Stock traders thrive on predictability, but if there’s one thing the economy lacks right now, it’s an easily predictable path forward. Inflation remains stubbornly persistent – the March numbers were higher than expected – but the conventional wisdom says that high prices should come down in response to a cooling labor market and a downturn in general conditions. While we’re still expecting rate cuts this year, that’s not likely until the second half.
Watching the situation from Raymond James, CIO Larry Adam explains his own outlook for the rest of this year: “Hotter than expected inflation has reduced market hopes for rate cuts, as expectations for 2024 rate cuts have fallen from six at the start of the year to around two today… As we expect economic activity to moderate, the labor market to normalize and the downward trend in inflation to continue, we expect the Fed to cut rates three times in 2024.”
Essentially, it’s Adam’s view that the recent uptick in inflation “isn’t the start of a new trend.” Meanwhile, his colleagues among the Raymond James stock analysts have taken this view and are picking out the stocks they see as potential winners this year. According to both the RJ experts and the TipRanks data, these stocks are seen as Strong Buys; let’s take a closer look and find out why they are considered to be so.
Permian Resources (PR)
We’ll start with Permian Resources, an exploration and production company operating in the Texas oil patch. This company has been part of the explosion in the Texas oil industry which, over the last couple of decades, has put Texas back on the map as one of the world’s major energy exporters. Permian is a pure-play company in its namesake region, one of the independent oil and gas companies that drives the development of the region.
Getting to specifics, PR describes itself as the ‘second largest pure-play E&P’ in the region, a boast that is based on the company’s extensive holdings. PR operates in the Midland and Delaware basins of the Permian, two of the formation’s richest production areas. The company owns a total of 400,000 net leasehold acres, and 68,000 net royalty acres; these assets are mainly located in the Delaware basin, straddling the Texas-New Mexico border. As of the end of 2023, Permian had proved reserves totaling 925 MMBoe, a solid gain compared to the 582 MMBoe at the end of 2022.
Looking at production numbers, we find that Permian Resources had an average crude oil production of 136,590 barrels of oil per day (Bbls/d) in 4Q23, the last reported period. This was up 52% from the third quarter. Total production in Q4, of oil and gas, came to 285,161 barrels of oil equivalent per day (Boe/d).
During Q4, Permian completed an important acquisition move – its $4.5 billion, all-stock takeover transaction of Earthstone Energy. The move pushed Permian’s holdings and production to their current levels, and is largely responsible for the large year-over-year gains in production.
On the financial side, Permian generated $1.12 billion in revenue. This was up more than 47% from the prior-year period, and came in $40 million over the forecast. At the bottom line, the company reported a GAAP EPS of 51 cents; this was almost double the 26-cent EPS from 4Q22, and was 17 cents per share better than what had been expected.
This stock has attracted coverage from John Freeman, one of Raymond James’ 5-star analysts and an expert on the energy industry. Freeman, who is rated #2 overall amongst the thousands of Wall Street stock pros, initiates his coverage of PR with an upbeat outlook, writing, “From an investor’s standpoint, PR screens amongst the most attractive Permian companies with its valuation relative to inventory life. High cash margin, abundant operational efficiencies, and plenty of core inventory make PR a go-to name for Permian exposure, not to mention the company’s generous shareholder return structure (dividend + buybacks). Diving deeper, PR offers investors over 11 years of Core + Tier 1 inventory, second among Permian pure-plays (trailing only FANG), while trading at a significant discount to the peer average (PR forward multiple of ~4.6x vs ~6x peer avg.). Additionally, PR’s FCF yield of ~10% (increasing to ~13% in FY25) lands above the RJ mean, with significant upside present given PR’s relatively minor hedge portfolio.”
Freeman goes on to put a Strong Buy rating on the stock, and his price target, of $24, points toward a one-year upside potential of 40.5%. (To watch Freeman’s track record, click here)
The 13 recent analyst reviews on PR include 11 Buys and 2 Holds, for a Strong Buy consensus rating. The shares are selling for $17.08, and their $18.69 average price target suggests an upside of 9.5% over the one-year horizon. (See PR stock forecast)
Jabil, Inc. (JBL)
In business for over 50 years, the second stock on our list is an important manufacturing firm, but one that works behind the scenes. Jabil, Inc. works with some of the world’s largest brand names, providing the specialized engineering, manufacturing, and supply services that its partner companies need to meet their own customers’ orders. Jabil’s customers come from a wide range of industries, including telecom, transportation, healthcare, energy, aerospace, printing, retail, photonics – it’s a long list. The company has more than 100 facilities in more than 30 countries, and boasts a total of 50 million-plus square feet of manufacturing floor space.
Jabil prides itself as an innovator, a company capable of solving problems through the use of unconventional ideas and an approach based on asking ‘why’ first. The company views its large workforce as an asset, a pool of talent that is greater than the sum of its parts. Jabil handles issues at all ends of the manufacturing process, from designing tools and products, to making the parts that meet the customer orders, to delivering the final items.
The company’s focus on specialized manufacturing has been profitable and has reached a hefty scale. Jabil generated a total of $6.77 billion in revenues during its recently reported fiscal 2Q24. While an impressive amount, this was down more than 16% year-over-year and missed the estimates by $160 million. The company’s revenues supported a non-GAAP EPS of $1.68, a result that was in-line with the forecasts.
The stock fell following the results’ release and has been under further pressure recently after the company said CEO Kenneth Wilson was placed on paid leave “pending completion of an investigation related to corporate policies.”
For Raymond James analyst Melissa Fairbanks, another of the firm’s 5-star analysts, this stock presents plenty of strengths to weather potential headwinds. She has been following Jabil for several years and notes the advantages, while going on to explain why she takes an upbeat outlook: “While we acknowledge a number of end markets remain challenging in the near term – including renewables, EV and 5G – we feel comfortable that management has handicapped the outlook based on current signals, helping to largely de-risk our estimates into FY25. Finally, with the building blocks in place to drive margin-accretive growth across several end markets – each enjoying secular catalysts – we see a path toward continued longer-term growth following the transitional year in FY24. Net, with the recent pullback in shares, we continue to believe the risk/reward on JBL remains favorable.”
Fairbanks quantifies her stance with a Strong Buy rating, along with $160 price target that implies a 35% upside for the coming year. (To watch Fairbanks’ track record, click here)
This stock’s Strong Buy consensus rating is derived from 5 recent analyst reviews, which include 4 to Buy and 1 to Hold. The shares are trading for $118.75, and their $153.75 target price suggests an upside of 29.5% in the next 12 months. (See JBL stock forecast)
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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.
