The stock market seems as if it’s a pretty good place to be at the moment.
Despite a government report showing economic growth slowing to 2% during the third quarter, equities still ended the week at record highs.
Even bad news can be good news for stocks, as investors may have been looking at the data as a reason for the Federal Reserve to hold off on announcing it would start tapering its bond-buying program.
Or it may simply be that investors feel the worst of the pandemic is in the rearview (after all, the gross domestic product report is backward-looking) and that a strong corporate earnings season bodes well for the economy.
“With the economy continuing to grow, with an infrastructure bill soon to pass Congress and possibly a sizable social service program, and with COVID cases now receding, investors should be positioned for a further reopening of the economy and additional expansion,” says Chuck Lieberman, chief investment officer at Advisors Capital Management. “This is all good news for stocks, which is why stock declines tend to be short-lived.”
With this in mind, here are three hot stocks to buy now:
— Aehr Test Systems (ticker: AEHR)
— Energy Transfer LP (ET)
— Quanta Services Inc. (PWR)
Aehr Test Systems (AEHR)
All three major U.S. stock indexes closed the last trading day of October at record highs amid solid corporate earnings. While those heady numbers are great for many investors in the short term, they make others wary.
“With the S&P and Nasdaq mega-caps so extended and still vulnerable, we suggest focusing on a handful of special-situation stocks,” says Gene Inger, who provides daily stock market analysis via The Inger Letter.
He points to Aehr Test Systems, a global provider of semiconductor testing equipment whose stock is up more than 800% year to date. Its tough to find hot stocks running like AEHR. “They are leading the pack for testing silicon carbide wafers,” Inger says.
As trade website Semiconductor Engineering points out, a “big growth opportunity” for these alternatives to traditional silicon semiconductors is in electric vehicles. “It can extend driving range per charge compared with silicon, reduce the time it takes to charge a battery, and contribute to the overall efficiency equation by providing the same range with lower battery capacity and less weight,” the publication says.
As demand for silicon carbide chips increases, so too it seems will the demand for testing them. In the company’s most recent quarterly report, it said its net sales rose 181% year over year, and it raised revenue guidance for its 2022 fiscal year by about 80%, to at least $50 million. The company said it finished the quarter with record single-quarter bookings, including several “sizable orders” from a Fortune 500 automotive semiconductor supplier.
“We believe we will add several new silicon carbide customers over the next 18 months,” CEO Gayn Erickson said in a press release accompanying the results.
Energy Transfer LP (ET)
Next among the hot stocks to buy now is Energy Transfer LP. As the economy recovers, so will the transportation of people and goods and the manufacturing of those goods, all of which require energy.
While the U.S. has made strides in renewable energy generation from wind and solar, it still relies on fossil fuels for most of its electricity, with natural gas taking the lion’s share. And whether it be by car, train, ship or airplane, our transportation is still overwhelmingly fueled by petroleum products.
Those products have to be transported between their extraction point and end users, and pipeline company Energy Transfer says roughly 30% of America’s natural gas and crude oil moves through its pipelines.
The company cut its capital spending, as well as its cash distribution, during the pandemic. Still, Energy Transfer’s stock, which is up more than 55% in 2021, pays a hefty 6.3% dividend. That’s an attractive distribution given that Treasury yields are very low.
Because of the amount of cash for distribution the company has over what its distribution actually is, Lieberman expects “more cash will soon be diverted into either increasing its distribution or buying back shares.”
If the company brought its distribution back to where it was before the pandemic, shareholders would win, as they would if the company buys back shares, increasing the share price.
Quanta Services Inc. (PWR)
The last of the hot stocks to buy now is Quanta Services. This specialized infrastructure contracting services company straddles the old energy economy and the new.
“Quanta’s business is aligned with sustainable long-term trends, including the transition to a carbon-neutral economy, 5G wireless networks, battery storage and hydrogen,” says Will Reese, head of equity research with UMB Bank. “Quanta is an indirect way to play the growing wind and solar markets, which are poised for significant decades-long growth as North America moves toward a carbon-neutral economy.”
In October, it completed the acquisition of Blattner Holding Co., a leading utility-scale renewable energy infrastructure solutions company that provides engineering, procurement, project management and construction services to wind, solar and energy-storage developers. That adds to Quanta’s skills in infrastructure projects for the utility, communications, and oil and gas industries.
“Overall, as the outdated U.S. electricity grid continues to transform, Quanta’s acquisition of Blattner should help them capitalize on North America’s energy transition by adding a renewable construction business to its leading transmission and distribution platform,” Reese says. “This should help Quanta achieve greater market share in a fragmented industry and help drive the company higher long term.”
In August, the company reported record second-quarter revenues and net income, as well as a record $17 billion backlog of business. It raised its expected revenues for 2021 to between $12.20 billion and $12.45 billion. Quanta’s shares are up more than 75% year to date.
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