After a midday turnaround on Friday, stocks erased early losses and finished the week little changed. The S&P 500 and the Nasdaq logged modest weekly gains, while the Dow was down for the week. After a week of mixed economic data, our team has two recommendations of stocks to buy and one to sell heading into the close of the year.
Since the U.S. government officially introduced the first-ever tax credit for energy storage projects, there have been remarkable positive business developments in the industry. Our first buy recommendation for today is a company gaining traction as plans for much-needed upgrades to the nation’s aging power grid unfold.
NextEra Energy (NEE) is the world’s largest solar and wind energy producer. They’re owners of Florida Power & Light, along with some other utilities and businesses that do wholesale energy. They’re also the sponsor of NextEra Energy Partners, which is primarily renewable energy focused. Renewables are a big part of NextEra’s business. NextEra has emerged as the world’s most valuable utility, primarily by betting on utilities, especially wind.
NextEra had about 30 gigawatts of wind and solar farms at the end of last year, enough to power 17 million homes. And it’s expanding significantly, with contracts to add another 10 gigawatts of renewables.
For decades, NextEra Energy has been reducing emissions through the development of renewable energy and the modernization of its generation fleet. The company’s goal is to reduce the CO2 emissions rate by 67% by 2025 from a 2005 baseline. This equates to a nearly 40% reduction in absolute CO2 emissions, despite the company’s total expected electricity production almost doubling from 2005 to 2025. Working toward this goal, as of year-end 2021, NextEra has reduced its CO2 rate by 62.2% and the absolute CO2 tons by 20% while their generation increased by 67.5%. That’s pretty impressive.
NextEra Energy has more energy storage capacity than any other company in the U.S., With more than 180 MW of battery energy storage systems in operation. The company leads the industry with storage innovations such as its Babcock Ranch Solar Energy Center – the largest combined solar-plus-storage facility in the country. This cutting-edge project incorporates a 10-MW battery storage project into the operations of a 74.5-MW solar power plant.
NextEra has a solid track record of success. Between 2006 and 2021, their adjusted earnings per share grew at a compound annual growth rate of 8.4%, while dividends grew at a compound annual growth rate of 9.4%, that’s incredible growth over 15 years. Over the past five years, the stock is up 137% on a total return basis. That type of performance is not typical for a utility company, indicating that NextEra is an outlier in the industry.
The undisputed global leader in identity security, CyberArk (CYBR), has been gaining attention on Wall Street. The stock is up 26% over the past six months and could continue to gain heading into 2023. Regardless of any short-term earnings volatility, the potential for long-term, steady growth is too great to ignore.
CyberArk’s innovations occur across its self-hosted solutions and expanding SaaS portfolio of privileged access management, secrets management, and cloud privilege security offerings, helping its customers enable “Zero Trust” by enforcing least privilege. Under the framework of its Zero Trust approach, its teams can focus on identifying, isolating, and stopping threats from compromising identities and gaining privilege before they can do harm.
The Israel-based company was recently named a leader in the Gartner Magic Quadrant for Privileged Access Management for 2021. It was positioned both highest in the ability to execute and furthest in the completeness of vision for the fourth time in a row. It comes as no surprise the business has been attracting customers to its subscription-based services, which means tremendously reliable cash flow, a good sign for anyone eyeing the small-cap.
For its third quarter, CyberArk reported a 133% growth acceleration from the previous year’s quarter of the subscription portion of its annual recurring revenue (ARR) to $255 million. Total ARR came in at $465 million, with growth Accelerating to 48%. Management also increased the full-year 2022 ARR Guidance Range to $589-$601 million, up from a prior estimate of $583.5-$598.5 million.
Over the past two years, the dramatic shift from brick-and-mortar shopping to e-commerce has been a tremendous obstacle for investors in malls and shopping centers. The demise of cornerstones like Sears and JCPenny hastened the decline as shopping malls are now left without anchor tenants. Recent data suggests that 25% of America’s 1,000 malls will be closed in the next 3-5 years.
Leading shopping mall REIT Simon Property (SPG) is struggling to pivot amid the inexorable decline of its core asset group. The REIT has been aggressive in diversifying into outlets and foreign real estate, which may help to hedge against increasingly substantial losses from their shopping mall category. But given current inflation and the possibility of an economic slowdown, both shoppers and retailers may be in a tight spot this holiday season which will inevitably weigh heavily on SPG.
Investors choose REIT stocks because of their income-producing abilities and yields. The fact that SPG is concentrated in brick and mortar retail is tangential to its income feature. Anyone looking for the reliable income that real estate and mortgage investments can bring would be wise to steer clear of Simon Property for now.
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