Every smart investor knows that he doesn’t know everything – and there is no shame in turning to the experts for advice. International investment firm Credit Suisse regularly publishes the information that investors need to make informed decisions. According to TipRanks, Credit Suisse ranks number 5 among the top 50 investment firms, with a sustained long-term success rate of 60% out of more than 12,000 stock recommendations made.
This makes Credit Suisse a natural place to look for stock picks. With the year winding down, and the fourth quarter just around the corner, the bank is starting to publish its analysts' #1 picks to round out 2020 – and to get a strong start on 2021. We’ve pulled up three of these picks; stocks that Credit Suisse analysts see gaining 20% or more in the year ahead.
Using TipRanks’ Stock Comparison tool, we were able to evaluate these 3 picks alongside each other to get a sense of what the analyst community has to say.
Concho Resources (CXO)
First on the list, Concho Resources, is a major hydrocarbon exploration and exploitation company in the Permian Basin of West Texas. The company has exploration rights on 800,000 acres of ground in the region, and extracts both oil and natural gas. Concho is a one of the area’s largest unconventional shale producers, and has proven reserves in excess of 1 billion barrels of oil equivalent. The proven reserves are split, 2 to 1, between crude oil and natural gas.
Concho has shown great resilience during the corona crisis. While earnings fell by a third in the Q1, they quickly returned to normal levels in Q2. The second quarter results, reported in July, showed a top line of $474 million in revenues, and EPS of $1.13. That EPS result was 242% above expectations. Furthermore, Concho generated $689 million in cash from operations last quarter, well above the forecast – and of that total, $238 million was considered free cash flow, giving the company sound liquidity.
Credit Suisse’s Bill Janela explains why this stock is a top pick: “We believe concerns around federal acreage exposure are overblown for CXO and have been more than taken out of its stock price given recent relative underperformance. CXO’s asset quality and depth would allow it to easily reallocate activity; we estimate loss of well permits on Fed acreage would only reduce its NAV by <5%.”
To this end, Janela rates this stock an Outperform (i.e. Buy), and his $48.03 price target suggests an impressive 45% upside potential for the coming year. (To watch Janela’s track record, click here)
Overall, Concho gets a Strong Buy analyst consensus rating, based on 17 reviews of which 16 are Buys and only 1 is a Hold. Shares are selling for $48.18, and the $72.44 average price target implies a 50% one-year upside for the stock. (See CXO stock analysis on TipRanks)
Ares Management (ARES)
The second Credit Suisse pick for today is Ares Management, an alternative investment manager with global reach operations across the private equity, real estate, and credit segments. The company brought in $1.77 billion in total revenues last year, and boasts $165 billion in assets under management.
Size and competence have stood Ares well during the health and economic crises of 1H20. In discussing its earnings during the period, it’s important to note that the 4Q19 EPS was unusually high – and so the earnings fall in Q1 brought the result back in-line with historical values. Q2 showed a further dip, to 39 cents per share, which was 5% above the forecast.
At the top line, revenues collapsed in the first quarter of the year, but roared back in the second. Q2 total revenues hit $602 million. Solid revenues and positive earnings allowed Ares to keep up its dividend payment, which the company has been increasing for the past three years. At 40 cents per common share, this dividend annualizes to $1.20 and gives a yield of 4%, well above the average found among peer companies.
Craig Seigenthaler wrote the Credit Suisse review for Ares, saying, “ARES is our Top Outperform due to the high visibility into its Stock Total Return (including Divs) strong fee-related earnings trajectory coupled with its defensive qualities (distressed investing capabilities, credit mix, long-duration AuM base, high composition of fees generated on fixed committed capital)… Over the next two to three years we expect ARES will earn ~$350M in incremental mgmt. fees without raising any additional capital…”
Seigenthaler supports his Outperform (i.e. Buy) rating with a $49 price target, suggesting a 23% upside potential going forward. (To watch Seigenthaler’s track record, click here)
Overall, shares in ARES are trading for $39.47, and the $44 average price target implies they have room for 11% upside growth this year. The stock's Strong Buy analyst consensus rating is based on 6 Buys and 2 Holds set in recent weeks. (See ARES stock analysis on TipRanks)
Carlisle Companies (CSL)
Last on our list of Credit Suisse picks is Carlisle Companies, a highly diversified global manufacturer. Carlisle has its hands in many pots, with four major divisions: construction materials, interconnections technologies, industrial fluids, and brake and friction technology. The company is best known, however for its roofing materials, in the construction segment.
This is another company weathered the corona crisis and remained in good shape. Earnings per share had been declining through the latter half of 2019, and so the dip in Q1 of this year only continued that trend. EPS turned back upwards for Q2, and at $1.61 it beat the forecast by a wide margin. The outlook for Q3 is even higher, at $1.73. Revenues in 1Q20 were stable, at just over $1 billion in each quarter.
Fiscal health has not translated into share appreciation, however, as CSL shares are still down 21% from February’s pre-market collapse peak. The stock has underperformed in recent months, but Credit Suisse’s Adam Baumgarten sees it with an ace in the hole for future growth.
"~75% of Carlisle’s profits come from commercial roofing, and ~75% of that is for roof replacements. Given the non-discretionary nature of roofs (if your roof leaks, you fix it), roofing is one of the most downturn resistant product categories in our coverage universe… Given that roof replacements are never lost, just delayed, we expect the stock to outperform when the backlog of roof replacements is cleared,”
In other words, Baumgarten believes that the economic downturn simply pushed some of Carlisle’s base business into next year at the latest. Based on this belief, the analyst rates the stock an Outperform (i.e. Buy), and his $150 price target implies an upside of 22% in the next year. (To watch Baumgarten’s track record, click here)
Carlisle has earned a unanimous Strong Buy consensus rating, with 5 Buy reviews in the past two months. Shares are priced at $122.42 and the $150 average price target matches Baumgarten’s. (See CSL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.