If you have a portfolio, it is more likely than not that you’re sitting on some losses as April ends. The market sell-off has extended well beyond “risky” growth stocks and is hitting every sector and every stock. That includes Generac Holdings (NYSE:GNRC), which is down 54% from its all-time high. But if investors are looking to find potential bounce-back candidates, Generac should be on your list.
About a month ago, I confidently put Generac Holdings on my list of undervalued stocks to buy. At the time, I saw a stock that was down 40% from its all-time high. But the recent selloff has sent GNRC stock lower. The question is: why?
One reason could be the specter of rising interest rates. Backup generators are needed at any time. And with extreme weather events becoming more commonplace, demand should remain solid. In fact, the company says it has a backlog of projects that are worth over $1 billion. To put that in context, Generac generated just over $1 billion in revenue in the last quarter. Nevertheless, the price tag makes them a discretionary purchase. And it’s one that could be affected by interest rates.
That’s not the kind of softening investors will see for another quarter or two. But with institutional investors scrambling to reprice equities to account for what could be an increase of up to 1.25% by June, no stock is safe right now.
However, Generac gives investors a play on both the traditional and renewable energy markets. That’s because a relatively new, but growing part of Generac’s business is energy storage. Specifically, Generac offers the PWRcell battery storage system “that harnesses power from the sun to help reduce your electric bill and provide backup power during utility power outages.” Opening another source of revenue may also help Generac weather the cyclical downturn management is forecasting for its legacy generator business.
At this point, investors can find any reason not to invest in a particular stock. And GNRC stock isn’t making a very compelling case from a technical or fundamental standpoint. However, the company reports earnings in early May and that could change the sentiment. If you have cash on the sidelines, this is a stock that should be part of your recovery playbook.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
