It’s been a tough start to the new year for U.S. large-cap stocks. Although the energy and financial sectors are off to strong starts, the broader market is down 2% year-to-date amid inflation and rate hikes concerns.
But even if the S&P finishes the month in the red, it wouldn’t be reason to hit the panic button. First, the index is coming off a year in which it set all-time highs a whopping 70 times. Second, recall that the market got off to a slow start in January 2021 before rattling off seven straight monthly advances.
When the market takes a breather, this gives sell-side research firms the chance to re-assess their respective stock universes. The result is often new ratings and new target prices.
Last week, several stocks got the coveted double whammy from bullish analysts— an upgrade to ‘buy’ and a fresh price target. These are three of the companies that Wall Street says have bright prospects in a somewhat dim trading environment.
Is the Chipotle Mexican Grill Pullback a Buy?
Chipotle Mexican Grill (NYSE: CMG) received a sizzling upgrade from equal weight to overweight at Morgan Stanley. Although the analyst slightly reduced his price target by $9 to $1,920, the new bullseye represents 28% upside from Friday’s close.
To revisit the $1,900 level, Chipotle will need to convince investors that customers are revisiting its fast casual chains despite the looming threat of rising Omicron cases. Almost $500 has been trimmed off its share price since September despite a better than expected third quarter result that confirmed healthy mobile ordering and delivery trends.
More recently, the market has grown concerned about the impact of inflation on consumers’ willingness to pay up for Chipotle’s more expensive offerings. Renewed chatter about the potential for pandemic-related restaurant closures and the impact of higher yields on growth stock valuations have piled onto the selloff like a scoop of guac.
Yet there’s reason believe the popular Southwestern fare will remain in the meal plans of Chipotle’s loyal customer base and the stock will recover. The Chipotle brand is as strong as its hot salsa is spicy which means people will be willing to pay more and go to greater lengths to get their favorite entrees even if it means reverting to pickup or delivery. Another strong performance in Q4 and an optimistic outlook for 2022 could help Chipotle shares heat up in a hurry.
Is O’Reilly Automotive Worth the Premium Valuation?
JPMorgan Chase gave a major vote of confidence to O’Reilly Automotive (NASDAQ: ORLY) on Friday. It upgraded its rating from neutral to overweight and tacked on $90 to its price target which now sits at $785. The aftermarket auto parts retailer was already trading near an all-time high, but like most on the Street, JPMorgan Chase thinks there will be fresh record highs down the road.
The analyst cited a host of reasons behind the upgrade. These included the fact that with U.S. highway traffic still below pre-pandemic levels, the all-important ‘miles driven’ metric is still in recovery mode. This is a positive because it translates to an increasing need for repair and maintenance products and services. So too does where the industry lies in the vehicle repair cycle with many cars in the 6 to 13 year range likely to need some major tune ups in 2022.
According to JP Morgan, O’Reilly is also likely to benefit from improved supply chain efficiency as Covid-related disruptions ease and aid profit margins. It is the company’s strong distribution capabilities that have driven significant market share gains during the pandemic as drivers have turned to the national chain to locate hard to find parts, tools, and accessories.
Overall, the analyst expressed confidence in O’Reilly’s sales and earnings growth profits this year. Based on the consensus forecast of 2022 earnings, O’Reilly trades at 22x earnings. This is a premium valuation compared to competitors like AutoZone and Advance Auto Parts, but one worth paying according to JPMorgan Chase.
What is Mosaic Stock’s Price Target?
Mosaic (NYSE: MOS) received a big price target hike from BMO Capital Markets which also upgraded the stock from market perform to outperform. The firm’s new $50 (from $37) suggests that the agricultural inputs producer could run to its highest level since 2015. Up 10% already this year, it is certainly headed in the right direction.
As one of the world’s leading suppliers of phosphate and potash, Mosaic is benefitting from rising global farming activity and fertilizer demand. The company has customers in approximately 40 countries and accounts for three-fourths of North America’s annual phosphate crop production. Phosphate prices were up sharply last year and are expected to trend higher over the next several years due to favorable demand-supply dynamics. Meanwhile, potash prices are at record levels which is unfortunate for farmers but fortunate for Mosaic.
On the same day of the BMO upgrade, JPMorgan Chase also gave Mosaic a $50 target. It’s been an impressive run for a stock that dipped below $7 at the depths of the pandemic bear market, but analysts continue to believe more gains will be harvested in 2022.
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