Sterne Agee is joining the many firms on Wall Street with its top picks for 2014. Monday’s feature is on their top picks for the industrials and energy stocks. Some of these have overlaps in their sectors, and they may seem to not be sector leaders in some cases. Either way, these stocks are expected to rise by what looks like a minimum of 20% in the coming year, and some have far greater upside than that.
General Motors Co. (NYSE: GM) is the firm’s top auto pick, and the call is for shares to rise about 25% to $50.00 in the coming year. Sterne Agee said that despite ongoing industry risks in Europe and limited growth in North America, the firm expects earnings of $3.40 per share in 2013, $4.95 per share in 2014 and $5.90 per share in 2015.
CONSOL Energy Inc. (NYSE: CNX) is the firm’s top pick for the coal, metals and mining sectors, and the upside expected is huge. Sterne Agee sees its rising by about 66% to $60.00 in the coming year. What is amazing is that the firm called it one where investors will increasingly support its steps into becoming an energy growth vehicle. It was called one of the lowest cost coal producers, with upside in the gas production business. This is a sum-of-the-parts analysis.
D.R. Horton Inc. (NYSE: DHI) is Sterne Agee’s top pick in the home building sector, with an expected gain of about 40% to $27.00. This was the top pick because of the company’s deep land base, expanding customer mix and the potential for higher new housing demand in 2014 versus 2013.
Halliburton Co. (NYSE: HAL) is the top oilfield services and equipment pick. Sterne Agee sees this leader rising by more than 25% to $63.00 in the coming year. Halliburton was picked over four points: higher margins, low relative valuation, return on invested capital to increase to 20% levels from current 11% levels by 2016, and a laser sharp focus on return on invested capital. Number five is because it is trading at seven times 2014 EV/EBITDA.
Eagle Materials Inc. (NYSE: EXP) is a favorite in construction materials, with a gain of almost 20% to $90.00 expected in the coming year. Sterne Agee said:
We believe Eagle’s shares have regained the mojo they lost during the summer and early fall, and believe the momentum should continue into 2014 due to strength in Eagle’s construction and energy markets, while the potential receipt of the final permit at the company’s Illinois frac sand mine — which could occur within the next several weeks — could serve as a near-term catalyst for the shares.
Energen Corp. (NYSE: EGN) is the top pick from Sterne Agee for exploration and production, with an expected gain of more than 40% to $98.00 in the coming year. Sterne Agee said:
The company remains an underappreciated Permian Basin growth story, with attractive relative valuations that do not reflect the sharp growth we see over the next 3-5 years. 2014 remains a transition year as the company accelerates to an eleven horizontal rig program, but we envision an accelerated program in 2015 and beyond, as the proceeds from the asset sales drive Permian Basin oil growth.
FreightCar America Inc. (NASDAQ: RAIL) is the top shipping and transportation equipment pick for 2014. The firm sees shares raising 34% to $31.00, and it said:
We believe Freightcar America is on the cusp of an earnings recovery after four quarters of losses driven by low coal car deliveries and startup costs related to its strategy to diversify into non-coal cars at its new Shoals facility. With the stabilization in coal volumes, the Eastern railroads have resumed their coal car replacement programs, resulting in an uptick in backlog in the third quarter.
This was called an earnings bottom and the last quarter of losses as the backlog has firmed.
Precision Castparts Corp. (NYSE: PCP) is called to rise to $324.00, for a gain of more than 25% over the coming year. This one is based on ramping OEM build rates, the impact of the Timet synergies and niche M&A all further boosting earnings growth.
Carpenter Technology Corp. (NYSE: CRS) is called to rise just over 20% to $75.00 in 2014. The firm said:
We believe the value of the Athens facility is underappreciated given an unmatched operating structure and longcycle demand from the aerospace OEM ramp. With the facility opening in the June quarter, 2014 will be the beginning of a multi-year growth cycle.