With less than 60 days until the end of 2017, firms are starting to issue preliminary predictions for 2018. These should not yet be considered formal lists for 2018 because, frankly, there is just too much calendar between now and mid-January when formal picks are issued. Credit Suisse has issued its top picks at the firm, and while there are 101 companies listed as U.S. picks, there were 15 companies added and 15 deleted from the list.
24/7 Wall St. reviewed the top picks, and here we focus on the core additions. Credit Suisse’s eight new “number-one top picks” included four additions and four upgrades. While these are not being touted as the firm’s formal top picks for 2018, the timeline sure sets them up to be top contenders if all things remain the same through the end of 2017.
Note that Credit Suisse specifically tells its clients not to use these top picks as portfolios, because there are a rolling list of top picks at any given time. Every one of the firm’s U.S. research analysts identifies and ranks up to three top stock picks based on a six-month to 12-month outlook, and the prevailing pick is the best at that particular time.
This list has been kept in the same order these were presented, featuring the four new companies on the list first and then the four upgraded companies that already were among their top picks. All these stocks have Outperform ratings at Credit Suisse, and the firm’s target price on each is either consistent with or above the consensus analyst target prices.
Also included here is a brief note on what Credit Suisse sees, as well as trading history and the consensus analyst target price from Thomson Reuters. Upside projections were based on the price noted at Credit Suisse rather than using live share prices.
As a reminder, most Outperform and Buy ratings from traditional bulge bracket firms come with total return projections of 8% to 10% at this stage in the bull market. Most of these top picks have been given higher upside than that.
First Data
First Data Corp. (NYSE: FDC) was a new addition to the Credit Suisse number-one top picks. The firm’s $21 price target implied upside of just over 22.5%.
Credit Suisse rates First Data as Outperform due to its ability to deleverage while still making opportunistic acquisitions. The firm also sees potential for multiple expansion at the company while management is working to turn GBS around. Faster growth in GFS and NSS are also helping to sustain low- to mid-single-digits organic growth. That $21 price target is a 50-50 blend of 11 times 2018 EV/EBITDA and 14 times 2018 price-to-earnings (PE).
First Data shares were last seen trading at $17.24, within a 52-week range of $13.74 to $19.23, and the consensus analyst price target is $20.98.
HCA Healthcare
HCA Healthcare Inc. (NYSE: HCA) is a new addition to the Credit Suisse number-one top picks as a market-leading play on the long-term secular growth in demand for medical services. The firm’s $95 price target implies 24% upside, and its sees HCA as poised to continue to generate above-average volume growth and market share gains.
Credit Suisse said:
The company has strong positioning in large urban markets and continues to invest in its existing hospital operations to improve access and expand its reach. Given the company’s low leverage profile coupled with its strong FCF generation and track record for returning capital to shareholders, capital deployment is a further differentiator for HCA. 2017 has been a relatively challenging year for HCA, with sluggishness in the London market (1H17) and hurricane impacts (2H17). We see these headwinds becoming tailwinds on Y/Y growth in 2018. Additionally, the company is on track to close on recent acquisitions, which will provide incremental Y/Y EBITDA growth in 2018. We expect HCA to report consolidated Y/Y growth at or above the high end of its 4-6% long-term EBITDA growth in 2018.
HCA shares were recently trading at $77.40, in a 52-week range of $67.00 to $91.03. The consensus price target is $88.74.
Mondelez
Mondelez International (NASDAQ: MDLZ) is another new addition to the number-one top picks list, and Credit Suisse’s target price of $48 implied an upside 17%. That upside would be over 19% if you count the 2.1% dividend yield.
Mondelez offers a compelling risk-reward scenario in the challenged packaged foods space. Nearly 60% of the company’s sales come from developing markets. With China’s growth accelerating and India’s recent financial reforms behind it, both regions should provide topline tailwinds with spillover effects in the rest of Asia. New management under CEO Dirk Van de Put provides an underappreciated catalyst for change. The current multiple implies negative sentiment around a potential earnings rebase that has been factored in. And its main category, snacks, remains a structural growth story as eating habits shift to smaller meals at higher frequencies.
Shares of Mondelez were last seen at $40.46. The 52-week range is $39.19 to $47.23, and a consensus price target is $48.92.
UnitedHealth
UnitedHealth Group Inc. (NYSE: UNH) was a new addition to Credit Suisse’s number-one top picks, and the firm’s $233 price target implied upside of about 9.5%. That upside projection would be closer to 11% on a total return basis, given its 1.4% dividend yield.
This is the firm’s play on secular growth in health care, which means it may be a controversial pick, depending on how the political and social fighting turns out over the nation’s health insurance. It is targeting attractive long-term earnings growth of 13% to 16%, but with higher growth in 2017. Credit Suisse said of this pick:
For 2018, despite a headwind associated with the reinstatement of the health insurer fee, UnitedHealth management says consensus EPS estimates, which imply adjusted Y/Y growth of 16% (ex HIF), appear reasonable. UNH’s health benefits franchise (UHC) is positioned to capture share and grow earnings. UHC’s relationship with Optum enables it to manage medical costs effectively, which enhances the competitiveness of its offerings. As a market share leader in every product segment in which it competes, UHC’s scale allows it to leverage G&A costs, which given MLR caps has become the primary way for health insurers to drive margin gains.
Shares of UnitedHealth were trading at $212.72, with a 52-week range of $136.22 to $213.93. The consensus price target is $229.26.
24/7 Wall St.eBay
eBay Inc. (NASDAQ: EBAY) was upgraded to the number-one top picks list. Credit Suisse’s $44 price target implies upside of 17.3%. The firm called eBay a rare value story with several paths to value creation. Three areas of value were as follows:
- Potential marketplace gross merchandise volume (GMV) acceleration
- Potential monetization of classified and/or StubHub businesses
- Improved transaction revenue growth driven by uptake of promoted listing ads
- More aggressive share repurchases adding to 2018 earnings per share
eBay shares were last seen at $37.50, with a consensus price target of $39.00 and a 52-week range of $27.28 to $39.28.
Lam Research
Lam Research Corp. (NASDAQ: LRCX) was another upgrade, and Credit Suisse has a $245 price target, which implies close to 18% upside. Lam also has a dividend yield of almost 0.9% to add in for total return.
Credit Suisse believes that investors and analysts in general are missing the growth and cash return potential for Lam Research, as well as mispricing the stock as it is a margin-protected way to play the big data growth. The firm sees it winning from the 3D NAND transition and sees it poised to benefit from the cyclical recovery in memory in 2017. Another boost is that roughly 20% of the company’s market cap is net cash, and it could return 50% of market cap by 2020 if it chooses to.
Lam Research shares traded at $205.46. The 52-week range is $94.89 to $210.45, and the consensus price target is $226.05.
Starwood Property Trust
Starwood Property Trust Inc. (NYSE: STWD) also was an upgrade to Credit Suisse’s number-one top picks. The firm’s $25 price target implies upside of over 16%, but Starwood Property Trust also comes with a dividend yield of almost 9%, which would generate closer to 25% total return if the firm is proven to be correct.
The firm considers this trust as having a multi-cylinder earnings stream and being the best positioned among its peers to take advantage of the current environment. Their top picks summary noted:
In our view, this diversified approach will allow the company to protect earnings and book value through the commercial real estate cycle, and warrants a premium valuation to book value. Additionally, the asset-sensitivity of the portfolio sets up Starwood Property Trust to excel in a rising rate environment.
Shares of Starwood were last seen at $21.45. The 52-week range is $21.11 to $23.01. The consensus analyst target is $23.86.
Vertex Pharmaceuticals
And Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) was upgraded to Credit Suisse’s number-one top picks. The $195 price target at the firm implies upside of 30%, if the firm is proven to be right. This pick also seems opportunistic, considering how much biotech’s luster has worn off in the current political and social concerns about health care and drug prices.
Credit Suisse said this:
With the current biotech pullback, we think Vertex shares could see upside over next 12 months to 18 months as clinical pipeline story takes shape with label expansions, 661 data that could capture some Orkambi patient discontinuations and most importantly early proof of concept on the triplet over 2017.
Vertex shares recently traded at $147.77, in a 52-week range of $71.46 to $167.86 and with a consensus price target of $179.12.
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