Three Stocks to Watch for the Week of March 21st, 2022

Markets surged last week while processing persisting geopolitical tension and a long-anticipated Fed rate hike.  Gains were widespread across the major averages.  The Dow rose 5.5%, the S&P 500 rose 6.2%, and the Nasdaq gained over 8%, marking last week the best week for stocks since November 2020.  

In the coming days, we’ll find out if consumer sentiment continues to fall with the University of Michigan’s final March Consumer Sentiment Index reading slated for Friday.  We’ll also get an update on housing market data with new and pending home sales on the docket for Wednesday and Friday, respectively. 

Investors are wondering if stocks are set for a sustained rebound or if more turbulence is in the wings for the week ahead.  Regardless of which direction markets take, there are opportunities to be found.  Our team has three recommendations, including a consumer staples name gaining attention from the pros on Wall Street and a play on semiconductors that you might not have considered.   

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Morningstar analysts say higher consumer spending, supply constraints, and energy prices driving inflation should be short-lived.  “If interest rates can hit a sweet spot that tames inflation without alienating income investors, utilities are well-positioned to produce another year of 7% to 9% total returns, given attractive dividend yields and infrastructure growth,” they say.  

Utilities giant and prospective 2022 winner Exelon (EXC) has a market cap of $52 billion and is one of the top five publicly traded utility stocks in the U.S. 

EXC touches roughly 10 million customers across the U.S. through an extensive network of power plants ranging from fossil fuel facilities to hydroelectric dams.  The unmatched scale of Exelon’s reach provides a solid foundation for EXC shares.  In fact, shares are up more than 41% over the past twelve months to outperform the broader S&P, which is up 13% for the same period. 

EXC boasts a healthy, 2.9% dividend yield backed by a conservative payout ratio in the 65-75% range over the past five years.  The stock also garners a Buy rating from the Wall Street pros offering recommendations and a median 12-month price target of $46.35, representing a 7% increase from the current price.  

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Leading provider of distilled branded spirits and specialty food ingredients MGP Ingredients Inc. (MGPI) recently logged a record-breaking 2021 and appears to be primed for building on that strength in 2022.  

MPGI topped consensus estimates for the fourth quarter in a row and raised 2022 revenue guidance.  The company reported quarterly earnings of $0.87 per share, blowing past expectations of $0.63, and beat revenue estimates averaging $152.69M, reporting Q4 revenue of $166.8M.  

“Our record performance this year demonstrated the strength of our business model and the value each of our segments bring to our global customer base,” said David Colo, president, and CEO of MGP Ingredients.

Many know MGP as an opportunity to invest in branded spirits, but an often overlooked feature of the company is its involvement in the burgeoning plant-based protein movement, a market anticipated to grow at a CAGR of 11.2% from 2020 to 2027 to reach $27.05 billion by 2027. The company launched its line of non-GMO texturized proteins Proterra in 2020 and has been strategically building the name since.  

The most recent developments are plans for a $16.7M extrusion plant expected to produce up to 10M pounds of ProTerra per year.  “Achieving in-house production of our ProTerra line is a meaningful investment amid growing demand and increasing outsourcing costs,” said MGP’s CEO.  The extrusions plant isn’t the only project MGP has in the wings.  The company has expansionary projects totaling approximately $33 million over the next two years.

Lake Street analyst Ben Klieve recently initiated coverage of MGP with a Buy rating and $100 price target. The analyst views the stock as a “compelling investment” for those looking for undervalued, branded spirit opportunities in a high multiples category and those seeking to capitalize on the plant-based protein movement without the risk of directly investing in specific brands.

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The company raised 2022 guidance.  It now sees EPS of $3.95-$4.10 and revenue of $690M-$715M.  “We are very pleased with the momentum we ended the fiscal year on and believe we are well-positioned to execute and deliver against our long-term growth strategy in fiscal 2022.  We are committed to leveraging the strong foundation we’ve established over the years to position MGP for sustainable long-term growth,” concluded Colo.

Onsemi (ON) is an American semiconductor company engaged in disruptive innovations and also a supplier of power and analog semiconductors. The firm offers vehicle electrification and safety, sustainable energy grids, industrial automation, and 5G and cloud infrastructure, with a focus on automotive and industrial end-markets.

Onsemi dazzled market watchers with better than expected Q4 numbers.  The company reported $1.09 earnings per share, indicating a positive growth rate of 197.1% from $0.35 EPS reported for Q4 2020.  What’s more, EPS win surged past analysts’ consensus estimates of $0.94. The business had revenue of $1.85 billion for the quarter, compared to the consensus estimate of $1.79 billion. 

“Our disciplined execution on transformation initiatives in 2021 resulted in record financial performance and achievement of our financial targets ahead of stated timeline. Revenue for 2021 grew 28.3%. Operating income and free cash flow increased 6 times faster than the revenue as we focus our portfolio on secular megatrends of electric vehicles, ADAS, alternative energy, and industrial automation. We continue to expand gross margins as we shift our mix into these high-value strategic markets while ramping new products, rationalizing our manufacturing footprint, and improving our overall cost structure. Outlook for our business remains robust as evidenced by over 60% year-over-year growth in our design win funnel driven by our highly differentiated intelligent power and sensing portfolio,” said Hassane El-Khoury, president and CEO of Onsemi.

The pros on Wall Street give ON a Buy rating along with a median price target of $73, representing an 18% increase from where the stock closed on Friday. 

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