Three Stocks to Watch for the Week of May 30th, 2022

U.S. equity markets finished higher last week, as the major averages snapped their recent losing streaks.  The Dow broke an eight-week losing streak, its longest in nearly a century, with a 6.2% gain. The S&P and the Nasdaq each broke a seven-week losing streak, the longest since the end of the dot-com bust. 

The S&P 500 rose 6.6% after narrowly avoiding a bear market for its best weekly gain since November 2020.  The Nasdaq gained 6.8% but remains solidly in bear market territory, 24% below its record high.    Positive retail earnings reports, selling exhaustion, and hints of Fed flexibility all helped stocks rebound last week, according to some – a signal that equity markets may have reached a turning point.

“The market has now discounted a lot of the negative news, a lot (of which) hit all at once.  Now we have absorbed that news and the actions the Fed is going to take, and we’re wrapping up earnings season,” said Keith Buchanan, portfolio manager at GLOBALT.  “The signs are lining up, and the boxes are being checked that we expect to develop when the market starts to form a bottom,” he continued.

The earnings season continues to wind down in the holiday-shortened week ahead.  Companies scheduled to report include Gamestop (GME), Salesforce (CRM), and Lululemon (LULU), among others.  On Tuesday, investors will get an update on home prices with the Case-Shiller National Price Index release for March.  Several other important economic indicators are slated for release, including consumer confidence, PMI surveys, and key updates to the labor market, including the latest JOLTS survey and May payrolls.

This week we’ve got three stock recommendations, including a small-cap vaccine maker with an edge over competitors in the race to contain the latest viral threat.  Plus, a consumer staples stock that is on a trajectory of sustainable long-term growth and well-positioned for the back half of the year.

Siga Technologies (SIGA) has been gaining attention, and its share price has been on the rise over the past week as concerns about monkeypox outbreaks worsen in the U.S. and around the globe.  The small-cap vaccine maker, whose research has been largely funded by the U.S. government to address the threat of biological weapons, has developed an antiviral known as tecovirimat or TPOXX, which the European Medicines Agency recently approved not only for monkeypox but also for cowpox and smallpox. 

 “As you might imagine, a number of the jurisdictions where cases are being found have contacted us and are interested in acquiring the drug as soon as possible,” Dennis Hruby, chief scientific officer at Siga Technologies, previously told Euronews Next. “Our drug will stop further progression of the disease and then allow your natural immune system to kick in and eradicate the virus,” he added. 

On May 19th, the company announced that it had earned FDA approval for the intravenous form of TPOXX for the treatment of Smallpox, calling the IV formula “an important option for those who are unable to swallow the oral capsules of TPOXX.”  Oral TPOXX is already being administered in the US, Canada, and Europe to treat smallpox, and the IV formulation was recently cited in the U.S. president’s budget request as being used to treat a patient in the U.S. with monkeypox, the company noted.

SIGA’s share price has nearly doubled over the past month.  With TPOXX gaining hold around the globe and plenty of untapped potential, we’ll be keeping an eye on this stock in the weeks to come.

Regional bank M&T Bank (MTB) stock has been doing well since the company topped earnings expectations and provided an upbeat 2022 outlook. For the first quarter, the lending company reported diluted earnings per share of $2.62 on revenue of around $1.45 billion.  

“The first-quarter results continue to reflect M&T’s strong credit underwriting as evidenced by historically low charge-offs for the quarter and a stable allowance for credit losses,” CFO Darren King said. “Revenues were in line with expectations and expenses, which include the usual seasonal increase in salaries and employee benefits expense, were prudently managed.”

King also said on the call that the bank expects solid loan growth for the remainder of the year and that management anticipates that net interest income (the profit a bank makes on loans, securities, and cash after funding those assets) will rise substantially as the Fed boosts benchmark interest rates.

During the quarter, M&T also received approval from the Federal Reserve to finalize its $8.2 billion purchase of People’s United Financial, a significant deal that propelled the bank to well over $200 billion in assets.  With the acquisition closed, M&T will soon resume share repurchases — the board of directors recently reauthorized an $800 million stock buyback program. 

 Morgan Stanley analyst Betsy Graseck recently double upgraded M&T Bank to Overweight from Underweight with a price target of $238, up from $179, arguing that rate sensitivity “trumps” credit fears.  Baking in three additional rate hikes adds a total of $623M to 2022 net interest income and $3.01 to EPS, said Graseck, who sees M&T being “one of the biggest beneficiaries” of rate hikes given its “large cash pile” and management’s clarification that it intends to reinvest $2B of cash into securities quarterly in 2022.

Due to various factors, inflation has not proved to be as transitory as policymakers and markets had expected or hoped.  The progressing inflation environment is reflected in an overall increase in rates as the year-over-year increase in consumer prices has reached a 40-year high. Short and long-term interest rates have also moved sharply higher in 2022.

Amid surging consumer prices and increasing rates, many investors are looking for stocks that offer reliable income to hedge against inflation that continues to weigh heavily on markets. Anyone looking to cut back on risk in the second half of the year will appreciate MTB for its below market beta of 0.8 and a debt/capital ratio of just 18%.  The cherry on top for M&T investors is the  2.84% annual yield, backed by a highly sustainable 32% payout ratio.

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.  

“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 of products 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 a $100 price target. The analyst views the stock as a “compelling investment” for those looking for undervalued, branded spirit opportunities in a high multiple category and those seeking to capitalize on the plant-based protein movement without the risk of directly investing in specific brands. The company raised its 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.

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