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Jensen: There's an Upside to Extreme Networks and LGI Homes

Now is a good time to look into these two stocks, says Real Money's Bret Jensen

Investors could reap the rewards of owning Extreme Networks  (EXTR) - Get Extreme Networks, Inc. Report and LGI Homes  (LGIH) - Get LGI Homes, Inc. Report as third-quarter earnings reports of most companies have beat expectations, Real Money’s Bret Jensen argues.

While peak earnings reports have boosted the returns of the stock market recently, companies will not be comparing their future growth results to “those in the pandemic-riddled year of 2020,” he wrote in a recent Real Money Pro column.

Extreme Networks is a company that produces wired and wireless network infrastructure equipment and technology and reported third-quarter earnings that beat both top- and bottom-line expectations since its revenue rose by 13% on a year-over-year basis and beat Wall Street’s consensus by $10 million. The company also said its subscription service sales increased by over 70% and consist of 30% of overall sales.

The company has a free cash yield of 10% on an annual basis and a solid balance sheet based on the $35 million of free cash flow generated during the third quarter, Jensen wrote.

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“Even with Tuesday's 10% rally on the results, it feels like there is more upside in this name in the quarters ahead,” he wrote.

Another company that benefited from its pandemic stock lows is LGI Homes, a homebuilder. LGI Homes reported third-quarter results that beat both earnings and revenue consensus extimates. Sales rose by more than 40% on a year-over-year basis. The stock took a beating, however, as investor expectations were higher— “LGI Homes came in over projections, it wasn't the huge beat investors have become accustomed to over the past few quarters,” Jensen wrote.

Now could be a good time for investors to add LGI Homes to their portfolio.

“LGIH is a name I cashed my profits in way too soon earlier this year, violating the old adage advocating to ‘ride your winners,’” he wrote. “With the stock down 25% in recent weeks from all-time highs, it might be time to correct that mistake.”

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