Top Wall Street firms go about covering companies with their research departments in many different ways. Some use a top-down approach, which involves looking at big picture economic factors to make investment decisions. Bottom-up investing looks at company-specific fundamentals, like financials, and focuses on the analysis of individual stocks, de-emphasizing the significance of macroeconomic cycles and market cycles.
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Almost all the firms we cover at 24/7 Wall St. also use quantitative research, which is used to quantify the company by way of generating numerical data or data that can be transformed into usable statistics. The analysts at BofA Securities have their Growth 10 portfolio, which is quantitatively generated and based on the proprietary BofA Securities model, rather than consensus earnings surprise models plus additional screening criteria.

With the second quarter underway, the Growth 10 team is making some big changes to the portfolio. Here we cover those changes plus present three additional companies that have the highest five-year earnings growth potential. While all are rated Buy at the firm, it is still important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

The Growth 10 analysts have remove Advance Auto Parts Inc. (NYSE: AAP) and Dexcom Inc. (NASDAQ: DXCM), both of which have had stellar runs over the past year. Both remain Buy rated at BofA Securities. The new additions to the portfolio are Freeport-McMoRan Inc. (NYSE: FCX) and NRG Energy Inc. (NYSE: NRG).

Freeport-McMoRan is one of the top picks at BofA Securities in its sector for 2021. The company is the world’s largest publicly traded copper and moly producer, as well as the eighth largest gold producer. Its key operating and development assets are in Indonesia, North America, South America and Africa.

Highly leveraged toward copper mining, the company could be a big player in a scenario of rebuilding and repairing old and battered projects, and it clearly would benefit from stronger demand and higher prices for industrial commodities.

Investors receive just a 0.86% dividend. The BofA Securities price target for the shares is $40. The Wall Street consensus target is $36.98. Freeport-McMoRan stock closed on Tuesday at $35.01 a share.

NRG Energy stock has made a nice run off the lows, and it is also on the firm’s US 1 list of high-conviction stock picks. This integrated independent power producer owns and operates 27 gigawatts (GW) of conventional and renewable generating capacity in the United States and serves 3 million retail customers in Texas and the northeastern United States.

NRG derives revenue from the sale of electricity in the wholesale and retail markets and the sale of capacity. The company also owns a 64.5% interest in NRG Yield, a publicly traded, dividend growth-oriented company that owns 5 GW of long-term contracted renewable assets.

Last Summer, NRG bought Centrica’s North American energy business in a $3.6 billion deal that nearly doubled the number of homes and businesses NRG serves across the United States and Canada. The all-cash deal to buy Direct Energy gave NRG 3 million more retail customers and is expected to generate about $740 million in annual adjusted earnings before interest, taxes, depreciation and amortization.
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NRG Energy stock investors receive a 3.39% dividend. The BofA Securities has a price target of $45, near the consensus target of $45.60. The shares closed trading at $38.39 on Tuesday.

Here are three additional companies with the highest projected five-year earnings growth estimates.

Marathon Petroleum

This is a solid way for more conservative investors to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.

Until just recently, Marathon Petroleum operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Last year, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do. The deal now is expected to close in the second quarter.

The analysts project 51% growth in earnings per share (EPS) over the next five years.

Shareholders receive a 4.32% dividend. The lofty $83 BofA Securities price target is well above the $60.25 consensus estimate. Marathon Petroleum stock closed most recently at $53.68.

This company finally has completed a long and arduous pursuit of former rival company Sprint. T-Mobile US Inc. (NASDAQ: TMUS) provides wireless services for branded postpaid, prepaid and wholesale customers in the United States, Puerto Rico and the U.S. Virgin Islands.
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The company offers voice, messaging and data services. It also provides wireless devices, including smartphones, wearables, tablets and other mobile communication devices, as well as accessories and wireline services. It offers its services under the T-Mobile, Metro by T-Mobile and Sprint brands.

The combination with Sprint could bring about a seismic shift in the mobile world. T-Mobile and Sprint’s combined assets could jump-start their 5G ambitions, pushing the industry further into the next-generation technology. They’ve also said they’ll lock in consumer prices for at least three years. As part of all the wrangling, Dish Network will become the fourth national carrier, giving consumers a new alternative.

The analysts expect to see 49% EPS growth over the next five years.

BofA Securities has set a $155 price target. The posted consensus target is $159.13, and the last trade for T-Mobile stock on Tuesday hit the tape at $131.43.

Netflix

This Wall Street darling and FANG constituent offers a great entry point after selling off from all-time highs back in January, and it is on the firm’s US 1 list. Netflix Inc. (NASDAQ: NFLX) is the world’s leading internet television network, with more than 120 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films.

Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments. Netflix is available on virtually any device with an internet connection, including personal computers, tablets, smartphones, smart TVs and game consoles, and it automatically provides the best possible streaming quality based on the available bandwidth.

Many titles, including Netflix original series and films, are available in high-definition with Dolby Digital Plus 5.1 surround sound and some in Ultra HD 4K. It appears Netflix may be cracking down on password sharing. Many on Wall Street view such crackdowns as a tailwind, and Netflix is in a strong position to continue price increases in 2021.

Over the next five years, analysts anticipate 30% EPS growth.

The BofA Securities price target is $680. The lower $622.74 consensus target is well above the most recent close at $544.53.

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These are two very timely additions to the BofA Securities Growth 10 stocks and three others that offer growth investors some outstanding earnings growth potential. For those with a longer time horizon, these are all outstanding additions now. However, with earnings right around the bend, it may make sense to buy partial positions and see how the results come in.

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