It's that time of year again! Earnings are upon us. Unlike last year, when investors were monitoring the extent of the COVID-19 pandemic and the benefits of a vaccine, this quarter is all about big picture macroeconomic factors. Inflation, interest rates, supply chain challenges, and labor shortages headline this quarter's list of important themes. Although these topics have their relevance over the short term, they shouldn't detract from a company's long-term growth trajectory.
With that, we asked some of Fool.com contributors which growth stocks were great buys now. They reached into their goody bags and pulled out three treats. Here's what makes Fisker (FSRN -4.60%), United Parcel Service (UPS 0.28%), and Emerson Electric (EMR 0.81%) all great buys now.
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An EV stock to park in your portfolio
Scott Levine (Fisker): Revving up to present its third-quarter earnings report on Nov. 3, Fisker is an electric vehicle company that is a fairly new option for investors, having made its market debut almost exactly one year ago. Those who follow the EV industry closely will surely recognize the company's name; however, it's also likely that many investors are unfamiliar with the EV start-up considering the flurry of EV companies that have gone public through special purpose acquisition company deals recently. Add to this the fact that Fisker doesn't have any vehicles on the road yet, and it's probable that Fisker is not on many growth investors' radars. But it certainly should be. Between the company's disruptive approach to financing and the stock trading at around $14 -- 55% below its 52-week high -- it certainly warrants consideration.
One of the biggest challenges facing EV makers is the hesitancy that prospective customers have regarding charging their vehicles. Helping to allay these concerns, Fisker offers customers who find that they're not as charged up about going electric as they thought they'd be the option to return leased vehicles at any time without penalty. Management's willingness to implement an innovative approach to vehicle leasing suggests that it's not only cognizant of a potential roadblock to its success, but that it's not willing to yield to convention.
As of early August, Fisker has 17,500 reservations for its Ocean SUV, indicating that there's already interest in the company's offering. By 2025, management is targeting annual sales of 200,000 to 250,000 -- a year in which it expects to expand its product offerings to four vehicles and which it expects to recognize a sizable improvement in its financials. While the company expects to generate free cash flow of negative $300 million in 2022, it forecasts free cash flow of $1.9 billion in 2025. That's the type of growth that can electrify investors' excitement.
UPS has long-term upside but may face near-term setbacks
Daniel Foelber (United Parcel Service): America's largest package delivery company, UPS, reports Q3 earnings on Tuesday. In addition to watching the usual suspects like the top and bottom line, margins, and other financial figures, investors will likely have their eyes peeled and their ears perked to gain insight into management's thoughts on supply chain constraints and the labor shortage.
Investors following the package delivery space know that FedEx and UPS report earnings about six weeks apart instead of at the same time. This staggered schedule is convenient because it provides more frequent insight into industrywide headwinds and tailwinds.
FedEx's most recent earnings report illustrated the sheer magnitude that the tight labor market and challenging supply chain are having on its margins. Its quarter wasn't pretty, and FedEx stock fell hard, dragging down UPS with it. To combat inflation, FedEx is raising prices next year. Investors should listen to UPS management's commentary on these topics to see how it expects to navigate market challenges, and the extent that it, too, will raise prices (if at all).
In addition to these short-term talking points, growth investors will likely monitor UPS' e-commerce growth, rebound in business-to-business sales, and international performance. UPS is a value stock that has been transforming into a growth stock over the last few years because it's leaned into previously untapped markets. Its investments to grow its e-commerce offering have made it a preferred shipping and logistics partner for small and medium-sized businesses.
Investors should gird their loins if UPS expects a sizable impact to its short-term performance due to macroeconomic factors. But as long as the big picture remains intact, UPS is one of the best industrial stocks on the market today.
Emerson Electric is about to enter a growth phase
Lee Samaha (Emerson Electric): It's been a long time coming, but energy-related spending is making a comeback. That's great news for companies with substantive process automation businesses like Emerson Electric. In total, oil and gas make up around 19% of Emerson's sales with chemicals and refining contributing another 11% and 6%.
Process automation is the processing of raw materials into an initial product. As a result, spending in the industry tends to be lumpy and contingent on customers feeling confident in the long-term outlook for their end markets. As such, the COVID-19 pandemic caused a stalling of investment within the processing industry.
However, oil services companies like Halliburton are talking about an extended upcycle in oil and gas spending. Meanwhile, Emerson's process automation rival Honeywell International noted that its refining catalyst and absorbents orders surged by 30% in the second quarter. That's important because it suggests refining investment is coming back, and as Honeywell's management noted, that usually flows through into increased spending in process automation down the line.
Everything points to a cyclical recovery in Emerson's process automation. Meanwhile, the company's commercial and residential solutions segment's (climate technology, energy efficiency, refrigeration) orders were up a whopping 43% in the trailing three months to June, so future revenue growth is assured. And finally, the recent deal to take a 55% stake in industrial software company Aspen Technology adds another string to the bow of Emerson's software expansion strategy. All told, Emerson looks well set for growth in the coming years.
