Citi recommends owning these 3 stocks for more than 40% upside – here’s why they could rise

By | September 14, 2023

With the third quarter upon us and the final quarter of the year upon us, it’s time to take stock of the stock markets. Where are we likely to go in the coming months and what are the forces that are likely to influence trading? In some recent commentary on CNBC, Citi strategist Scott Chronert expresses his belief that we will likely see further gains.

Chronert first points out that fears of a harsh recession have faded, or as he puts it, “We’ve been pricing in a soft landing since the first part of June.” To support this, Chronert says the Fed rate cycle is near its peak and corporate earnings are likely to remain resilient. In conclusion, Chronert adds: “I think that, all things considered, the balance is still bullish through the end of the year, and we will return to our current view that the S&P’s fundamental support remains quite positive globally at this point.”

With this positive sentiment, Citi analysts have identified three names they believe are poised to generate gains above 40%. We ran this trio of Citi-recommended names through the TipRanks database to find out what the rest of the Street has to say about them. It turns out that all three are rated Buys by analyst consensus. Let’s find out why.

World Camps (CWH)

We’ll start in the leisure sector, with Camping World Holdings, one of the largest companies in the outdoor recreation niche. Camping World is primarily a retailer of new and used recreational vehicles, as well as RV rentals, but the company also deals in RV accessories, both for the interior and exterior of vehicles, boats and other watercraft, portable generators and camping equipment. and accessories.

The company is a holding company and operates primarily through two brands: the eponymous Camping World and the Good Sam brand. Through these subsidiaries, Camping World Holdings has become the largest RV retailer in the U.S. recreational market and a leader in related outdoor and camping products. The company is committed to knowing its customers and tailoring its product lines to meet their preferences. It has been in business since 1966.

Turning to company results, we find that CWH reported record level sales of used vehicle units in 2Q23, the most recently reported quarter. However, the company’s overall revenue of $1.9 billion fell more than 13% year over year and missed forecasts by $70 million. Bottom line, Camping World Holdings reported non-GAAP EPS of 73 cents per share, 3 cents below expectations.

Camping World Holdings offers investors regular stock dividends and has a history of adjusting payouts to fit current conditions. The most recent filing for Q3’23 pegged the common stock payout at $0.125 per share or 50 cents on an annualized basis, yielding 2.3%. Payment is due on September 29th. The current dividend represents an 80% reduction from the previous quarter.

Shares of the veteran leisure company tumbled after its earnings release and dividend cut. The stock is down 31% from pre-release levels. For Citi’s 5-star analyst James Hardiman, however, this share price decline represents a buying opportunity for investors.

“CWH is our first choice in the RV industry and we believe it is the best way to drive an RV industry recovery, when it arrives, as the company has a long-term, merger-driven, macro-independent market share history and acquisitions and expands in a fragmented industry. The RV sector is showing the first signs of stabilization and recovery which, in our opinion, will begin to appear during 2024 and beyond. We expect pricing/margins to remain under pressure for RV manufacturers into 2024, which could help drive demand for RV dealers. Meanwhile, shares have been selling off recently, providing what we believe is an attractive entry point from a valuation perspective,” Hardiman said.

Based on this bullish stance, Hardiman rates CWH stock a Buy and gives it a $32 price target, implying a one-year upside potential of ~48%. (To watch Hardiman’s track record, click here)

Overall, the Street remains bullish on CWH. The stock’s 9 recent analyst reviews break down 8 to 1 favoring Buys over Holds, for a Strong Buy consensus rating, and the average price target of $34.57 suggests a 60% gain on a year from the current trading price of $21.55. (See CWH Stock Predictions)

Sociedad Quimica Y Minera de Chile (MQ)

Then under Citi’s microscope is SQM, a Chilean mining company with a strong presence in the lithium industry. SQM is the world’s largest producer of lithium and is also known for its work in the chemical industry, where it produces iodine and potassium used in plant fertilizers and industrial chemicals. The company noted that lithium sales volumes are at record levels, driven by increased demand, particularly in the electric vehicle market.

In addition to production work, SQM also distributes lithium. This year the company entered into new agreements with Ford Motor Company and LG Energy Solutions for the long-term supply of lithium, a move that promises to keep the company’s sales at high levels. Lower spot prices in China’s lithium markets, however, are having a depressing effect on SQM’s profits.

This is reflected in misses in both revenue and earnings in the company’s latest reported results. Specifically, SQM’s second-quarter revenue of $2.05 billion fell 21% year-over-year and missed estimates by $74.5 million. On the earnings side of things, second-quarter EPS of $2.03 was 61 cents lower than expectations.

SQM shares are down more than 21% this year. This decline, however, does not worry Citi analyst Carolina Cruzat, who believes SQM is selling well below where it “should”.

“Taking into account that SQM has underperformed in the local market and that current valuations appear to be at rock bottom, we believe the equity discount is excessive, considering: (i) strong medium-term fundamentals in the lithium market; and (ii) the stock is currently priced below the value of cash flows through 2030, with significant upside if fair lease renewal terms with Corfo are achieved. We believe that investors internalize a very negative scenario regarding the potential outcome of the proposed new lithium regulatory framework, even if it means losing the concession on the Salar de Atacama,” Cruzat explained.

Adding that the key risks here are already priced in, Cruzat rates the stock a Buy. Its price target of $85 points towards an upside potential of 42% over the one-year horizon.

What does the rest of the Street think? Looking at the consensus breakdown, the opinions of other analysts are more mixed. 5 Buys, 3 Holds, and 1 Sell add up to a Moderate Buy consensus. Furthermore, the average price target of $82.21 indicates upside potential of approximately 38% from current levels. (See MQ stock forecast)

Sunrun, Inc. (RUN)

Last but not least is Sunrun, a leader in residential solar systems. Sunrun is known as a full-service provider in the home solar niche, designing, building and installing solar packages and custom installations for single-family homes. Their packages include everything needed for a specific installation, from rooftop photovoltaic panels to local grid connections, as well as intelligent control systems and energy storage batteries.

In addition to home solar systems, Sunrun also offers financing services. Customers can choose to pay the full amount up front or amortize the entire cost of the installation as a lease on the equipment, with long-term or month-to-month payment options. Sunrun is the No. 1 company in the U.S. residential solar market, with more than 800,000 customers in 22 states plus Puerto Rico and $1.1 billion in annual recurring revenue.

This solid foundation is the result of Sunrun’s ongoing efforts to expand its market presence. While revenue in 2Q23, the last reported, increased just 1% year-over-year to $590.2 million, the company achieved notable milestones. Sales activity outside the state of California, where the company has its largest presence, grew 25% year over year. Additionally, total installed storage capacity increased 35% year-on-year to 103 megawatt-hours. The company’s most surprising result, however, was posting net income of 25 cents per diluted share in the second quarter, beating the expected net loss of 64 cents per share.

The company’s growth outside of California has caught the attention of Citi analyst Vikram Bagri, who sees it as an important factor supporting the stock going forward.

“Higher rates and NEM impacts appear to be largely priced in, but RUN does not receive due credit for 1) market share gains from the TPO shift, 2) path to FCF generation, 3) no capital raise at the enterprise level, 4) expected cost deflation component, 5) ITC benefits, and 6) demonstrated success in selling battery storage (>80% attack rate on new sales in California and >30% nationally). CA faces headwinds in ’24, but RUN’s 60%-plus TPO market share and funding runway mean consensus expectations for MW installation growth of around 6% in FY’24 appear achievable as consumers look to solar+storage to save on bills. Furthermore, we believe there is a silver lining to the subscriber net worth estimates,” Bagri said.

“We have received numerous questions about RUN’s valuation and believe the stock is worth conservatively ~$21/sh in the LT,” Bagri adds, underscoring the solid bottom line of his position.

Overall, the analyst’s Buy rating and $21 price target indicate confidence in a 48% gain over the next year. (To see Bagri’s track record, click here)

Citi’s view may prove to be a conservative approach towards Sunrun: The stock’s Strong Buy consensus rating is based on 17 analyst reviews that include 14 Buys and 3 Holds. Shares are priced at $14.16 and the average price target of $34 suggests a robust 140% upside. (See RUN stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

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.

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