It’s mid-January now, and 2023 is into full swing. The holidays are behind us, and the future ahead of us has yet to be written – and what better time than now to start setting up a stock portfolio to carry into that future. The key to success remains the same as always, finding the right stocks that are primed for gains and solid returns. Recognizing them is the trick.
That’s where the Smart Score comes in. Based on TipRanks’ advanced AI algorithms, the Smart Score collects data on all of Wall Street’s publicly traded stocks – and then it sorts and collates them according to a set of 8 factors, each with a history of predicting outperformance. The factors are averaged together, and the result is a single-digit score, on a scale of 1 to 10, that lets investors see at a glance the ‘main chance’ for any particular stock. Investors seeking the best investment opportunities may gravitate to the Perfect 10s.
So, let’s turn to the Smart Score, and use it to sort through the TipRanks database for a couple of likely winning stocks. According to the data, each of these has a Perfect 10 from the Smart Score, a Strong Buy consensus rating from the Street, and at least 60% upside potential for the coming year. Let's take a closer look.
We’ll start with Clearfield, a player in the tech industry where it focuses on the development, deployment, and expansion of fiber-optic broadband network systems. Clearfield manufactures and distributes equipment for the delivery, management, and protection of fiber optic communications; the Minnesota-based company dubs its platform ‘fiber to anywhere.’ Clearfield can boast of more than one million fiber port deployments every year.
Clearfield’s product lines encompasses a range of hardware for the installation of fiber optic networks, including frames & panels, cabinets & wall boxes, cassettes, terminals, test access points, and optical components. The company’s sales in the last reported quarter – Q4 of fiscal year 2022, reported this past November – came to $95 million. FY22’s top line came in at $271 million. These numbers were up 110% and 92%, respectively, year-over-year.
At the bottom line, Clearfield’s net income for fiscal ’22 was reported as $49 million, up from $20 million in fiscal ’21. The company’s diluted EPS for the year, $3.55, was up 141% y/y. The work backlog, a metric that helps predict future work and revenues, was up 148% y/y, to $165 million.
Clearfield’s rapid growth has caught the attention of Cowen’s 5-star analyst Paul Silverstein, who writes: “CLFD has demonstrated impressive vision and execution in establishing a leading position among Tier 2 and 3 BSPs in the fiber protection, management and delivery solutions segment of the highly attractive FTTH broadband access market."
"We see a number of longer-term upside opportunities for Clearfield within the FTTH and larger FTTP markets. These include FTTP fiber management product expansion such as Clearfield’s recently introduced new pedestals and its acquisition of Nestor Cables for fiber optic cables; FTTP customer expansion via new and deeper penetration of Tier 1 CSPs and MSOs; and FTTP use case expansion into the MDU, FTTB and 5G FTTT market opportunities," Silverstein added.
Everything that CLFD has going for it prompted Silverstein to rate the stock an Outperform (i.e. Buy). The cherry on top? His $141 price target implies ~72% upside from current levels. (To watch Silverstein’s track record, click here)
Overall, all 4 of the recent Wall Street analyst reviews on this stock are positive, making the Strong Buy consensus rating unanimous. (See CLFD stock analysis)
From fiber optics we’ll turn to consumer retail, where Rent-A-Center (RAC) is a long-time leader in the rent-to-own niche. The company offers a variety of products to customers seeking rock-bottom pricing points. RAC’s stores feature everything from consumer electronics, home appliances, furniture, and even computers through flexible lease-purchase agreements. The arrangement gives customers the immediate benefit of having the product – and an option to buy at a reduced price when the lease is up. Rent-to-own gives down-scale consumers a chance to avoid long-term, high-interest debts, that can be especially crippling in today’s environment of rising interest rates. RAC operates primarily through its network of brick-and-mortar stores, approximately 1,970 at last count, and also operates an e-commerce website.
Last year was a tough one for RAC. Revenues and earnings both showed several sequential declines, as consumers generally pared back spending in a high-inflation, high-interest environment. The company’s down-scale consumer base was particularly hard hit by those headwinds. The company’s most recently reported quarterly results, for 3Q22, showed a 13% year-over-year decline in revenue, to $1.02 billion, and a quarterly net loss, in GAAP terms, of 10 cents per share. In non-GAAP terms, RAC reported a diluted EPS profit of 94 cents; this was still down 38% y/y.
On interest to return-minded investors, RAC generated $412 million in cash from operations during the first three quarters of 2022. That total included $363 million in free cash flow. The company’s strong cash generation allowed it to repurchase $75 million worth of shares during Q3 and October – and to maintain a steady, high-yield dividend payment. The last dividend declaration, made in December for a January 10 payout, set the common share div at 34 cents. At that rate, the dividend annualizes to $1.36 per share and gives a yield of 5.4%, more than double the average found among S&P-listed stocks.
In his coverage of this stock for Craig-Hallum, analyst Alex Fuhrman sees reasons for investors to pick up RCII shares, explaining: “Rent-A-Center is a best-in-class lease-to-own (LTO) operator that should be one of the biggest beneficiaries of falling inflation. High inflation has been crushing consumer spending on high-ticket items among subprime customers, and RCII has felt that pain in a big way…. With the stock already down almost two-thirds from its 2021 peak, we think the worst-case-scenario is already priced into the shares and Rent-A-Center is well positioned for significant growth in the next economic cycle."
"In the meantime," the analyst added, "RCII’s dividend yield gives investors a compelling incentive to wait. With signs already emerging that inflation is easing and consumer credit is tightening, investors might not have to wait long.”
To this end, Fuhrman rates RCII shares a Buy, and his price target, of $40, suggests the stock will gain ~60% on the one-year horizon. (To watch Fuhrman’s track record, click here)
The Craig-Hallum view is not the only upbeat take here; the stock has 5 recent analyst reviews on record, and they break down 4 to 1 in favor of Buys over Holds, backing up the Strong Buy consensus rating. (See RCII stock analysis)
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.
