Catalysts can be big drivers for stocks. A positive earnings report, upcoming growth project, or other value driver can catapult a stock. That's why investors should be aware of upcoming catalysts for stocks they own or have on their watchlist.
Steel Dynamics (STLD 0.76%), Enterprise Products Partners (EPD 0.45%), and Tesla (TSLA -1.11%) are three stocks a few Fool.com contributors are watching closely this month. Here are the upcoming catalysts they're keeping an eye on in July.
Adding another growth lever
Reuben Gregg Brewer (Steel Dynamics): The steel industry is highly cyclical, so conservative investors should tread carefully. However, Steel Dynamics is one of the best-positioned companies for strong through-the-cycle performance. That's because the electric arc mini-mills it operates are more flexible than older blast furnace technology, making the steel company's performance resilient even when times are tough. And it continues to expand its footprint in the industry, opening new plants and using its own commodity steel to produce higher-margin specialty products.
That's a pretty good story, but it gets better. Steel Dynamics believes that the aluminum sector in the United States is attractive today, with growing demand and limited supply. The company happens to be one of the largest recyclers of aluminum in North America. Aluminum mills, meanwhile, use similar technology to electric arc steel mills. This all backs Steel Dynamics' plan to build an aluminum mill, adding another growth avenue for its business over the long term.
The mill is on schedule to open in 2025, with smaller interim investments slated to come on line in 2024. The company expects the new aluminum mill to add between $650 million and $700 million to earnings before interest, taxes, depreciation, and amortization (EBITDA). Although rarely cheap, Steel Dynamics' stock is down nearly 20% from recent highs. This could be a good opportunity to start building a position in a stock that's building for the future.
Approaching an inflection point and key milestone
Matt DiLallo (Enterprise Products Partners): Enterprise Products Partners has two big catalysts on the horizon. The energy midstream giant recently completed the expansion of its Acadian Haynesville Extension natural gas pipeline. That's the first project in a massive wave of expansions it expects to finish in the second half of 2023. The master limited partnership (MLP) anticipates placing $3.8 billion of major projects into service by year-end. That's a substantial portion of its current $6.1 billion backlog of commercially secured capital projects.
Most of those projects will operate at full capacity on day one, backed by long-term customer contracts. Because of that, they'll provide a meaningful boost to cash flow in the back half of the year.
That growing cash flow will give the company more fuel to increase its distribution. The MLP delivered its 24th consecutive year of growing the distribution last July. With visible growth on the horizon, Enterprise Products Partners will likely hit the quarter-century milestone this year. That would add to an already attractive payout that currently yields 7.4%.
The earnings and income growth combination could give Enterprise Products Partners the fuel to produce strong total returns. Because of that, I'll be watching closely this July to see if the company runs into any trouble starting up its expansion projects. I'll also be on the lookout for its next distribution payment to see if it provides investors with another boost. Meanwhile, with most of its expansion projects entering service in the second half of this year, I will keep my eyes peeled for any new expansions it adds to the backlog. Future new projects will give it more fuel to continue increasing its distribution.
Record deliveries could send Tesla's sales zooming
Neha Chamaria (Tesla): Investors in electric vehicle (EV) stocks may want to fasten their seat belts this month -- the most-awaited earnings report is coming up on July 19. If you haven't already guessed, it's Tesla, the EV giant that just took the market by surprise with its latest delivery numbers.
Tesla's solid second-quarter production rate puts the company on track to meet its long-term target of a 50% compound annual growth rate, or around 1.8 million cars per year. Tesla also set a delivery record in Q2 with deliveries of 466,140 EVs, up a whopping 83% year over year. Here's why this number is significant: Tesla has been on the receiving end of criticism in recent months for its move to cut prices of its EVs aggressively amid rising competition. Turns out, the move is working in the company's favor.
But how did those price cuts affect Tesla's margins, and what are the company's plans to sustain its sales momentum? Those are the two biggest questions investors -- not just in Tesla, but in nearly every EV manufacturer -- will want answers to in the company's upcoming earnings call this month. If higher deliveries and cost control helped Tesla minimize the effect of price cuts on its margins in Q2, it could lure more investors into the EV stock. And with the consensus projecting Tesla's revenue to grow by almost 43% year over year in Q2, a beat could be yet another catalyst for Tesla shares this month.
