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Credit Suisse Issues Top Outperform Stock Picks for 2019
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Almost every December it seems that investors stop thinking about the prior 11 months and turn their attention to how they want to position their investments for the new year. With the Dow Jones industrials and the S&P 500 close to flat for 2018 so far, albeit with lots of volatility, many firms are issuing their top picks and listing their favorite sectors and trends to consider for the year ahead.
Credit Suisse is one of those firms. The large investment bank added 11 companies to its Top Picks list and deleted 10 names. These are all covered with Outperform ratings, and investors need to consider that Credit Suisse’s version of Outperform is often against a company’s peers rather than an absolute outperforming of the market.
Investors also should consider that Credit Suisse on last look had issued the most bullish S&P 500 outlook for 2019 among its major peers. That would imply that some of the gains of these top picks might even be more than other firms are expecting. We have included trading history and the consensus analyst target prices for a reference.
Credit Suisse makes changes from time to time on this Top Picks list, but the firm warns investors not to treat this as a portfolio or basket. These are merely a snapshot of each sector research team’s best ideas, with generally a six-month to 12-month time horizon. It is also possible that forthcoming developments and market conditions might cause the ranking of each sector’s top picks to change. Credit Suisse does not demand that these top picks pay dividends, and there are three airline picks here as they recently were added into the Top Picks coverage.
Alaska Air Group Inc. (NYSE: ALK) is the top airline pick at Credit Suisse, which has an $83 target price on the shares. The firm sees merger synergies and other strategic revenue initiatives ramping into 2019 at the same time that there are underappreciated cost tailwinds driving margin expansion and earnings growth ahead. Declining capital spending also is driving strong free cash flows here in a way to help boost shareholder returns.
Alaska Air shares were last seen trading at $64.94 on Friday, and they have a 52-week trading range of $57.53 to $76.06 and a consensus target price of $80.73. The stock has a dividend yield of 1.8%.
Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) has a $156 target price at Credit Suisse. The firm sees the oral proceedings for the new Soliris composition of matter patent in the European Union this next February as a key catalyst as it could extend protection out to 2027. A similar strategy was employed successfully in the United States and Japan, and this would further alleviate investor concerns around potential biosimilar competition and also allow ample time for patient conversion from Soliris to ALXN1210.
Alexion shares most recently traded at $115.60. The stock has a 52-week range of $102.10 to $140.77 and a consensus target price of $164.35.
Burlington Stores Inc. (NYSE: BURL) is seen strong for relative same-store sales and earnings per share acceleration into 2019. The firm has a $190 price target and thinks that Burlington’s levers to drive upside are more visible: easier sales comparisons, accelerating new store contribution and better cost controls to fight price pressure.
Burlington shares were last seen at $157.79. The consensus target price is $161.25, and the 52-week trading range is $108.34 to $180.27.
Cactus Inc. (NYSE: WHD) is a precision manufacturing company that designs, manufactures and sells wellhead assemblies that are used on every oil and gas well drilled to provide a platform off of which all work in the well is performed. It has a 27.4% market share now, up from about 9% just four years ago, and Credit Suisse has a $40 target price. It sees its market share continuing to climb into the mid-30% range longer term as the company’s customer base expands.
Cactus shares ended the week at $29.37, in a 52-week range of $19.18 to $40.97. The consensus target price is $41.50.
24/7 Wall St.Cheniere Energy Inc. (NYSE: LNG) has a price target of $89, and the firm noted that it has seen a big pullback with energy prices despite strong fundamentals. Cheniere is still considered to be the only public liquefied natural gas (LNG) pure-play of its kind company with operating assets, and the firm prefers its first-mover advantage and sees a constructive view for LNG exports continuing.
Cheniere’s shares were trading at $60.28 on Friday’s close. The 52-week range is $46.00 to $71.03, and the consensus target price is $79.41.
Crown Holdings Inc. (NYSE: CCK) was noted as having been “de-rated materially” since the announcement of the Signode acquisition late 2017. The firm has a $57 target price on the stock, and it sees three strengths here: can volumes in weak geographies while growing where it is well positions; margin expansion in North America mitigating cost inflation; and Signode is delivering the expected high cash conversion while the company is on target to deleverage its balance sheet.
Crown shares were trading most recently at $48.00, in a 52-week range of $40.09 to $62.27 and with a consensus target price of $60.25.
Delta Air Lines Inc. (NYSE: DAL) is seen as having a low-risk profile and best-in-class execution. The firm’s price target is $71, based on a sustainable margin return on capital. Also noted is Delta’s investment-grade balance sheet with a free cash flow yield of about 10% in 2019. All of this will help Delta support billions of dollars in capital return for its shareholders.
Delta shares closed trading at $56.07, in a 52-week range of $48.52 to $61.32 and with a consensus analyst target of $55.80. The dividend yield is 2.5%.
Owens-Illinois Inc. (NYSE: OI) is noted as having a current stock price that already reflects expectations of a structurally declining business, but Credit Suisse sees a credible path for further performance improvement with stronger earnings growth from 2018 through 2021. The firm’s price target is $24. It further sees a possibility for significant value accretion if Owens Illinois can successfully develop a new breakthrough furnace technology, MAGMA, with scale deployment expected in 2022. All this comes with an upward “Blue Sky” scenario in which the firm sees Owens Illinois shares potentially as high as $34.
Owens-Illinois shares closed at $17.63. The consensus target price is $20.93, the 52-week trading range is $15.67 to $24.00, and the dividend yield is 1.1%.
24/7 Wall St.Sarepta Therapeutics Inc. (NASDAQ: SRPT) is a focus on the DMD gene therapy programs in development, and Credit Suisse believes the registrational design proposed by Sarepta is reasonable and ultimately will see initial approval to be supported by functional improvements. An “all clear” outcome from Sarepta’s upcoming FDA meeting should help shares rebound from recent weakness, but the firm sees Sarepta being the first to market with an expected early 2021 launch with a potential best-in-class profile. The price target for the stock is $189.
Sarepta shares closed trading at $121.38, in a 52-week range of $50.68 to $176.50. The consensus target price is $195.43.
United Continental Holdings Inc.’s (NASDAQ: UAL) turnaround is viewed as in being full swing, and Credit Suisse has a $113 price target. The airline is bolstering its domestic network position and improving asset efficiency for margin expansion. It has outperformed peers and is expected to post strong earnings growth for the next two years.
United Continental shares were last seen trading at $88.23. The 52-week range is $60.44 to $97.85, and the consensus target price is $103.59.
U.S. Foods Holding Corp. (NYSE: USFD) has a $37 price target at Credit Suisse. The firm believes that internal operational issues now are largely behind and that the self-driven top-line headwinds are abating. The company is also focused on margin controls after tightening up its sales forecast, and Credit Suisse thinks there is a very low bar for U.S. Foods to clear ahead.
U.S. Foods shares were trading at $31.83 on Friday’s close. The stock has a 52-week range of $27.51 to $40.92 and a consensus target price of $37.47.
And lastly, the end of 2018 has been trading like many of the bear markets of the past. Analyst target prices seem to not matter on most days, and many stocks sell off for the same reasons over and over. Please read the 24/7 Wall St. report about dire warnings surrounding analyst calls during bear markets to avoid some serious pitfalls around Buy and Outperform ratings.
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