The market has gained nearly 60% since the September 2011 announcement of Operation Twist, which started the cycle of quantitative easing (QE). Gains during this period were primarily driven by multiple expansion rather than earnings growth. Cheap stocks benefited most from this expansion. Back in September 2011, the bottom quintile of the Russell 1000 by valuation had a price-to-earnings (P/E) multiple of 11. Today that has grown by 40% to nearly 16 times earnings. Meanwhile, the multiple for expensive stocks has stayed nearly equal.
That is why in a new research report the investment strategy team at Credit Suisse is recommending investors look to move out of the deep value stocks that have been so successful. With the Federal Reserve contemplating an exit strategy for QE, the Credit Suisse team believes that investors can look to transition to a more growth-oriented market by considering stocks in the “quality at any price” style. Historically, stocks with this profile have delivered superior top and bottom line growth characteristics, and currently they look cheap relative to deep value stocks.
Here are 10 top names listed by Credit Suisse that fit the category perfectly. We have ranked the names by market cap from largest down.
Google Inc. (NASDAQ: GOOG) continues to dominate Internet advertising and is a top stock to buy that fits the Credit Suisse bill. The search giant for years has been evasive about its plans for a so-called public cloud of computers and data storage that is rented to individuals and businesses. Last month the company announced pricing, features and performance guarantees aimed at companies ranging from start-ups to multinationals. Google’s Thomson Reuters mean price target is perched at $1,150, with the top target on Wall Street at $1,350. The stock closed Wednesday at $1,141.23.
Amazon.com Inc. (NASDAQ: AMZN) is a top stock to buy and also has the growth style favored at Credit Suisse. Most Wall Street analysts view Amazon as the innovation leader and a top stock to own for 2014 and beyond. In addition to its online retailing muscle, the company has a gigantic cloud storage business that continues to dominate rivals. The consensus price target for the stock is $420. Amazon closed Wednesday at $401.92.
Schlumberger Ltd. (NYSE: SLB) is a top name for investors looking to capitalize on the emerging service markets around the world. Plus, the company is an industry leader in technology and innovation. Despite an exposure to the volatile Middle East, the company continues to expand market share and consistently grow earnings. Investors are paid a 1.4% dividend. The consensus price target is at $110, and the stock closed Wednesday at $86.98.
American Express Co. (NYSE: AXP) is a top financial name that makes the grade. The stock is the quintessential high-quality company, particularly compared to its financial sector peers. With strong market shares in its core markets, growth is underpinned by an improving macro environment, new initiatives such as prepaid cards and expansion of its network business, and significant share buybacks. Investors are paid a 1% dividend. The consensus price target for the stock is $89. American Express closed Wednesday at $89.41.
MasterCard Inc. (NYSE: MA) has been an investing home run. The United States accounts for 39% of MasterCard’s total revenue, and debit card accounts for about 50% of the U.S. market’s total gross dollar volume (GDV), which is the dollar amount of purchases made by MasterCard’s customers. Analysts expect MasterCard to maintain the GDV growth through fiscal 2013. The company announced a 10-for-one stock split and increased the dividend by 83% last month. It is also buying back $3.5 billion in its own stock. The consensus price target for the stock is posted at $832. MasterCard closed Wednesday at $836.84.
Nike Inc. (NYSE: NKE) makes the list as a top consumer discretionary name. In the near term, the company has potential upside from a turnaround in its China business, improvements in gross margins and continued innovation-driven market share gains in both basketball and running footwear. Shareholders are paid a 1.2% dividend from the sporting apparel giant. The consensus price target is posted at $84. Nike closed Wednesday at $77.09.
Biogen Idec Inc. (NASDAQ: BIIB) remains the top name in class and is an industry powerhouse. The Credit Suisse research team points out that, trading at just 21 times 2015 earnings, the stock is not overvalued. The Credit Suisse price target for 2014 was recently raised to $375 from the current $290. The Thomson/First Call estimate for the stock is at $291. Shares closed Wednesday at $290.01. The stock made our list of five top analysts picks for 2014.
Colgate-Palmolive Co. (NYSE: CL) is a top consumer staples name to make the list. Colgate sells its products in more than 200 countries and makes more than 75% of its revenue outside the United States, which provides geographic diversification and growth opportunities in emerging markets for the company. This diversity matched with a huge list of consumer products keeps revenues and dividends growing. Investors are paid a 2.1% dividend. The consensus target is posted at $68. Shares closed Wednesday at $63.54.
Priceline.com Inc. (NASDAQ: PCLN) is a top Internet and consumer discretionary name on the list. The online travel leader is expecting a solid year in 2014 as the economy in the United States and around the world slowly continues to improve. The stock also is a candidate for a stock split, as it has surged to new highs. The consensus price target is posted at a whopping $1,215. Priceline closed Wednesday at $1,157.50.
TJX Companies Inc. (NYSE: TJX) is a top stock idea as it is the low price leader in retail. To build its e-commerce infrastructure, T.J. Maxx bought online off-price retailer Sierra Trading Post for $200 million in cash last December. Fashion bloggers are gushing over the new T.J. Maxx online selection, especially “The Runway,” which is devoted to luxury designers. Pent-up demand to buy online clearly exists. Growing online sales and increased store traffic may bode well for this top name to buy. Investors are paid a 0.9% dividend. The consensus price target for the stock is $67, and TJX Companies closed Wednesday at $63.50.
While many of the quality at any price style stocks may look expensive on a dollar basis, it is important to remember that the Credit Suisse theory is based on multiple expansion. They are all far less ahead of themselves on a multiple basis than their value counterparts. Plus, the sheer quality of the list makes most of the names suitable for almost any portfolio.