Why this analyst is bullish on these 2 stocks: XPeng and a US defense company

Gianni DiPoce is an analyst at The Mercator, a research company dedicated to the study of economic and financial market trends.

Di Poce also writes Benzinga Pro’s exclusive weekly “Insider Report” with technical analysis, trading insights and market commentary.

For this week, Di Poce has chosen Xpeng Inc – ADR XPEVand Northrop Grumman Company NOC as its two main actions.

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What’s going on with Xpeng? Founded in 2014, XPeng is a Chinese electric vehicle manufacturer. The company is headquartered in Guangzhou, China, with offices in Mountain View, California.

As the company struggles to achieve profitability, Di Poce noted that its revenue skyrocketed in 2021. The company brought in just under $21 billion, a significant increase from 5.84 billion dollars it had generated a year earlier.

XPeng reported 133% growth in June auto deliveries year-over-year.

“XPEV’s book value is 7.05 and its price-to-sales ratio is 7.07,” Di Poce said.

Some ideas : The net difference between all of a company’s assets and liabilities is the book value of that company – book value represents the total value of a company’s assets that shareholders would receive if the company were to be liquidated.

A valuation ratio that contrasts a company’s share price with its earnings is called the price-to-sales (P/S) ratio – it serves as an indicator of the value that financial markets place on each dollar of sales or revenue of a business.

Why is this happening? “Chinese tech stocks continue to trade at a huge discount, which should not be ignored,” Di Poce said, adding that “China’s stock market has been rallying for more than three months now, while the S&P just touched a low since June”.

The SSE (Shanghai Stock Exchange) Composite Index bottomed on April 26 and has rebounded 14.80% since then.

The company recently completed 200,000 vehicle deliveries in less than four years since its inception, “an impressive feat,” Di Poce noted.

“I’m bullish on XPEV as long as the stock remains above $28-28.50,” he said, with a “target upside $42-44.”

What’s going on with Northrop Grumman? Northrop is an American multinational aerospace and defense technology company.

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“This megacorporation generated over $35 billion in revenue in 2021, along with $7 billion in profit,” Di Poce wrote while explaining that the company enjoys a comfortable quarterly free cash flow of 1.69. billion dollars.

Technical outlook [on the chart] looks bullish as Northrop continues to consolidate tightly in a cup and handle formation.

Why is this happening? “Defense stocks have held up particularly well during this market downturn, a key tenet of relative strength. Geopolitical tensions are also yet to subside, so demand for this company’s services remains high,” the analyst wrote.

Reuters reported that Northrop Grumman is one of two companies awarded a Pentagon contract to build hypersonic interceptors; the other company is Raytheon Technologies Corp. RTX.

Wells Fargo & Co. WFC recently maintained his equal weight rating on NOC, although Di Poce said “the weight of evidence suggests he could be a leader”.

“I’m bullish on NOC as long as the stock stays above $425-$430,” the analyst wrote with an “upside target $560-$570.”

Photos: courtesy of XPeng; Northrup Grumman

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