Overall, the December CPI report roughly met Street expectations, but there is still a lot of bearish commentary going around right now. Many financial prognosticators are forecasting another tough year for the stock market as the prospect of a recession looms large.
However, that is certainly not the view of HSBC’s Max Kettner. The strategist points out that the harbingers of doom are unlikely to be surprised by more negative developments with the markets already accounting for the fatalistic outlook. “Against the backdrop of such a concentrated consensus,” says Kettner, “there’s simply a lack of downside catalysts, a lack of downside surprises, and therefore, the only way is up.”
Putting Kettner’s optimistic outlook into action, the analysts at HSBC have pinpointed two stocks that they believe are ready to do just that – they think the way is up for both and see them posting gains of over 70% in the coming months. We ran the pair through the TipRanks database to gauge the rest of the Street’s sentiment. Here’s the lowdown.
Lithium Americas Corp. (LAC)
There are different ways to play the anticipated electric vehicle (EV) boom, and betting on lithium miners is one way, given lithium is used in the batteries of EVs. Lithium Americas is one such company hoping to ride the wave of anticipated demand. While the company is still a pre-revenue concern, it is developing several mines in both the U.S. and Argentina.
Production is expected to kick off this year. In Argentina, the Caucharí-Olaroz mine is approaching initial production and the company is also developing another mine in nearby Pastos Grandes.
In the U.S., the Bureau of Land Management has given the Thacker Pass in northern Nevada – the US’s biggest-known resource of lithium – its Record of Decision and construction should begin this year.
The company has less than a 50% ownership stake in the former mine, but the latter pair are owned wholly by the company.
In November, LAC announced that it plans to separate its North American and Argentine business units into two separate public companies. This could potentially be a good move for investors, says HSBC analyst Santhosh Seshadri.
“We believe 2023 could be an eventful year as there could be a number of key announcements on growth projects and Argentina divesture, which could be catalysts for the share price,” the analyst explained. “We like management’s detailed discussion of progress in key projects, which gives us confidence on timelines of events/projects and more importantly, supports our investment thesis… Management expects lithium demand to outstrip supply for the next 10 years as supply struggles to catch up, and does not expect an oversupply situation anytime soon.”
To this end, Seshadri rates LAC shares a Buy, backed by a $36 price target. If everything goes as planned, LAC will soar ~76% over the next 12 months. (To watch Seshadri’s track record, click here)
Most analysts agree with Seshadri’s thesis. The stock claims a Strong Buy consensus rating, based on 5 Buys vs. 1 Hold. At $34.50, the average price target makes room for 12-month gains of 69%. (See LAC stock forecast)
ReNew Energy Global (RNW)
The next HSBC-endorsed stock we’ll look at is ReNew Power, which is one of India’s largest renewable energy IPPs (independent power producers).
The company develops, constructs, owns and runs utility-scale wind and solar energy projects, and boasts a renewable asset base of 13.4 GW (as of November, 2022, including projects under being worked on and in the pipeline) with a current commissioned capacity of 7.7GW. This power lights up roughly ~14 million Indian homes, and accounts for around 1% of all electricity demand in India, which the company claims mitigates 0.5% of the country’s carbon emissions.
In its most recent quarterly report – for the second quarter of fiscal 2023 (September quarter) – total revenue rose by 5.1% year-over-year to INR 22,409 million (US$ 275 million), while adjusted EBITDA reached INR 18,209 million (US$ 224 million), similar to the same period a year ago. Net loss for the quarter was INR 986 million (US$ 12 million), vastly improving on the net loss of INR 6,614 million (US$ 81 million) in Q2 FY22. During the quarter, the company signed roughly 1.0 GW of purchase power agreements (PPAs).
Assessing the company’s prospects, HSBC analyst Puneet Gulati highlights the various reasons why RNW stock is one to buy: “(1) it is well placed to benefit from rising power demand as capacity increase will be dominated by renewables; (2) recent equity raises, low-cost debt, access to a large land bank and capital recycling give it enough capital to drive growth, while 25-year PPA gives access to a stable earnings stream; (3) investment in technology has reduced operation and maintenance (O&M) costs and allows the company to deliver more complex projects with higher returns; (4) it has the appetite to recycle capital through project sales and acquire assets, which generate synergies, driving higher returns; (5) its focus on corporate projects improves diversification and returns.”
These reasons underpin Gulati’s Buy rating while the $10.25 price target implies 12-month share appreciation of a handsome 77%. (To watch Gulati’s track record, click here)
Two other analysts have recently waded in with RNW reviews and both are also positive, making the consensus view here a Strong Buy. The average target stands at $9.08, and represents potential upside of 56.55% for the coming year. (See RNW stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.