All the brokerage firms and banks that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. Generally, they not only like these stocks on a longer term basis, but they usually have solid upside to the assigned target price. With the start of the second quarter just over a month away, many Wall Street firms have tweaked their lists to account for fourth-quarter earnings and expectations for the rest of 2021.
For the well-respected Raymond James Analyst Current Favorites list of stocks to buy, analysts at the firm have to select one stock in their coverage space for inclusion. Hence, it is considered the favorite choice.
We screened the list, looking for reopening theme stock ideas. With more good news on the coronavirus front, as an Israeli study showed a single dose of Pfizer/BioNTech vaccine reduced infections by 85%, and Bloomberg noting the pace of vaccinations in United States should double in coming weeks, some in the medical community feel we could have herd immunity almost in place by April. That also could mean almost a complete reopening of the economy by the busy summer travel season.
Five stocks perfectly fit the reopening theme in one way or another. Despite being the cream-of-the-crop at Raymond James, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Alaska Air
This company has big west coast exposure and continues to rank high on Wall Street. Alaska Air Group Inc. (NYSE: ALK | ALK Price Prediction) is the parent company of Alaska Airlines, which serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Despite recent challenges by other carriers for superiority in the Northwest, the company has strong customer loyalty, which has contributed to outstanding earnings and revenue growth.
Alaska Air focuses on point-to-point traffic in the Pacific Northwest. However, about 20% of its traffic connects over its hubs in Anchorage, Seattle, and to a lesser extent Portland. By developing transcontinental markets, and more recently Hawaii, the company has transformed from a largely north-south directional carrier to one with a more balanced network.
The Raymond James price target for the shares is $65. The Wall Street consensus target is $60.29, but Alaska Air Group stock closed on Monday at $63.61 a share.
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Dave and Buster’s
This top chain continues to be a favorite across Wall Street as Generation X and millennials love to spend time there. Dave & Buster’s Entertainment Inc. (NASDAQ: PLAY) owns and operates entertainment and dining venues for adults and families in North America. Its venues offer a menu of “Fun American New Gourmet” entrées and appetizers, as well as a selection of non-alcoholic and alcoholic beverages, and an assortment of entertainment attractions centered on playing games and watching live sports and other televised events.
As expected, the company’s fourth-quarter financial results were negatively affected by the COVID-19 pandemic. It began the quarter with 104 open stores, or approximately 75% of its total store base. Due to renewed operating restrictions imposed by local jurisdictions during November and December in response to the COVID-19 resurgence, Dave and Buster’s had 89 stores open as of January 3, or approximately 65% of its total store base. Management expected more than 100 stores to be open by mid-January, continuing through the end of the quarter, all operating under various limitations, and for its 27 stores in California and New York to remain closed for the remainder of the quarter.
Clearly, the reopening of the economy and businesses will be huge for this company.
Raymond James has its price target set at $45, but the much lower consensus target is $32.20. Dave and Buster’s stock rose almost 5% on Monday to close at $40.61 a share.
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Diamondback Energy
This is a top Permian Basin play for investors who are more aggressive. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves.
Diamondback’s activities are focused primarily on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations. Oil pushing through the $60 a barrel level should help boost production, and travel should also increase, which could support pricing.
Wall Street analysts have noted in the past Diamondback Energy’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow but could put the company in play as a takeover target. It continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
The towering $91 Raymond James price objective compares with the $76 consensus target price. Monday’s $68.41 a share close for Diamondback Energy stock followed a gain of over 4% for the day.
MDC
Home sales continue to skyrocket as people flee big cities and states with high taxes. MDC Holdings Inc. (NYSE: MDC) is a top 15 builder in the United States based on deliveries, with approximately 8,150 homes delivered in 2020. The company is positioned in around 20 markets in nine states and targets first- and second-time move-up buyers with some entry-level exposure.
Among the nation’s largest homebuilders, it primarily builds single-family detached homes under the Richmond American Homes brand. The company also owns a financial services business that provides mortgage financing, title, insurance and closing services.
The company has subsidiaries with homebuilding operations across the country, including Arizona, California, Colorado, Florida, Maryland, Nevada, Oregon, Utah, Virginia and Washington.
Holders of MDC stock receive a solid 2.83% dividend. Raymond James has a $71 price target. The $68 consensus target is also well above Monday’s closing print of $56.51 per share.
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National Retail Properties
This is one of the largest real estate investment trusts (REITs) and is a solid choice for investors looking to capitalize on retail returning to normal. National Retail Properties Inc. (NYSE: NNN) is a fully integrated REIT that acquires, owns and invests in single-tenant net-lease retail properties.
The company invests primarily in high-quality retail properties subject generally to long-term, net leases. Last week the company reported fourth-quarter adjusted funds from operations (FFO) of $0.69 per share, down from $0.71 per share in the prior-year period. Analysts polled by Capital IQ had called for $0.65. The REIT also reported revenue for the December quarter of $163.3 million, down from $173.4 million a year earlier. Wall Street was looking for $162.8 million.
Moving forward, the company said it anticipates full-year 2021 adjusted FFO in the range of $2.77 to $2.84 per share. That compares with $2.51 reported for full-year 2020 and the consensus estimate of $2.83.
National Retail Properties offers investors a very attractive 4.92% distribution. Raymond James analysts have a $48 target price. The posted consensus estimate was last seen at $42.36. The stock closed Monday trading at $43.81, after almost a 4% gain for the day.
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Despite the constant drone of negative chatter about the economy and the future due to the pandemic, the reality is there are multiple successful vaccines are being rolled out at a lightning pace. While it could be a few more months before things improve substantially, the time to buy these reopening theme plays is now. Given the recent strength into a weak tape, investors look like they are steeping in now.
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