Harry Domash, Online Investing | Four hot stocks show strong upside potential - Santa Cruz Sentinel
Talk about a strong market. As of last Wednesday, the SP 500, had gained almost 28% this year. Moreover, hundreds of stocks had generated double-digit year-to-date returns.
Is it too late to get in on the fun with those hot stocks? Probably, yes, for many of them. However, I’ve found four stocks that have already chalked big gains, but look like they still have plenty of upside potential.
What do I base that on? I’ve found that stock prices track earnings-per-share (EPS) closer than any other single variable. So what these four stocks have in common is that all generated strong earnings growth numbers this year and analysts expect more of the same in 2022.
Without further ado, here’s the list. For each stock, I start by listing the year-to-date (YTD) share price return (share price growth plus dividends) as of Dec. 29.
CF Industries (ticker: CF): YTD return +95%: CF produces nitrogen fertilizers. Not very exciting, I know. But wait until you see CF’s numbers.
September quarter sales totaled $1.4 billion, up 61% compared to a year ago and up 31% from 2019. September quarter earnings totaled 64 cents per share vs. a year ago 13 cents loss and 5 cents in 2019. Analysts expect $3.90 per share full year 2021 earnings, up 144% vs. year ago and up 75% compared to 2019. What’s more, next year analysts are looking for $12.18 per share, driven by 44% sales growth. If analysts are even close, guess what happens to CF’s share price. CF is paying quarterly dividends equating to a 1.6% yield.
Franchise Group (FRG): YTD +80%: Originally Liberty Tax Services, FRG began operating as the Franchise Group in November 2019 with the goal of accumulating a portfolio of franchisable businesses with strong growth prospects. With September quarter EPS at $0.51 vs. a year ago loss and revenues up 54% vs. year ago, Franchise Group is off to a good start. Analysts are looking for year 2021 EPS around $3.81 per share and $4.76 next year. On Dec. 7, Franchise Group raised its quarterly dividend by 67% to 62.5 cents per share which equates to a 4.7% yield.
Pfizer (PFE): YTD +63%: Pharmaceutical maker Pfizer is a major player in developing vaccines and drugs to prevent and cure many different illnesses including COVID-19. Driven by 134% higher revenues, September quarter earnings (adjusted) totaled 98 cents per share vs. 19 cents in 2020 and $0.42 in 2019. For next year, analysts are looking for 31% EPS growth driven by 18% higher sales. But analysts haven’t yet factored in the recent news about the FDA’s approval of Pfizer’s COVID antivirus pill, so those forecasts are headed higher. Pfizer is paying a 2.8% dividend yield.
Earthstone Energy (ESTE) YTD +117%: Earthstone develops and operates oil and gas properties, primarily in the Midland Basin of west Texas and the Eagle Ford area of south Texas. Thanks to 169% revenue growth, September quarter earnings totaled 6 cents per share compared to a year ago a 3 cent loss. For this year, analysts are forecasting $1.44 per share, up more than 200% from year ago 46 cents. For year 2022, driven by 80% sales growth, analysts are looking for EPS to more than double to $3.06 per share.
Those are my ideas. As always, do your own due diligence. The more you know about your stocks, the better your results.
Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.