June 27, 2022- Southwest Airlines Co. (NYSE:LUV) and Snowflake Inc. (NYSE:SNOW)
Today’s best stocks to buy now include a well run airline and cloud computing play that each received analyst upgrades.
Stocks closed out last week with robust gains following three consecutive losing weeks. U.S. stocks ended Friday with gains for the fourth time in five sessions and more than made up for the prior week’s losses. For the week, the Dow rose 5.39%, the S&P 500 6.45%, and the Nasdaq an impressive 7.49%. Although this does not necessarily signal a long-term reversal, with recession risks still very much in play, it was a well-needed relief rally. Amidst this short-term improvement in sentiment, Southwest Airlines Co. (NYSE:LUV) and Snowflake Inc. (NYSE:SNOW) sit as two of the best stocks to buy now.
While different, companies are on this list because of recent analyst upgrades.
Southwest, considered one of the most efficiently run airlines in the country, was upgraded on Thursday (June 23, 2022) by Raymond James from OUTPERFORM to STRONG BUY. In the process, it also received a $55.00 price target.
Meanwhile, Snowflake, a cloud computing giant in free-fall since late 2021, received two upgrades in the last two weeks. One from Canaccord Genuity on June 15, 2022, from HOLD to BUY, and another on Thursday (June 23, 2022) from JPMorgan Chase & Co. from NEUTRAL to OVERWEIGHT. Canaccord most notably gave the stock a $185.00 price target.
According to these upgrades, both stocks are now staring at potential upsides of as high as 45.77% and 22.09%.
However, some analysts are even more bullish.
Read on to discover why these two stocks are the best stocks to buy now.
Southwest Airlines Co. (NYSE:LUV)
The airline’s recent STRONG BUY upgrade from Raymond James has it staring at a 45.77% upside.
Multiple case studies have praised Southwest Airlines’ legendary consistency, efficiency, and profitability.
That alone should make it one of the best stocks to buy now. However, there’s so much more this prominent airline player has going for it.
Based on domestic originating passengers, Southwest owns a 23% market share as America’s largest domestic airline. Moreover, it boasts the world’s largest Boeing fleet.
Yet, beyond its size, consumers love the airline.
Southwest is a no-nonsense company whose focus on customer satisfaction is paramount. In its early years, Southwest modeled itself off of pit crews at the Indianapolis 500. As a result, to this day, it runs a quicker, cleaner, and more cost-effective efficient operation than competitors. Southwest’s turnaround time, for example, is roughly 30 minutes faster than other domestic peers.
This is critical nowadays, with airports and airlines worldwide short-staffed, overwhelmed, and struggling to readjust to the post-COVID world.
That alone should make it one of the best stocks to buy now.
Moreover, consider the following recognitions:
- #11 on FORTUNE’s list of World’s Most Admired Companies
- #1 Marketing Carrier in Customer Satisfaction per the U.S. Department of Transportation (DOT)
- Highest ranking Low-Cost Carrier for Customer satisfaction for the third year in a row by J.D. Power
- Ranked #1 by J.D. Power for Customer Satisfaction with Airline Travel Websites
- Ranked #2 by The Points Guy as a Best Airlines for Family
- Rapid Rewards Program elected as Program of the Year for the 8th straight year at the Freddie Awards
- Freddie Awards also awarded it with Best Loyalty Credit Card, the Best Airline Redemption Ability, and the Best Customer Service
- Ranked among the Best Airline Rewards Programs by U.S. News & World Report
- Recognized by Airlines Reporting Corp. as 2019 Airline of the Year
- Named one of Military Times Best for Vets: Employers 2019
- Recognized as a Best Employer in Forbes’ 2019 list
With a recently announced $2 billion initiative to upgrade its customer experience, chances are there are even more awards in Southwest’s future.
Rising Operating Revenue Guidance and Strong Margins Have Southwest Built to Offset Fuel Costs
Southwest’s Q1 earnings report may have missed bottom-line estimates and revealed a net loss.
However, the Company reported a 128.75% year-over-year revenue increase and an 88.09% year-over-year operating income increase.
Additionally, Bob Jordan, Southwest’s Chief Executive Officer, expects Southwest to see solid profitability for 2022’s remaining three quarters and the full year 2022.
With Southwest expected to report Q2 earnings on July 28, 2022, stay tuned. The Company recently hiked its Q2 operating revenue guidance by 8% to 12% compared to 2019 figures.
Consider the following:
- Southwest is the only domestic airline with a decades-long track record of returning Shareholder capital.
- Southwest is the only domestic airline to boast 47 straight years of profitability.
Perhaps that’s why Finbox projects Southwest’s net income to grow 61.8% at an average rate of 29.6% over the next five fiscal years.
Southwest’s balance sheet is the industry’s gold standard and it holds more cash than debt. All three credit rating agencies also give the Company’s bonds investment-grade ratings.
LUV’s 19.4% gross margin reflects strong usage of net profits relative to revenue, while its 8 Piotroski Score sits just one point away from a perfect score. This figure is a 9-point rating system developed by Stanford accounting professor Joseph Piotroski based on healthy Liquid Balance Sheets, Profitability, and Operating Efficiency.
LUV’s Stock is Deeply Undervalued
Charts don’t lie. Southwest’s stock has fared poorly over the last three months. The stock currently sits close to its 52-week lows and over 33% below its 52-week highs.
However, at these current levels, LUV is one of the best stocks to buy now. Its long-term fundamental strength and multiples show a deeply undervalued stock by almost any metric.
For one, Southwest’s forward P/E ratio is 14.2x. That’s lower than the industry average and nearly 7x lower than companies like United Airlines.
Furthermore, its 2.1x price-to-book, 0.32 PEG, 0.9x forward price-to-sales, and 1.2x trailing price-to-sales signify a mouth-watering value opportunity.
A String of Recent Upgrades Adds to Significant Upside
On Thursday (June 23, 2022), Raymond James upgraded Southwest from OUTPERFORM to STRONG BUY with a $55.00 price target.
Based on this, LUV has a 45.77% upside from its June 24, 2022, closing price of $37.73.
This follows a string of several other analyst upgrades and price boosts since April, including:
- Citigroup from $48.00 to $53.00
- Deutsche Bank maintaining BUY at $60.00
- JPMorgan Chase & Co. from $62.00 to $72.00
- Morgan Stanley maintaining OVERWEIGHT and hiking its price target to $65.00
14 Wall Street analysts in total, over the last 3 months, offered a 12-month price target for LUV. LUV currently has a street-high price target of $72.00, a low of $34.00, and an average of $53.79. Its average price target represents a 42.57% upside from its June 24, 2022, closing price of $37.73.
LUV’s year-to-date low and high are $34.36 and $50.10, respectively.
Snowflake Inc. (NYSE:SNOW)
The cloud giant has a consensus upside of 28.36% amidst several recent analyst upgrades catapulting it to “elite” territory.
Since Snowflake’s IPO in late 2020, the stock’s seen plenty of ups and downs. Since late 2021, however, it’s been nothing but down.
Finally, fortunes may change for the powerful cloud-based data platform, however. Take a close look at its recent chart. There’s a chance the stock bottomed at $110.26 as it crossed a critical technical threshold at its 50-day moving average on Friday (June 24, 2022).Moreover, since touching that low on June 14, 2022, the stock is up 37.43%.
Based on recent trends, profit margins, growth projections, and analyst upgrades, it’s very plausible this is a beginning of an even longer-term uptrend, despite continued economic headwinds.
Snowflake’s Latest Earnings Point To Eye-Popping Growth
Snowflake reported its Q1 2023 earnings on May 25, 2022. Although EPS disappointed analyst expectations, SNOW reported some figures signifying eye-popping year-over-year growth.
- Quarterly revenue increased 85% year-over-year to $422.4 million.
- Product revenue for the quarter increased 84% year-over-year to $394.4 million.
- Remaining performance obligations increased 82% year-over-year to $2.6 billion.
- 6,322 total customers reported along with a 174% net revenue retention rate.
- 206 customers with trailing 12-month product revenue greater than $1 million
- A record $181 million of non-GAAP adjusted free cash flow
Source: Snowflake
With Q2 guidance of $435 – $440 million in product revenue, representing 71 – 73% year-over-year growth, keep your eyes peeled on this company’s prospects as it continues trading at a relatively low level. Snowflake’s net income growth could also be 107.4% and average 133.5% over the next five fiscal years, according to Finbox.
Strong Profit Margins and Substantial Upside Has Catapulted SNOW to “Elite” Territory
Snowflake holds more cash than debt on its balance sheet and boasts a 64.0% gross margin. That in itself is impressive for a relatively young tech company operating within the context of a challenging environment.
But, recent analyst activity tells the true story of why SNOW is one of the best stocks to buy now.
To put it mildly, it signals a potentially emphatic reversal from where the stock was roughly two weeks ago.
Canaccord Genuity, for one, upgraded the stock from HOLD to BUY on June 15, 2022, following Snowflake’s Analyst Day. It gave the stock a $185.00 price target, representing a 22.09% upside from June 24, 2022’s $151.53 closing price. Canaccord analyst David Hynes referred to SNOW as “one of the highest quality names that we cover” and noted the opportunity for beaten-down SNOW shares to “step up.” He sees growth rates sustaining 35-40%+ over the next few years as it scales through $5B in revenue. Moreover, he crunched several numbers revealing the potential for a better than 20% annual return over the next 4 years.
Meanwhile, on June 23, 2022, JPMorgan Chase & Co. upgraded the stock from NEUTRAL to OVERWEIGHT and tacked on a $165 price target. While this upside isn’t quite Canaccord’s, JP Morgan upgraded the stock to Overweight, citing a “surge” in their most recent CIO Survey.
Analyst Mark Murphy noted Snowflake’s excellent standing among customers. In JPMorgan’s annual CIO Survey for 2022, 142 CIOs controlling >$100B of IT spending were polled. Needless to say, Snowflake shot to elite territory and came in at #1 in installed base spending intentions and #1 among emerging companies whose vision most impressed respondents.
Murphy is also “incrementally confident” that SNOW is reaching an inflection point concerning material FCF generation.
This all points to the potential for a powerful reversal and a STRONG BUY opportunity, according to Tipranks. Of the 28 Wall Street analysts who offered 12-month price targets for SNOW in the last 3 months, 22 rated it a BUY compared to 5 HOLD and 1 SELL. Currently, the Snowflake stock has a street-high price target of $295.00 compared to a low of $120.00 and an average of $194.50. The average price target represents a 28.36% upside from its June 24, 2022, closing price of $151.53.
SNOW’s year-to-date low and high are $110.27 and $354.92, respectively.
