JPMorgan says the market bottom is near as corporate buybacks skyrocket — here are 3 high-upside stocks to play that bullish sentiment
Jul 29th, 2022 12:00 EST
Stocks have fallen quite a bit in 2022. If you are wondering where the market bottom is, JPMorgan has some good news.
The bank sees companies continuing to buy back their shares, which could help stocks establish a bottom.
“In the latest sell-off, JPM estimates 3-4x higher buyback executions than trend, which implies the corporate put remains active,” JPMorgan’s Marko Kolanovic writes earlier this year.
The analyst points out that in Q1, S&P 500 companies bought back 45% more of their shares compared to the year-ago period. And since corporations continue to gush cash flow, more buybacks could be on the way.
Most recently, Kolanovic notes how even the Fed might be more dovish than expected.
“In response to economic weakness and declining inflation expectations, rate markets are already sensing a Fed policy reversal by pricing in an earlier (January 2023 vs. August 2023 in mid-June) and lower Fed funds rate peak (3.3% currently vs. a 4% peak in mid-June),” the analyst writes on Wednesday.
“We thus remain cautiously optimistic and continue to combine a sizeable equity overweight in our model portfolio with a credit underweight as a hedge.”
If you share this view and want to buy the dip in a market bottom, here are three stocks that JPMorgan finds particularly attractive.
ChargePoint Holdings (CHPT)
Electric vehicles are selling like hotcakes. And ChargePoint Holdings is solidly positioned for the EV boom.
The company has one of the largest EV charging networks in the world. It has around 5,000 commercial and fleet customers, including 78% of Fortune 50 companies. Since its inception, ChargePoint has delivered more than 123 million charging sessions.
Of course, EV stocks haven’t been market darlings lately and this EV infrastructure play was caught in the sell-off as well. ChargePoint shares have fallen 46% over the last 12 months.
That could give bargain hunters something to think about.
In the fiscal quarter ended Apr. 30, ChargePoint generated $81.6 million of revenue, marking a 102% increase year over year. This was driven by a 122% increase in networked charging revenue and a 63% increase in subscription revenue.
JPMorgan analyst Bill Peterson has an ‘overweight’ rating on ChargePoint and a price target of $18 — roughly 37% above where the stock sits today.
As a leading designer of graphics cards, Nvidia shares have had a solid bull run over the past decade. But that rally came to an abrupt end in November 2021. Since reaching a peak of $346 in late November, the stock has fallen about 49%.
Nvidia’s plunge is substantial even when compared to other beaten-down stocks in the semiconductor sector.
Nvidia’s business is performing well, making it a particularly intriguing contrarian idea. The chipmaker generated $8.29 billion of revenue in its fiscal Q1. The amount represented a 46% increase year over year, and also marked a new quarterly record.
Revenue from gaming increased 31% year over year to a record $3.62 billion. Meanwhile, data center saw its revenue spike 83% to a record $3.75 billion.
JPMorgan analyst Harlan Sur recently lowered the price target on Nvidia from $350 to $285. However, Sur maintained an overweight rating on the shares and the new price target still implies potential upside of 60%.
Magellan Midstream Partners (MMP)
Unlike the previous two, Magellan Midstream Partners is not an out-of-favor stock. It’s actually up 9% year to date, outperforming the broad market.
It’s easy to see why Magellan gets positive attention these days. The energy sector is firing on all cylinders, and Magellan’s midstream operations are well-positioned for this commodity cycle.
The partnership has 9,800 miles of refined products pipelines, 54 connected terminals, and two marine storage terminals. It also owns around 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 39 million barrels.
Magellan is a name worth watching for income investors, too. The partnership pays quarterly distributions of $1.0375 per unit, translating to a juicy annual yield of 8.2%.
JPMorgan analyst Jeremy Tonet has an overweight rating on Magellan and a price target of $57 — implying a potential upside of 12%.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.