UBS Says These 2 Stocks Offer Attractive Risk-Reward Right Now — Here’s Why

Risk and reward must be on every investor’s mind immediately, and for good reason. The risks of market investing are piling up; in response to Nadia Lovell, senior US equity strategist with UBS, we’re almost certain to see a recession hit this 12 months. The prospect of a tough downturn, in her view, is somewhat mitigated by a hot labor market and an excess in consumer savings – besides, Lovell believes that the S&P 500 will drop to three,700 this 12 months before rebounding to 4,000 by 12 months’s end.

Lovell sees two drivers pushing the market into recession, pointing her finger at each a company earnings contraction and the rapid shift of the Federal Reserve to a policy of restrictive monetary tightening. “We expect that there is more pain to return on the earnings side,” she says, and goes on so as to add, “It will be difficult for the economy to grow with such a large change within the Fed Funds rate in 10 months. And so we discover it difficult to see that we get earnings growth this 12 months. And earnings are more likely to contract not less than 4%.” Adding additional grimness to that picture, Lovell can also be predicting the next unemployment rate, which she states is inevitable in a recessionary environment.

Getting all the way down to brass tacks, Lovell makes some specific sector recommendations for investors, to seek out essentially the most attractive balance of risk and reward. She points to energy and healthcare stocks as solid decisions, defensive plays that find wide endorsement amongst investment professionals. Energy stocks should do well so long as demand stays strong and provide limited, while healthcare stocks mix inexpensive valuations and sound growth potential.

The stock analysts at UBS are taking Lovell’s evaluation as a place to begin, and picking out individual stocks from these two sectors. We are able to dip into the TipRanks database for the most recent details on a few of these picks; listed here are two of them, with comments from the UBS analysts.

OPAL Fuels Inc. (OPAL)

We’ll start within the energy sector, where OPAL Fuels is a frontrunner within the renewable natural gas (RNG) segment. The corporate operates on each the production and distribution ends, capturing potentially harmful methane emissions and converting it into low-carbon-intensity RNG. The renewable fuel might be used to interchange diesel and other fossil fuels.

This company lists several ‘green economy’ benefits attributable to its RNG product, starting with savings in cost. Replacing diesel fuel with RNG can save transport fleet operators as much as 50% in fuel costs yearly. As well as, RNG production might be used to scale back methane emissions from landfills or dairy farms, and might be used to extend hydrogen production as one other alternate fuel.

OPAL is a newcomer to the general public trading markets, having gone public in July of 2022 through a SPAC transaction, a business combination with ArcLight Clean Transition Corporation II. The transaction was approved on July 15, and the OPAL ticker began trading on July 22.

In its most up-to-date quarterly report, for 3Q22, OPAL showed a top line of $66.6 million, for a 41% year-over-year gain. This was derived from quarterly production of 0.6 million MMBtu of RNG, a y/y production increase of fifty%; from sales of seven.4 million GGEs (gasoline gallon equivalents) of RNG, up 17% y/y; and deliveries of 30.7 million GGEs, which was up 33% from the prior 12 months quarter. The corporate is guiding toward full-year 2022 RNG production of two.2 million to 2.3 million MMBtu.

OPAL is working to satisfy that goal by expanding its production capability, and earlier this month the corporate announced the commencement of full operations at the primary landfill gas to RNG facility within the state of Florida. The brand new facility is predicted to provide as much as 5 million GGEs per 12 months going forward.

In his coverage of OPAL for UBS, William Grippin highlights why investors should lean into this name immediately. He writes, “We expect OPAL to grow adj. EBITDA by ~55% CAGR through 2026E, underpinned by a 4-yr construction backlog of renewable natural gas (RNG) projects. In our view, OPAL offers a positive risk/reward skew with the present ~11x 2024 UBSe EV/EBITDA multiple not fully reflecting the expansion potential of OPAL’s project backlog. Key milestones over the subsequent 12 months include: 1) On-time commissioning of 4 out of seven currently in-construction projects, 2) conversion of 4-5 pipeline projects to in-construction status, 3) Establishment of ultimate 2023 renewable fuel volume obligations by the EPA.”

Looking forward from this stance, Grippin gives OPAL shares a Buy rating with a price goal of $13 to point his confidence in ~86% upside on the one-year time-frame. (To observe Grippin’s track record, click here)

Overall, this small-cap RNG firm has picked up 5 recent reviews from the Street’s analysts and these are all positive, backing up a unanimous Strong Buy consensus rating. The stock is currently selling for $7 and its average price goal, standing at $13.75, implies a strong 96% upside potential over the approaching 12 months. (See OPAL stock forecast)

Sarepta Therapeutics, Inc. (SRPT)

For the second UBS pick we’ll switch to the healthcare sector. Sarepta is a biopharma company that has scored a ‘hat trick,’ having a comprehensive product and research lineup that features drug candidates in the invention and clinical stages of development, in addition to approved products within the commercialization stages. The corporate takes a gene editing approach to biopharmaceuticals, and is working on treatments for genetically-based disease conditions with a selected concentrate on muscular dystrophy.

On the business side, Sarepta has three approved gene therapy products in the marketplace for the treatment of Duchenne muscular dystrophy. These three drugs, Exondys 51, Vyondys 53, and Amondys 45, brought in a complete of $207.8 million in product revenues for 3Q22 – this was up 24% year-over-year, and made up the majority of the corporate’s $230.3 million total top line. The extra revenues got here from collaboration payments on pipeline drug candidates.

The corporate also just released preliminary Q4 and full-year product revenue results; net product revenues for the quarter are expected to achieve ~$235.5 million, amounting to a 32% y/y increase while revenues for the full-year are expected to achieve $843.3 million, above guidance of $825 to $840 million.

Turning to the pipeline, crucial program to notice is SRP-9001 being developed along with Roche. This drug candidate is a possible treatment for ambulant patients with Duchenne; based on positive clinical trial results, the corporate this past September submitted the Biologics License Application to the FDA, and is looking for accelerated approval. A PDUFA date has been set for May 29. At the identical time, Sarepta can also be running the EMBARK clinical trial – a worldwide, randomized, double-blind, placebo-controlled study of SRP-9001, that’s fully enrolled and dosed – and has proposed this trial as a confirmatory study to support accelerated approval.

Covering Sarepta for UBS is analyst Colin Bristow, who sees potential regulatory and clinical trial catalysts in the corporate’s late-stage research pipeline. Bristow says of Sarepta, “Our view is that accelerated approval for SRP-9001 in Duchenne Muscular Dystrophy (DMD) by the May 29 PDUFA is very likely (we increased our Prob of Approval to 85% from 60%) – we imagine SRPT has sufficient data to support using shortened/truncated dystrophin (formerly often known as microdystrophin) expression as a surrogate biomarker of function. Moreover, the early involvement of CBER director Peter Marks and Neurology head Billy Dunn within the regulatory process are soft positive indicators of a positive end result, in our view (supported by our regulatory KOL discussion).”

These comments fully support Bristow’s Buy rating on SRPT shares, and his $158 price goal implies a one-year upside potential of ~31%. (To observe Bristow’s track record, click here)

A healthcare stock with as many shots on goals as Sarepta – the commercialized medications, the late-stage pipeline, the pre-clinical tracks – is bound to draw investor and analyst interest, and SRPT shares have 17 recent reviews on file. These include 14 Buys and three Holds, for a Strong Buy consensus rating. The stock has a mean price goal of $148.88, suggesting ~25% upside from the present trading price of $120.13. (See SRPT stock forecast)

To search out good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this text are solely those of the featured analysts. The content is meant for use for informational purposes only. It is rather vital to do your personal evaluation before making any investment.

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