Here are CFRA’s latest stock upgrades.
The stock market continued its rebound off 2020 lows in July. Despite a 32.9% drop in second-quarter U.S. gross domestic product and abysmal second-quarter earnings numbers from many U.S. companies, optimism surrounding a potential coronavirus vaccine, aggressive federal stimulus programs and a return to economic growth in the second half of 2020 has stock prices on the rise. Plenty of companies are thriving in a socially distancing world, and others are poised for major comebacks once the coast is finally clear. Here are seven of the CFRA analyst team’s most recent stock upgrades for investors to buy today.
Baker Hughes Co. (ticker: BKR)
Baker Hughes is the second-largest oil services and equipment company in the world. Oil prices have rebounded sharply from all-time lows earlier this year, and analyst Andrzej Tomczyk says Baker Hughes is better positioned to capitalize on the next oil cycle than its peers, given the company was already restructuring before the 2020 downturn. Tomczyk says cost-cutting initiatives should boost Baker Hughes’ margins, and the company’s best-in-class balance sheet gives it stability and flexibility. Baker Hughes also has no debt maturities until December 2022. CFRA has a “buy” rating and $20 price target for BKR stock.
Goldman Sachs Group (GS)
In July, U.S. investment bank Goldman Sachs reported second-quarter earnings per share of $6.26, crushing analyst estimates of $3.78. The earnings beat was driven by a 150% year-over-year jump in bond trading revenue and a 46% gain in equities trading revenue. For analyst Kenneth Leon, the resilience Goldman demonstrated in the second quarter was reason enough to upgrade the stock. Leon says Goldman’s heavy skew toward trading and relatively low exposure to loan losses should help the stock outperform most of its big bank peers. CFRA has a “strong buy” rating and $245 price target for GS stock.
Paccar is the third-largest North American medium and heavy truck manufacturer. While Paccar’s 54% decline in second-quarter revenue may seem troubling at first glance, analyst Elizabeth Vermillion says the company outperformed its peer group and gained market share in an extremely difficult quarter. Vermillion is projecting 2020 EPS of $3.15 and says the company will grow revenue by 12% in 2021. She also says a strong finish to the second quarter suggests positive momentum heading into the second half of the year. CFRA has a “buy” rating and $93 price target for PCAR stock.
Steel Dynamics (STLD)
Steel stocks have gotten crushed in recent years. But in late July, analyst Matthew Miller said it’s finally time for investors to buy the dip in Steel Dynamics. Miller says investors should look beyond the current weak demand environment in the U.S., instead focusing on the company’s strong positioning in the market and favorable financial position relative to its peers. Miller says Steel Dynamics is overexposed to relatively strong end markets such as construction and infrastructure, and underexposed to weak ones like the auto industry and heavy equipment manufacturing. CFRA has a “buy” rating and $31 price target for STLD stock.
Nasdaq is a diversified global exchange that lists 3,400 companies around the world. Analyst Chris Kuiper recently upgraded the stock and says investors don’t seem to fully appreciate the value Nasdaq is creating in transitioning to a major data and analytics provider. Trading volume has skyrocketed in 2020, providing another tailwind for Nasdaq’s core business. Kuiper also likes Nasdaq due to its emphasis on stable, high-margin, recurring subscription revenue. Kuiper is projecting $5.80 in 2020 EPS on at least 9% revenue growth. CFRA has a “strong buy” rating and $150 price target for NDAQ stock.
Summit Materials (SUM)
Summit Materials is a construction materials company that specializes in cement. Miller upgraded Summit in July. He says the stock has an attractive valuation, the construction industry has relatively stable demand and Summit operates primarily in states with well-funded transportation budgets. Miller says Summit shares trade at roughly a 40% discounted forward enterprise multiple relative to peers, but for no clear reason. Despite governmental tax revenue headwinds, Miller says infrastructure spending will remain a priority throughout the U.S. in 2020 and beyond. CFRA has a “strong buy” rating and $24 price target for SUM stock.
WPX Energy (WPX)
WPX Energy is an oil and gas producer that operates in the Delaware, Williston and San Juan basins. At its low point in March, WPX shares were down about 85% year to date. However, WPX managed to report 33% earnings growth in the second quarter, and Tomczyk is projecting full-year EPS of 40 cents. Tomczyk says management has had the right priorities during the downturn, including free cash flow, dynamic hedging and cost cutting. WPX is now well-positioned for the rebound, given it has no looming debt maturities. CFRA has a “buy” rating and $9 price target for WPX stock.
Upgraded stocks to buy:
— Baker Hughes Co. (BKR)
— Goldman Sachs Group (GS)
— Paccar (PCAR)
— Steel Dynamics (STLD)
— Nasdaq (NDAQ)
— Summit Materials (SUM)
— WPX Energy (WPX)
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