The S&P 500 is just 1% away from its all-time high, and investors show no signs of stopping their buying spree. Low interest rates and heavy government stimulus are supporting the equity markets, making stocks a better value than other investments. As far as the stock markets can show, the economy is well on its way to recovery from the coronavirus downturn.
And Credit Suisse, the renowned international investment bank and financial services provider, has been busy analyzing the publicly traded companies, looking for the likely winners in today’s conditions. The firm’s analysts have picked out three, among others, as ‘top pick’ stocks that are poised to outperform over the next 6 to 12 months.
Opening up the TipRanks database, we’ve pulled the details on those stocks, to find out what makes so compelling. Here are the results.
Cimarex Energy (XEC)
We’ll start with Denver-based Cimarex, a hydrocarbon exploration company with drilling ops in New Mexico, Texas, and Oklahoma. The company finished 2019 with 620 million barrels of proven reserves, and an average daily production of 278.5 thousand barrels of oil equivalent. That was a solid foundation, which has helped support the company during the corona crisis of 1H20.
The economic downturn of recent months hit Cimarex hard, as oil demand dropped. The company saw earnings contract in Q1, and contract again in Q2. Production in the second quarter averaged 254.7 thousand barrels of oil equivalent daily, well below 2019 levels.
There was good news, however. The company generated $145 million in cash from operations, and invested $84 million during the quarter, with $49 million of that going into drilling and well completion. The company’s balance sheet is strong, with no borrowing against the revolving credit facility and while there is outstanding debt of $2 billion, the notes do not mature until 2024. Cimarex finished Q2 with a $44 million cash balance, and $26 million in free cash flow after funding the dividend.
The dividend is another clear attraction for investors. The company has declared the current payment, due later this month, of 22 cents per common share – which is up from the end of last year. The yield, at 3.2%, is well above average.
William Janela, 4-star analyst from Credit Suisse, wrote the firms review of XEC, and was impressed by those last points: the free cash flow, and the dividend. He said in his note, “XEC is our top pick among SMID-cap E&Ps given a defensive balance sheet (investment grade, fully undrawn $1.5 billion revolver, no debt maturities until 2024), a commitment/ability to fund both capex and an above-average dividend yield within cash flow, and attractive relative valuation.”
To this end, Janela rates XEC an Outperform (i.e. Buy), along with a $39 price target. This figure suggests the stock has room for 33% upside growth from current levels. (To watch Janela’s track record, click here)
Overall, Cimarex has a Moderate Buy rating from the analyst consensus, based on 12 Buys against 4 Holds. The stock’s current share price is $29.10, and the $37.08 average target implies an upside potential of 27%. (See Cimarex stock analysis on TipRanks)
Bloom Energy (BE)
A publicly traded company since 2018, Bloom Energy is a player in the green energy market. The company produces and sells solid oxide fuel cells, a cleaner alternative to petrofuels or traditional batteries.
Bloom has seen strong results in the first half, despite the coronavirus. The company reported $187.9 million in Q2 revenues, along with 306 customer acceptances. That last metric represented a 19.5% sequential increase, and a surge in new business. Company shares spiked in July, getting well above pre-market crash levels, and even after an early August drop, BE shares remain high.
The company announced on August 6 that it will be offering $135 million in senior convertible notes to be due in 2025. The new debt will be used to pay down a series of 10% promissory notes due next year, in effect converting short-term debt into long-term debt. The move is seen as a stabilizing factor for the company.
5-star Credit Suisse’s Michael Weinstein sees a clear path for Bloom going forward. He writes, “We expect near-term shipment growth from strong demand for reliable power supply during wildfire peers. New opporand cold season, and continued demand from data centers/hospitals. Bloom Energy’s fuel cells operate on natural gas today and can take advantage of low-cost natural gas, unliketunities have emerged in the last month (fuel cells in ships, hydrogen powered fuel cells, and electrolyzer) that position Bloom Energy as a key manufacturer of building blocks in a hydrogen economy.”
Weinstein’s Buy rating is supported by his $24 price target, which implies a robust 87% one-year upside for the stock. (To watch Weinstein’s track record, click here)
Overall, BE has a Moderate Buy from the analyst consensus, with 3 Buy ratings and 2 Holds. The average price target, $17.25, represents a 33% upside from the current share price of $12.97. (See Bloom stock analysis on TipRanks)
Ashland (ASH)
Last on our list today, Ashland, is a Kentucky-based specialty chemicals company, producing solvents, composites, and industrial specialties, as well as personal & home care products, pharmaceuticals, and agricultural chemicals. The company saw stable earnings in the first half, with revenues beating forecasts in Q2 despite a 6% year-over-year drop in sales.
Ashland saw some positives on the balance sheet in its recent results. Cash on hand increased more than two-fold yoy to $353 million, while long-term debt fell 33%. The company generated $47 million in cash from operations, which was up $15 million from the year-ago quarter. All in all, the solid cash position has supported the company during the economic crisis.
4-star analyst Chris Parkinson, writing the Credit Suisse view of Ashland, sees the company as a strong performer. He gives the stock a Buy rating, and his $91 price target indicates confidence – and a 15% upside potential for the stock. (To watch Parkinson’s track record, click here)
Supporting his view, Parkinson writes, “ASH has shown it’s ability to quickly realign business functions from a vertical to horizontal structure which is driving mix improvement and will drive cost improvement / ROIC accountability (changes in comp structure will be supportive). ASH continues to execute on costcutting opportunities and improving FCF conversion will enable future investment opportunities.”
All in all, Ashland has a Strong Buy from the analyst consensus, based on 9 reviews, including 7 Buys and 2 Holds. The stock is trading for $79.44, and the average price target, at $88.50, suggests about 11% upside. (See Ashland 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
