JP Morgan says inflation has peaked and recommends 2 stocks to buy

JP Morgan says inflation has peaked and recommends 2 stocks to buy

For well over a year now, we’ve been seeing headlines about inflation. The rate of price growth is at its highest level since the early 1980s, although October figures, just released, showed it fell to 7.7% over the past 12 months.

Covering the markets at investment giant JPMorgan, chief investment officer of asset management David Kelly believes the trends are favorable going forward. From June to October, the annual rate of inflation fell from 9.1% to 7.7%, leading him to say: “Inflation has already peaked. I think it will gradually fall.”

A drop in inflation would help boost stocks, and Kelly believes, “It’s a time to be overweight stocks for the long-term investor.”

JPMorgan’s stock analysts follow Kelly’s lead and pick stocks they see as potential long-term winners. After running two of these stocks through TipRanks’ database, we discovered that the rest of the Street is also on board. Let’s take a closer look.

Perrigo Company (PRGO)

We’ll start with Perrigo, a leading manufacturer of generic over-the-counter drugs, an important position when you consider that 9 out of 10 prescriptions in the US are filled with generic drugs. A large part of Perrigo’s product line comes from its dermatology portfolio. Perrigo has the largest portfolio of generic dermatology products in the US.

The company posted total revenue of $1.1 billion in the recently reported 3Q12, an annualized gain of 5.5%. On the earnings side, adjusted diluted EPS came in at 56 cents, up 24% year over year. The consumer self-service segment led the company’s revenue, with $722 million of the total. Upper respiratory drugs came in second, with $132 million. The skin care portfolio generated total revenue of $49 million.

While Perrigo delivered solid revenue, investors were disappointed that the results missed forecasts. The top line, as reported, lost ~3%, while diluted EPS missed the 67-minute estimate by ~16%.

In a bright spot for investors, Perrigo’s loss in earnings and revenue hasn’t stopped the company from maintaining its reliable dividend. The common share payment of 26 cents is scheduled to take place on December 20. at its current rate, the dividend is annualized to $1.04 and yields 3.2%. That’s 1.5 times higher than the market average for dividend yields – and the company has a 9-year history of incremental payout increases.

Covering Perrigo for JPMorgan, analyst Chris Schott is generally optimistic about the company’s path forward.

“We continue to see several headwinds that should ultimately translate into improved results (full HRA contribution and synergies, price gains, gross margin improvements, etc.). And while [the] The earnings setback is disappointing, PRGO is again trading well below consumer peers despite a path to healthy margin recovery/earnings growth over the next several years,” noted Schott.

Consistent with this bullish stance, Schott gives PRGO stock an Overweight (i.e., Buy) rating, with a $51 price target that suggests it has 53% upside potential over the next year. (To follow Schott’s history, Click here)

Wall Street should agree with JPM’s bullish stance on Perrigo, as the company’s stock has garnered 4 recent analyst reviews – and they are unanimously positive for a consensus Strong Buy rating. The stock is trading at $33.08, and its current average target price of $48.25 implies a one-year gain of 45%. (See PRGO stock analysis on TipRanks)

TPI Composites (TPIC)

We now turn to the industrial sector, where TCI Composites has made a name for itself in the composites space. These are high-tech construction materials used in applications such as sailing and motorboats that require lightweight, high-strength, high-performance structural components. The company’s materials are also found in wind turbine blades. TCI is the world market leader for high quality composite turbine blades and has manufactured over 75,000 such blades over the past two decades. The company sells about 32% of all wind turbine blades used worldwide, outside of the Chinese market.

Despite holding a strong position in the wind turbine market – a market that boasts strong support from social and political pressures – TPI reported a decline in annual revenue in a 3Q22 report that showed estimates had missed estimates at the top and the end result was a loss.

The company reported revenue of 459.3 million, down 4.2% year over year, and a net loss per common share of 39 cents. This second measure was actually not as severe as the EPS loss of 83 cents reported in the prior period. but it was deeper than 30 Minutes analysts expected.

JPMorgan 5-star analyst Mark Strouse points out that this interesting industrial company is facing headwinds due to restrictions in the Chinese market and is restructuring in response.

Still, Strouse sees a path forward for TPI, going on to say, “Encouragingly, visibility from 2024 onwards is starting to improve, helped by a new deal (soon to be formalized) with GE for American manufacturing to benefit from the Inflation Reduction Act and extensions of all international contracts previously scheduled to expire at the end of the year. Despite the still weak environment, we are encouraged by the improved long-term outlook, which we expect to improve further in early 23 once the US Treasury provides IRA guidance…”

“We continue to recommend TPIC to value investors seeking exposure to the Alt Energy and US IRA space,” the analyst summarized.

Strouse believes the stock has a way to go, and by some, we mean 96% of the way to the upside. Those are the returns investors are looking at if the stock reaches Dolliver’s $21 price target. No need to add, the analyst rating is Overweight (ie Buy). (To follow Strouse’s history, Click here)

Overall, TPI has earned a consensus Moderate Buy rating from Street analysts, based on 8 recent reviews that include 5 Buys and 3 Holds. Shares are trading at $10.70 and the average target price of $17.86 implies a gain of ~67% over a one-year horizon. (See TPI Stock Forecast at TipRanks)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.

Denial of responsibility: The views 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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