2022 has been the most challenging year for investors since 2008. The prevailing emotion remains fear and uncertainty. However, there is one notable development in recent weeks. Due to inflation exploding higher and the Fed taking an aggressively hawkish stance, we saw multiples significantly compress from the mid-20s to its current 15.8. Meanwhile, earnings growth remains positive with expectations of 4% growth in Q2 and 10% growth in Q3 and Q4. 

Therefore, it’s likely that we could have another leg lower if earnings estimates start to be cut by analysts. Given these conditions, investors should be cautious in increasing exposure as the near-term outlook remains cloudy. For those with a longer-term horizon, this is certainly the time to start doing research as a recession could yield a fantastic buying opportunity in stocks whose long-term prospects are only improving.

One powerful theme is the increasing use of renewable energy and electric vehicles (EV). Therefore, investors should monitor the stocks that are connected to this theme as they offer the most long-term upside. 

Daqo New Energy (DQ)

DQ is one of the world’s largest manufacturers of polysilicon which is an essential input for the production of solar power product. DQ’s production and sales volumes continue to trend higher with the average selling price increasing significantly over the last 2 years.

There’s no reason that this trend should abate given increased spending on solar power which has only intensified following higher energy costs due to Russia’s invasion of Ukraine. Higher production volumes are also unlocking major economies of scale, especially with its newest production facility. 

DQ is also unique in that it’s managed to maintain its growth despite a very tough economic climate. And, analysts are bullish on its prospects as we head into the second half of 2022. For the full year, they are forecasting 68% EPS growth and 83% revenue growth. They also expect operating margins to remain above 60% which is a double from 30% in 2020. 

The POWR Ratings are also bullish on DQ as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s annual 8.0% gain.

In terms of component grades, DQ has a B for Growth due to the catalysts mentioned above and the relative strength of the industries that its customers come from. Click here to see more of DQ’s POWR Ratings. 

Freeport-McMoran (FCX)

FCX is a producer of various metals such as gold, copper, and molybdenum. However, copper accounts for 75% of all revenue. Thus, the company has been a beneficiary of rising copper prices since March 2020.

In recent months, copper prices have been moving lower due to increased fears of a recession. And, they could certainly decline more if this is realized. However, the longer-term trends that drove copper higher remain intact. In fact, they are more durable than the cyclical swings that can create opportunities for savvy investors. 

On the demand side, the increased electrification of the economy which includes EVs mean that demand will be structurally higher. On the supply side, copper companies have not been investing in new production which means that we could have a major supply crunch in the event of a full, global recovery after the recession.

The POWR Ratings are also bullish on FCX as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual performance of 21.1% which compares foavroably to the S&P 500’s annual average gain of 8.0%. 

In terms of component grades, FCX has a B for Quality due to being one of the largest and lowest-cost producers of copper. It also has a B for Growth due to its very low debt levels and strong cash flow. Click here to see FCX’s complete POWR Ratings.

FCX shares were trading at $30.24 per share on Wednesday morning, down $0.54 (-1.75%). Year-to-date, FCX has declined -27.06%, versus a -19.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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