As the market continues to hit new highs, investors may wonder how high it can go. All three major indices hit new intraday records yesterday, and both the S&P 500 and Nasdaq hit record closing highs as well. It looks as though momentum from November has continued into December. Promising vaccine news from Pfizer (PFE), Moderna (MRNA), and AstraZeneca (AZN) should continue to drive stocks this month, but which stocks could see the most significant gains?
One way to find stocks with the potential to soar is through their upside potential. To get a stock’s upside potential, you need to look at a stock’s current price and compare it to their price targets based on Wall Street sell-side analysts’ consensus. Wall Street analysts are responsible for covering ten to twenty stocks. Their coverage provides in-depth research on a company’s current financial situation and prospects, which give the basis for their stock ratings and price targets.
Luckily, we don’t have to read analyst reports to find their price targets. A new feature of StockNews.com is the Price Target. The Price Target is an average of target prices from analysts covering the stock. StockNews also provides a stock’s Upside Potential, which is the percentage a stock could gain to meet its price target. I did a search for financially sound companies with strong upside potential and came up with a list that included Honda Motor Company, Ltd. (HMC), PulteGroup, Inc. (PHM), Group 1 Automotive, Inc. (GPI), and Knight-Swift Transportation Holdings Inc. (KNX).
Honda Motor Company, Ltd. (HMC)
Believe it or not, but HMC was originally a motorcycle manufacturer. Today, the company makes automobiles, motorcycles, and power products such as boat engines, generators, and lawnmowers. The company posted strong financial results last month, outperforming both earnings and revenue estimates. Earnings were up 26% year over year.
In addition, due to the gradual recovery of the auto market, HMC has boosted its fiscal 2021 guidance. The company has been focused on developing electric and self-driving cars, which bodes well for its future. In its Honda 2030 Vision, HMC Honda aims to generate 66% of its global auto sales from electric vehicles by 2030.
Its collaborations with General Motors (GM) and GAC Group should help expand its business and bolster its growth prospects. Its joint venture with GAC Group will allow the company to build electric battery cars and plug-in hybrid vehicles in China. The company has also taken initiatives to control costs and optimize production capacity.
The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade, Buy & Hold Grade, and Industry Rank, and a “B” in Peer Grade. The company is also ranked #3 in the Auto & Vehicle Manufacturers industry. The stock currently has an upside potential of 16%.
PulteGroup, Inc. (PHM)
PHM is one of the largest homebuilders in the United States, operating in 44 markets across 24 states. The company’s focus on entry-level homes has served it well. There has been a growing demand for lower-priced homes due to affordability concerns in the U.S. housing market. First-time buyers represented 30% of PHM’s closings in the third quarter, which was an increase from the same quarter last year. In addition, first-time orders increased 39% year over year for the quarter.
The company’s land acquisition strategies have helped drive growth as well. Earlier this year, the company expanded off-site manufacturing in Florida with the acquisition of Innovative Construction Group. Innovative Construction Group is a provider of off-site solutions focused on single-family and multi-family wood-framed construction.
PHM also increased investment in land development and the purchase of new land assets. Management expects land investment for 2020 to be $2.7 billion. The company is also maximizing its land assets by selling homes at higher prices and better margins, which allows it to use the extra cash flow to invest in the business and pay off debt.
The stock is rated a “Buy” in our POWR Ratings system. It holds a grade of “B” for Trade Grade and Buy & Hold Grade. The stock is also ranked #8 in the Homebuilders industry. PHM has a potential upside of 25.54%, according to a consensus of analysts.
Group 1 Automotive, Inc. (GPI)
GPI owns and operates over 185 automotive dealerships, 242 franchises, and 49 collision service centers in the United States, United Kingdom, and Brazil offering 31 brands of automobiles. The company reported record third-quarter results, which saw earnings triple year over year, driven by strong revenue in the U.K. business.
The company’s diverse product portfolio and multiple income streams not only reduce its risk profile but provides a boost to sales as well. GPI generates revenue from used and new vehicle sales, finance, insurance, and automotive repair and maintenance. Its Service and Parts segment is the highest contributor to the company’s total gross profit. That segment is also a non-cyclical business that provides stability during economic downturns.
GPIs acquisitions of dealerships and franchises should continue to drive future revenue. The company has also undertaken various initiatives across its used vehicle and service business to increase same-store growth. For instance, omnichannel efforts to boost sales have served the firm well. In addition, the AcceleRide platform, its online retailing initiative, should increase growth long-term.
The stock is rated a “Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade and a “B” in Buy & Hold Grade and Peer Grade. It is also ranked #7 in the Auto Dealers & Rentals industry. GPI has a whopping potential upside of over 24% based on its current price.
Knight-Swift Transportation Holdings Inc. (KNX)
KNX is the largest asset-based full-truckload carrier in the United States by a wide margin. The company, based in Phoenix, AZ, provides transportation solutions to customers throughout North America, providing them with low-cost truckload transportation, intermodal, and logistics services. KNX had a strong third quarter as it reported better-than-expected earnings per share and revenues.
Earnings were up 64.6% year over year, while revenues slightly improved. The results were driven by lower costs for the company as operating expenses decreased 4.8% in the quarter. KNX’s adjusted operating ratio also improved year over year. The company also increased its outlook for full-year 2020 with earnings per share of $2.68-$2.72. The revised outlook was most likely driven by improving freight conditions.
While the pandemic initially provided problems for the company, this was short-lived as it saw strong demand for logistics services amid the e-commerce boom. The company should see strong revenue growth over the next couple of years as more shopping moves online and global trade fully recovers from the pandemic. The pandemic is also expected to limit costs as lower oil prices resulted in lower fuel expenses.
The stock is rated a “Buy” in our POWR Ratings system. It holds a grade of “B” for Trade Grade and Buy & Hold Grade. It is also ranked #9 in the Trucking Freight industry. KNX has a potential upside of 26.31%, according to a consensus of analyst price targets.
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HMC shares . Year-to-date, HMC has gained 2.00%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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