Investing

Credit Suisse Adds 4 Stocks to Prestigious Top Picks List

With the second-quarter earnings parade only about a month away, many Wall Street firms that we cover are updating the list of stocks that are shown as top selections to institutional and high net worth clients. A new report, the analysts at Credit Suisse have added some new stocks to the firm’s Top Picks list.

The Credit Suisse Top Pick list is made up of 141 stocks out of the vast coverage universe at the firm of over 900 companies. We focused on the new stocks that have been added to the list as a new top pick in the sectors they reside in.

Costco Wholesale

This company has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model: It operates membership warehouses where the company buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend due to lower gasoline prices, this major retailer may continue to see large revenue gains.

The Credit Suisse team notes that Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model that could bode well in international growth and expansion are thriving. They also point out that the company is largely unharmed by e-commerce.

Costco investors are paid a small 1.12% dividend. The Credit Suisse price target for the stock is $160, and the Thomson/First Call consensus target is $155. Shares closed Thursday at $140.65.

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Exelon

This top utility stock jumps on to the Credit Suisse list. Exelon Corp. (NYSE: EXC) is the nation’s leading competitive energy provider, with 2014 revenues of approximately $27.4 billion. Headquartered in Chicago, Exelon does business in 48 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with approximately 32,500 megawatts of owned capacity, comprising one of the nation’s cleanest and lowest-cost power generation fleets.

The company’s Constellation business unit provides energy products and services to more than 2.5 million residential, public sector and business customers, including more than two-thirds of the Fortune 100. Exelon’s utilities deliver electricity and natural gas to more than 7.8 million customers in central Maryland, northern Illinois and southeastern Pennsylvania.

Exelon investors are paid a very respectable 3.66% dividend. Credit Suisse puts a $39 price target on the stock. The consensus target is $38.13, and the stock closed Thursday at $33.59.

KBR

This is a top new stock to buy in the industrials sector. KBR Inc. (NYSE: KBR) is an engineering and construction firm that is well positioned to benefit from the build-out of infrastructure to support booming natural gas production. KBR has strong liquefied natural gas (LNG) export terminal construction expertise. U.S. Department of Energy studies have shown that exports of natural gas from the United States would have minimal impact on domestic prices, and most experts expect the federal government to approve additional export terminals. There is also a very solid chance the oil export ban could be ended soon.

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The Credit Suisse team likes the changes at the company, with KBR exiting underperforming legacy businesses and moving to higher margin areas. It is also cleaning up what is an already solid balance sheet by lowering operating expenses by $200 million by the end of next year. KBR has a cash balance equal to 30% of the market cap.

KBR investors are paid a 1.65% dividend. The Credit Suisse price target is $21, and the consensus target is $18.80. KBR closed above that figure Thursday at $19.59.

Time Warner

This is a top media stock to buy at Credit Suisse, and with good reason. Time Warner Inc. (NYSE: TWX) owns a wide variety of brands and properties with a diversity in earnings with a multitude of revenue silos.

Time Warner has a spot on all three of the top over-the-top (OTT) content providers, and with an absolute ton of content that the company sells through DVDs, Blu-ray discs and electronic sell-through, as well as licensing home entertainment and content to international television networks and SVOD services, the future is very bright. In broadcasting, OTT refers to delivery of audio, video and other media over the Internet without the involvement of a multiple-system operator in the control or distribution of the content.

The Credit Suisse analysts note that if you strip out the HBO valuation of $30 billion to $35 billion, the rest of the company trades at 12.9 to 14.7 times 2016 price to earnings, a discount to the company’s big media peers.

Time Warner investors are paid a 1.7% dividend. The Credit Suisse price objective is $110, and the consensus target is set at $96.03. The stock closed Thursday at $85.07.

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All the Credit Suisse additions to the Top Picks make very good sense with a pricey and what feels like a very heavy market.

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