haven’t been shy in showing their disapproval – further piling up the share losses post-earnings and adding to what has been a precipitous slide; Overall, CVNA shares have lost 88% of their value since the turn of the year.
With the stock at such a huge discount, the insiders have been making their moves. Over the past week, director Dan Quayle – yes, the former vice president of the United States – has picked up 18,750 shares worth $733,875, while General Counsel Paul Breaux has loaded up on 15,000 shares for a total of $488,550.
Turning now to Wall Street, Truist analyst Naved Khan thinks Carvana stock currently offers an attractive entry point with compelling risk-reward.
“We see a favorable risk/reward following reset expectations, a 50+% decline in stock post earnings/capital raise and analysis of the company’s updated operating plan. Our analysis suggests at current levels the stock likely reflects a bear-case outcome for 2023 profitability along with lingering concerns around liquidity (addressed in the operating plan). We see room for meaningful upside to 2023 EBITDA under conservative base-case assumptions, with Stock's intrinsic value >2x current levels. At ~1x fwd sales, we find valuation attractive," Khan opined.
To this end, Khan rates CVNA a Buy, backed by an $80 price target. The implication for investors? Upside of a hefty 200%. (To watch Khan’s track record, click here)
What does the rest of the Street make of CVNA right now? Based on 7 Buys, 13 Holds and 1 Sell, the analyst consensus rates the stock a Moderate Buy. On where the share price is heading, the outlook is far more conclusive; at $83.74, the average target makes room for one-year gains of 214%. (See CVNA stock forecast on TipRanks)
We’ll now switch gears and move over to the semiconductor industry, where Wolfspeed is at the forefront of a transformation taking place – the transition from silicon to silicon carbide (SiC) andgallium nitride (GaN). These wide bandgap semiconductor substrates are responsible for boosting performance in power semiconductors/devices and 5G base stations, while the company’s components are also used in consumer electronics and EVs (electric vehicles), amongst others.
Like many growth names, Wolfspeed is still unprofitable, but both the top-and bottom-line have been steadily moving in the right direction over the past 6 quarters. In the last report - for F3Q22 – WOLF’s revenue grew by 37% year-over-year to $188 million, albeit just coming in short of the $190.66 million the Street expected. EPS of -$0.12, however, beat the analysts’ -$0.14 forecast. For F4Q22, the company expects revenue in the range of $200 million to $215 million, compared to consensus estimates of $205.91 million.
Nevertheless, companies unable to turn a profit in the current risk-free environment are bound to struggle and so has WOLF stock. The shares have declined 41% on a year-to-date basis, and one insider has been taking note. Earlier this week, director John Replogle scooped up 7,463 shares for a total of $504,797.
For Wells Fargo analyst Gary Mobley, it is the combination of the company’s positioning in the semiconductor industry and the beaten-down share price which is appealing.
“We view WOLF as one of the purest ways in the chip sector to play the accelerating market transition to pure battery electric automotive power trains,” the analyst wrote. “Not only have WOLF shares pulled back in the midst of the tech-driven market sell-off, but we are also incrementally more constructive on WOLF shares given we are on the cusp of the company's New York fab ramping production, a game changer for WOLF as well as the SiC industry, in our view.”
Standing squarely in the bull camp, Mobley rates WOLF an Overweight (i.e. Buy), and his $130 price target implies a robust upside of ~99% for the next 12 months. (To watch Mobley’s track record, click here)
The Wall Street analysts are taking a range of views on this stock, as shown by the 10 recent reviews – which include 4 Buys and 6 Holds. Added up, it comes out to a Moderate Buy analyst consensus rating. The average price target, at $109.59, implies ~68% one-year upside from the current trading price of $65.40. (See WOLF stock forecast on TipRanks)
The Home Depot (HD)
Lastly, let’s have a look at a household name. The Home Depot is the U.S.’ biggest home improvement specialty retailer, supplying everything from building materials, appliances and construction products to tools, lawn and garden accessories, and services.
Founded in 1978, the company set out to build home-improvement superstores which would dwarf the competitors’ offerings. It has accomplished that goal, with 2,300 stores spread across North America and a workforce of 500,000. Meanwhile, the retailer has also built a strong online presence with a leading e-Commerce site and mobile app.
Recently, even the largest retail heavyweights have been struggling to meet expectations, a development which has further rocked the markets. However, HD’s latest quarterly update was a positive one.
In FQ1, the company generated record sales of $38.9 billion, beating Wall Street's $36.6 billion forecast. The Street was also expecting a 2.7% decline in comps but these increased by 2.2%, sidestepping the macroeconomic headwinds. There was a beat on the bottom-line too, as EPS of $4.09 came in above the $3.68 consensus estimate.
Nevertheless, hardly any names have been spared in 2022’s inhospitable stock market and neither has HD stock; the shares show a year-to-date performance of -31%. One insider, however, is willing to buy the shares on the cheap.
Last Thursday, director Caryn Seidman Becker put down $431,595 to buy a bloc of 1,500 shares in the company.
She must be bullish, then, and so is Jefferies analyst Jonathan Matuszewski, who highlights the positive noises made by management following the Q1 results.
“We came away from the earnings call with the view that management's tone was more bullish on the US consumer than it has been in recent history. With backlogs strong across project price points, consumers trading up, and big-ticket transactions sequentially accelerating on a multi-year basis, we believe investor reservations regarding slowing industry sales growth are premature," Matuszewski opined.
Matuszewski’s Buy rating is backed by a $400 price target, suggesting shares will climb 39% higher over the one-year timeframe. (To watch Matuszewski’s track record, click here)
Most on the Street also remain in HD’s corner; the stock has a Strong Buy consensus rating built on a solid 18 Buys vs. 4 Holds. The forecast calls for 12-month gains of 24%, given the average target clocks in at $357.35. (See HD 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.