It’s no easy task making sense of the stock market these days. The year began in an optimistic mood, but following a downtrend that began in February, the S&P 500 is almost back to the level it was at when 2023 kicked into action. And these confusing and uncertain times have been reflected in the IPO market.
IPOs depend strongly on the predictability of available capital; whether it runs cheap or expensive, both companies and investors want to have certainty. And what we’re seeing now is an extension of last year’s historically low rates of IPO activity. There were a total of 16 IPOs in the US this past February, raising an aggregate $2.1 billion. That’s just a small fraction of the historical norms – we saw 40 February IPOs last year, and in February 2021 a total of 138 IPOs raised $47 billion.
Despite the slowdown in IPOs, investors can still find ‘Strong Buy’ opportunities among this year’s newly public stocks. Using the TipRanks database, we’ve pulled up the details on two “hot IPOs” that made their market debuts over the last two months. Both have Strong Buy ratings from the Street’s analysts, and both offer investors double-digit upside potential. Let’s take a closer look.
NEXTracker, Inc. (NXT)
The first stock we’ll look at, NXT, belongs to NEXTracker, a leader in the world’s solar power industry. The political push toward green and renewable energy sources has opened up new vistas for firms able to meet the requirements of this industry – and NEXTracker does just that, providing smart solar tracking systems, and the software to back them, to solar photovoltaic plants around the world.
NEXTracker’s products allow PV plants to improve their performance through a combination of advanced control systems and data monitoring, and have made the company the global leader in the solar tracker niche. Overall, NEXTracker has delivered tracker and software products that support more than 70 gigawatts of energy. The systems have proven their worth, even in difficult terrain or extreme weather.
This past February 8, NEXTracker announced the pricing of its IPO, at $24 per share, with 26,600,000 shares of Class A common stock put on the market. This was an upsized offering, with initial pricing above the $20 to $23 range initially expected. The company raised $638 million in gross proceeds, well above the $535 million it had originally stated as its goal. The stock debuted on the NASDAQ on February 9.
In her coverage of NEXTracker, Barclays analyst Christine Cho charts a clear path forward for the company, explaining why it offers strong opportunities for investors. She writes, “The case for utility-scale solar is as attractive as it’s ever been and this secular growth trend should continue: NXT will likely be one of the key beneficiaries of rising global demand for renewable energy driven by 1) decarbonization, 2) increased electrification, and 3) rapidly declining costs, that will drive an 8% CAGR in utility-scale solar PV installations globally between 2022 and 2030. We expect NXT to hold its dominant market share in the US and to grow market share in ROW as it takes share from fixed tilt systems.”
Giving some numbers to back up these comments, Cho rates the stock as Overweight (a Buy) with a $42 price target that indicates room for 35% share appreciation in the coming months. (To watch Cho’s track record, click here)
The Strong Buy consensus rating here is based on 12 recent analyst reviews, breaking down to 9 Buys over 3 Holds. The stock is selling for $31.19 and its $39.67 average price target implies a 27% one-year upside potential. (See NXT stock forecast on TipRanks)
Skyward Specialty Insurance Group, Inc. (SKWD)
From green energy we’ll shift our eye to the insurance industry, where Skyward operates as a specialty insurance provider in the property & casualty segment. The company offers liability policies for healthcare professionals, for industrials, and for managers and professionals in a wide range of niches, as well as medical stop-loss and surety policies.
Skyward opened its initial public offering in early January, putting 4.75 million shares on the market directly, another 3.75 million shares on the market through existing shareholders, and giving the underwriters options on another 1.275 million shares. The initial pricing was expected between $14 to $16 per share, and the stock opened for trading at a higher price of $18.90 each. In the IPO, which closed on January 18, a total of 10.29 million shares were sold, well above the 9.775 million planned. The company raised approximately $134 million in gross proceeds from the sale, for both the company and the selling shareholders.
Since the IPO, the company has released some financial data that should interest investors. Skyward had, as of September 30, 2022, $879 million in gross written premiums, and another $2 billion in assets. In 4Q22, for which results were reported in February, the company showed a net income of $20.4 million, up from just $1.3 million in 4Q21. The company’s adjusted operating income for the quarter came to 36 cents per diluted share, up 56% year-over-year. Gross written premiums in Q4 were up 18% y/y.
5-star analyst Mark Hughes, writing from Truist, notes that Skyward is on a long-standing upward trajectory, and believes that it can continue that trend going forward. In his words, “The company has generated 35% expansion over the last seven quarters in gross written premium on continuing business and should sustain double-digit growth in coming periods as it takes advantage of strong market momentum and builds out its footprint through new hires and expanded distribution… The company has a wide spread of distribution sources that provides it with multiple channels for sustained growth and also protects against volatility in any single area.”
In light of these prospects, Hughes rates this stock as a Buy, with a $26 price target to show a 38% potential gain for the next 12 months. (To watch Hughes’ track record, click here)
All six of the recent Wall Street analyst reviews on Skyward are in agreement that this new stock is one to buy, making the Strong Buy consensus rating unanimous. The average price target of $24 suggests a 27% upside from the current trading price of $18.85. (See SKWD stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.