Investing

RBC Capital Markets Out With First Top Picks Equity List for 2020

Lee Jackson

Published: January 7, 2020 7:20 am

Last Updated: March 23, 2022 7:12 am

Investors who owned stocks in 2019 had a very satisfying year, and most are sorry to see it in the rear-view mirror as we launch into a new decade. One thing is quite likely: the double-digit gains from last year probably will not return for 2020. However, with that in mind, we still should be set up for a more standard investing year, with total return figures in the mid-to-high single digits.

Many of the Wall Street firms that we follow here at 24/7 Wall St. are still presenting their 2020 prognostications and top stock picks for this year. The RBC Capital Markets group is out with the firm’s first Top Picks List for 2020, and the analysts noted this in the report when discussing the methodology for the group:

RBC Capital Markets’ Equity Research Department is pleased to present the US Equity Top Picks List update for January 2020. The Top Picks List consists of the Top Pick-rated US equities as chosen by individual analysts in the RBC Capital Markets Global Equity Research Department. A Top Pick-rated stock represents an analyst’s best idea in the sector and is expected to provide a significant absolute total return over 12 months with a favorable risk-reward ratio.

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Here we focused on the three new additions to the Top Picks List, as well as two other companies with massive upside to the RBC price targets.

Salesforce

This top company reported solid fiscal 2019 results as billings have drastically improved, and this past quarter was no exception. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. It also has one of the most valuable brands in the world.

It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices, and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

In addition, Salesforce announced last year it has completed its acquisition of Tableau Software, bringing together the world’s number one customer relationship management company with the world’s number one analytics platform.

The RBC price target for the shares is $215, while the Wall Street consensus target is lower at $191.05. The stock was last seen trading on Monday at $173.45, up close to 5% on the day.

STAG Industrial

This strong industrial real estate investment trust play offers solid upside potential and is the second new member of the RBC list. STAG Industrial Inc. (NYSE: STAG) is a self-managed full-service REIT focused on the acquisition, ownership and management of single-tenant, Class B warehouses in secondary markets across the United States. The company continues to focus on expansion of its acquisition platform to find acquisitions to grow the portfolio.

The company is focused primarily on acquiring and operating single-tenant industrial properties in secondary markets. RBC expects management to be aggressive acquirers over time. Additionally, the in-place portfolio should deliver stable organic growth supported by healthy property-level fundamentals. The analysts said this in the report when looking at 2020 and beyond:

The company should be able to drive meaningful earnings growth largely due to management’s ability to source and complete accretive acquisitions. We expect STAG Industrial to complete $1 billion of deals annually in 2020 and 2021.

Investors receive a 4.58% distribution. RBC has a $34 price objective, near the consensus target of $34.25. The shares closed at $31.60 on Monday.

This top financial company makes its debut on the RBC Top Picks list. Truist Financial Corp. (NYSE: TFC) is a bank holding company incorporated in North Carolina and headquartered in Charlotte. It was formerly known as BB&T but changed its name in December 2019 upon the acquisition of SunTrust Banks.

The transition to the Truist brand will take about two years. Until then, customers of both BB&T and SunTrust will be served through their respective bank branches using the same apps, websites and services as before the merger closed.

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As part of the regulatory approval process, the new company will sell off 30 SunTrust branches in North Carolina, Virginia and Georgia to First Horizon Bank and divest $2.4 billion in deposits to “mitigate the competitive effects of the merger,” according to the Federal Reserve.

RBC loves the merger and said this regarding valuation:

The current stock price does not reflect any upside to the conservatively targeted cost savings of $1.6 billion, in our view. Assuming that cost savings approach 35–40% of SunTrust’s expense base, the incremental expenses savings above the targeted $1.6 billion would range from $0.21 to $0.37 per share. Truist’s footprint is located in one of the strongest and fastest growing regions of the U.S. We expect the company to maintain a competitive advantage over many of its competitors headquartered outside its footprint due to its being physically located in the southeast part of the U.S.

Investors receive a 3.18% dividend. The $62 RBC price target is higher than the $58.08 consensus figure. Shares closed most recently at $55.73.

Gilead Sciences

This stock trades a very reasonable 9.36 times estimated 2020 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.

The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

Investors receive a 3.88% dividend. The RBC price objective is $90. The consensus target price is $76.92, and the stock closed at $65.65 a share.

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NCR

This is an old-school company with new world technology. NCR Corp. (NYSE: NCR) engages in the development, manufacture and sale of consumer transaction solutions. Its Software segment includes industry-based software platforms, applications and application suites for the financial services, retail, hospitality and small business industries.

The Service segment offers assessment and preparation, staging, installation, implementation and maintenance, and support solutions. The Hardware segment offers financial-oriented self-service ATM-related hardware, retail and hospitality-oriented point of sale terminal, a self-checkout kiosk and related hardware.

Late last year the company acquired U.K.-based edge virtualization technology provider Zynstra for about $129.3 million. The buyout is in line with the company’s strategy of acquiring firms that will enhance NCR’s product capabilities. NCR noted then that a subscription-based virtualization solution is an integral part of its next-generation store architecture for the retail and hospitality industries.

RBC has set its price target at $48. The consensus target is $40.25, and shares closed at $40.25.

These five top picks from the RBC Capital Markets team all make sense for growth investors looking to move to companies with more reasonable valuations. With 2020 starting off with heightened volatility, it’s good to look at new additions that have not been part of the “crowded trade” group.