Investing

Credit Suisse Has 8 Top Stock Picks With at Least 50% Implied Upside

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Investors have had to start getting more used to volatility in the stock market. After a nine-year bull market, now sellers have been able to dash the “buy the dip” tradition that worked like clockwork for more than five years. And with so many positive and negative forces all hitting each other head-on and sideways, some investors are feeling like they are driving a tiny car in a destruction derby.

With investors looking for new ideas on how to be positioned for 2018 and beyond, some are turning to portfolio ideas from the top firms on Wall Street. It would be ill-advised to blindly follow brokerage advice without further research, but analysts are offering up ideas for enhanced upside.

Credit Suisse has refreshed its list of U.S. companies making up its prized Top Picks list. This is the firm’s top investment ideas from each of its analysts using a bottom-up approach. That said, the firm is not actually considering this as a portfolio.

24/7 Wall St. perused all 86 picks from the Credit Suisse top picks list and picked out the few names that are still targeting upside of more than 50% to the firm’s target prices on a total return basis (dividends) included. Only eight stocks still met our screen parameters after filtering out some other issues. That said, most traditional Buy or Outperform ratings on S&P 500 and Dow Jones industrial average stock from bulge bracket firms come with upside of between 8% and 15%. That means that implied upside calls of 50% are coming with far more risk.

We have looked at the implied upside and the trading history, and how Credit Suisse’s target prices compare to the consensus from Thomson Reuters and to the street-high target prices.

There is a common theme among these top Credit Suisse stock picks, in that some of them have not seen their price targets refreshed in a while. That implies that some of the upside thesis may not fully reflect the market whipsaws that have been seen in recent days and weeks. After all, some of these companies have found themselves inside the crosshairs of trade wars, regulations and other issues that have been front and center in the news.

Blackstone

Blackstone Group L.P. (NYSE: BX) has upside of 48% to the $46 price target at Credit Suisse, but its yield is currently running close to 10% and that could greatly add to the total returns above 50% if Credit Suisse’s views for the private equity group pan out.

According to Credit Suisse, the markets are missing the improvement in underlying earnings power with more assets under management, and distributable earnings generation of $6 to $7 range in 2019 to 2021. The firm also cited stronger fundraising recently over competitors while it adds infrastructure as its fifth line of business.

Down less than 1% to $31.01 on Friday, Blackstone has a 52-week trading range of $28.85 to $37.52 and a consensus target price of $41.25. Its market cap is over $36.5 billion, and Credit Suisse has the highest price target among all research peers on Wall Street.

Deere

Deere & Co. (NYSE: DE) almost seemed odd to see on the list because the upside call was 55% to the $231 price target. Credit Suisse sees these shares having a breakout year in 2018, although it did note that investors should buy when the markets are clearly bottoming (versus looking for green shoots).

Credit Suisse sees Deere looking even more encouraging in 2019, with an early-innings farm equipment recovery. Another positive is the cost synergies associated with Wirtgen and the potential for share repurchase again after paying down debt.

Deere slipped nearly 4% to $145.39 a share on Friday. The 52-week range is $107.04 to $175.26. The consensus analyst target is $184.40, and Credit Suisse has the highest target price of all analysts on Wall Street.

Extraction Oil & Gas

Extraction Oil & Gas Inc. (NYSE: XOG) originally was targeted to have an implied upside of 89% to the $20 price target, but the firm issued a target price cut to $17 while maintaining its Outperform rating. That still targets upside of 61%, even after lowering estimates.

Credit Suisse sees this less than $2 billion oil and gas player as an early-growth small-cap winner with one of the strongest debt-adjusted growth metrics under its coverage. The firm also noted that the stock is trading at a discount to peers in a relative valuation comparison.

Last seen trading at $10.72, the stock has a 52-week range of $10.28 to $18.95. The consensus target price is $19.80.

Facebook

Facebook Inc. (NASDAQ: FB) is actually on this list, but investors should know that this is only the case because of the privacy woes and pullback in the stock price. The social media giant was given an implied upside of almost 55% to the $240 price target. Also consider that analysts have been slow to lower price targets despite the pullback.

The Credit Suisse call sees continued long-term revenue growth, an underestimated monetization potential of upcoming new products and more products contributing to the mix.

Ending the week at $157.20 a share, Facebook has a 52-week trading range of $137.60 to $195.32. The consensus target price is $218.22, so Credit Suisse’s street-high $240 price target is roughly 10% above average.

Incyte

Incyte Corp. (NASDAQ: INCY) was represented as having upside above 70% to the $145 price target. Credit Suisse sees its risk/reward into the epacadostat melanoma readout as still positive, and it sees a 75% probability of success.

Another driver is that Incyte’s pipeline is considered to be robust and underappreciated, and a successful epacadostat readout could allow credit to be given to other epacadostat trials if successful. That said, Incyte has close to an $18 billion market cap.

Trading at $64.02 as Friday’s session came to a close, Incyte has a 52-week range of $63.81 to $144.32 and a consensus target price of $141.59. The $145 target from Credit Suisse is far shy of the street-high target of $175.

Select Energy Services

Select Energy Services Inc. (NYSE: WTTR) came with an implied upside of 72% to the Credit Suisse target of $21. This full-service water company helps unconventional wells be able to help companies capture value from water into wells and from extraction. Credit Suisse estimates that Select Energy’s market share is 7% to 10%, and it is the biggest in the industry, though it already has implemented a consolidation strategy.

Shares were last seen at $12.25, in a 52-week range of $11.22 to $21.96 and with a consensus target price of $19.14. Credit Suisse’s $21 target is still well under the street-high target of $24.00.

Switch

Switch Inc. (NYSE: SWCH) was given an implied upside of 57% to the $22 Credit Suisse price target. With the $3.5 billion market value, Credit Suisse sees Switch offering immense power at cheaper rates at its SUPERNAP data center facilities. The firm also sees its facilities as strategically located to provide additional cost savings.

Trading at $14.64 late on Friday’s close, Switch has a 52-week range of $13.10 to $24.90. The consensus target price is $17.95, and Credit Suisse has the highest analyst target on Switch at $22.

U.S. Steel

United States Steel Corp. (NYSE: X) has a $55 price target at Credit Suisse, representing upside of 57% from the $35.00 level at the time. The firm noted that the U.S. flat-rolled market is firing on all cylinders and sees supply and demand fundamentals benefiting from limited imports and strong U.S. and global economies.

Credit Suisse also likes U.S. Steel’s strong leverage to the cycle, accretion from its Granite City restart and likely assets as ongoing catalysts. That said, the focus list reports did not address how the company will fare under trade war fears.

U.S. Steel closed Friday’s trading down 5.8% at $34.49 on trade concerns. It has a 52-week range of $18.55 to $47.64 and a consensus target price of $48.71. Credit Suisse’s $55 target may be above average, but the street-high target is more than $60.

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