Key points
- Stocks are jumping this week on the potential for a recovery.
- They still have a long way to go, but the outlook is as bright as it has been in months.
- Look for shares to consolidate recent gains before building on them further in the coming week.
- 5 stocks we like better than Enphase Energy
It’s only been three weeks since we called Enphase Energy Inc. NASDAQ:ENPH a “hidden energy stock” with enormous potential, and we have already been proven right. After spending nearly all of last year being beaten down by bears, the year-end rally that began in November has added new fuel.
The solar equipment stock reported fourth-quarter earnings earlier this week. While it missed analysts’ expectations in terms of earnings and revenue, the bullish outlook shared by management did more than enough to make up for it.
Revenue is still down 58% annually, with revenue from Europe down 70% from the previous quarter. However, anyone involved with Enphase knows that he is participating in the recovery story that has just begun.
Much of the decline has been sector-specific, with residential solar demand struggling to return to its previous highs. The global cost of living crisis has recently exacerbated this recession, with consumers tightening their belts and trying to make ends meet.
Bearish headwinds
When times are tough, alternative and renewable energy is still a luxury, so people will turn to the old reliable sources, oil and gas. But with interest rates set to fall and consumer confidence at multi-year highs, the outlook is suddenly much brighter for Enphase. Enphase stock has just started to bottom after dropping 80%.
Given the factors driving a return of demand, this suggests there is enormous upside potential that Wall Street is already starting to grasp. Enphase shares jumped nearly 25% on Wednesday on comments from CEO Badri Kothandaraman, who told investors that “we think the first quarter could be the bottom quarter.” They are already starting to see signs of recovery in Europe and expect non-California states to “bounce back quickly.”
Oppenheimer’s team immediately upgraded its rating on Enphase shares due to the improving outlook, raising them to an “outperform” rating with a $133 price target. It echoed the move by Roth MKM, which boldly reiterated its “buy” rating ahead of this week’s report. Roth MKM gave Enphase shares an even higher price target of $140, which, even taking into account this week’s jump, indicates an immediate upside of at least 20%.
Getting involved
It’s always interesting to see how much weight Wall Street places on predicted future performance versus actual past performance. This is especially true for growth stocks like Enphase, which have all their potential ahead of them and have yet to be realized. With stocks, in general, enjoying a great couple of weeks and with investor sentiment firmly in the risk-on camp, there’s a lot to like in Enphase right now.
It’s worth pointing out that the stock struggled to build on Wednesday’s gains in yesterday’s session, so staying above the $115 level ahead of the weekend will be key. If it starts giving up these gains, the recovery story becomes much harder to visualize, and likely means that an earnings report that completely shatters expectations is needed to turn things around.
But in the meantime, investors should look for stocks to continue to consolidate from this week’s gains, with new upside moves likely to form in coming sessions as hopes for a banner year grow. We’ve seen how quickly Enphase’s revenues, and in turn its stock, can take off when conditions are right, and it’s starting to look like we’re getting to that point now.
Before you consider Enphase Energy, you’ll want to hear this.
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