The broader stock market has rebounded nicely since its mid-June lows, with all three major indices officially out of a bear market. However, there are still plenty of companies that are down big off their highs.
Cognex's long-term growth opportunity remains intact
Lee Samaha (Cognex): It's been a tough year for Cognex, and the stock's 38% decline says a lot about it. The three major end markets for its machine-vision solutions are consumer electronics, automotive, and logistics (e-commerce warehousing). All three have been challenged this year. If it isn't production curtailments in light-vehicle production, it's downgrades to expectations for smartphone production. It gets worse. The slowdown in consumer spending and cooling off of red-hot investment in e-commerce facilities negatively impacted Cognex's logistics sales. Throw in a fire at its primary contractor and destruction of inventory, and the company seems to be hit from all sides.
That said, Cognex is doing many things right to secure future growth. It already has Apple as a significant customer, and, although not named, it likely has Amazon.com too. As such, Cognex is building long-term relationships with industry leaders that should help encourage the adoption of machine vision with lower-tier customers.
Moreover, Cognex has been absorbing costs (paying high prices to secure components, etc.) to adequately service its customers -- a good trait in a growth company. It all adds up to a company preparing for long-term growth, and when its end markets turn up again, Cognex will be ready to service them.
A lidar company to potentially park in your portfolio
Scott Levine (Luminar Technologies): Starting the year on an auspicious note, Luminar announced a major deal with the Mercedes-Benz unit of Daimler, and shares, subsequently, accelerated upwards. Shortly afterwards though, the lidar stock hit a pothole and failed to recover. In fact, shares of Luminar have plunged 35% since the start of the year.
The primary cause for the decline in the lidar technology's stock stems from fears of inflation and an economic slowdown -- two things that have suggested to the market that the company will see decreased demand from automakers. While there may be some truth to this speculation, it's extremely unlikely that demand for its lidar solutions has stalled indefinitely. The company hasn't reported anything that suggests its growth potential is irreparably compromised. Patient investors may want to take a closer look at this lidar specialist.
During its second-quarter 2022 earnings report, Luminar allayed some concerns that it was facing decreased demand for its products. The company announced upward revisions of its 2022 order book and revenue forecasts. Whereas Luminar had previously expected its order book (the future cumulative sales estimates for its hardware and software products) to grow 40% in 2022 from the $2.1 billion it had at the end of 2021, management now foresees it growing 60%. With regards to its original 2022 revenue estimates of $40 million, Luminar nudged it slightly higher to a range of $40 million to $45 million.
Besides an increasingly bullish outlook on 2022, Luminar also seems poised for growth in 2023. The company recently acknowledged that it is on track to start wide-scale production of its Iris hardware and software by the end of 2022. In addition, Luminar remains on track with the development of a new manufacturing facility. Expected to commence operations in the second half of 2023, the manufacturing facility will have annual production capacity of 250,000 units.
Like many growth stocks, shares of Luminar have fallen out of favor with investors who fear that an economic slowdown will reduce demand for the company's lidar products. But those who have long investing horizons and who are willing to ride out the current pessimism may be rewarded for their patience as the company continues to execute its growth plans.
This wind blade manufacturer is getting the wind back in its sails
Daniel Foelber (TPI Composites): The passing of the 2022 Inflation Reduction Act has been a boon for renewable energy companies like TPI Composites. The bill includes $370 billion to fight climate change and boost clean energy infrastructure.
TPI Composites has had a rough couple of years. The independent wind blade manufacturer invested heavily in its global manufacturing capacity in key end markets across Europe, Asia, the Middle East, and North America. Unfortunately, the timing was terrible, as the heightened expenses came right before the COVID-19 pandemic. TPI Composites has been struggling to achieve profitability in the wake of higher operating costs to run its additional production lines, as well as challenges booking multiyear contracts with its key customers, such as General Electric, Siemens Gamesa, Nordex, and Vestas. The below chart illustrates how TPI Composites' revenue has flatlined over the last few years, while losses have widened.
Down 78% from its all-time high, TPI Composites stock is starting to look more attractive. Its price-to-sales ratio is 0.4, which is reasonable, especially if it can gradually reach and maintain profitability. In its Q2 2022 earnings call, the company reported some good news. It met its Q2 production targets in China; most of its plants are performing at or above expectations; and it has successfully reorganized its supply chain to reduce unforeseen costs.
TPI Composites still has a lot to prove. But the long-term future of the wind energy industry across the globe looks brighter than ever as costs have come down and countries look to diversify their energy mix away from fossil fuels. For investors looking for a high-risk, high-reward turnaround play, TPI Composites could be worth considering now.