Credit Suisse released its full list of Top Picks during the week of August 5. This is effectively each of the firm’s top analysts identifying and ranking up to three top stock picks, each with a six-month to 12-month outlook. In short, these are Credit Suisse’s highest conviction ideas.
This boiled down to 127 stocks, which is just about 14% of its 900 or so companies followed in the United States. The breakdown is 30 in small cap (under $4.3 billion), 58 in small- to-mid-cap (under $10.2 billion) and 68 in mid-cap ($2.4 billion to $28.7 billion). Also, 85 of the 127 are growth picks and 33 are value picks.
24/7 Wall St. ran a screen over the Top Picks list and to our surprise, nine of the 127 picks are still forecast to have upside of 50% or more to the firm’s six-month to 12-month outlook targets. There were another five with upside north of about 45%, but here we focus on the ones with 50% or more upside.
Details of each call have been provided, as well as color on the size of each company and the implied upside. Surprisingly, some of these companies are much larger and more well known than you might expect from a report calling for upside of 50% or much higher.
Hanesbrands Inc. (NYSE: HBI) is covered by Christian Buss at Credit Suisse. The price target of $39 compares with a pre-call price of $25.65, implying upside of 52%, plus the company’s 1.7% dividend yield. It has a $9.5 billion market cap, and its consensus analyst price target is $34.50. The Credit Suisse report said:
Strong and steady free cash flow generator with opportunity to catalyze EPS growth via acquisitions and mix shift towards premium priced products.
SunPower Corp. (NASDAQ: SPWR) is covered by Patrick Jobin, and the $32 share price target implies upside of close to 120% from the listed $14.55 share price. Jobin’s report is a sum of the parts analysis using its core business and its yieldco ownership. His report said:
SunPower is a US based high efficiency solar panel manufacturer and a solar developer. The company has a diversified pipeline (>14 GW) across utility scale, commercial and residential sectors. We expect SunPower to capture a higher share in the growing residential market as its high efficiency technology is best suited for small spaces. The company’s new p-series technology taps into the oversupplied c-Si market, enables expansion with lower capital intensity, with panels competitive even in price conscious and unsubsidized developing markets like Mexico.
UltraGenyx Pharmaceutical Inc. (NASDAQ: RARE) is seeking to treat rare and ultra-rare genetic diseases, those rare enough that the pipeline’s focal points for five different studies will not be understood by most of the public. Credit Suisse’s Kennen Mackay has a $101 target for the stock. That leaves an implied upside of 59.5% from the listed $63.33 share price. Keep in mind that this is all clinical stage or pre-clinical, which means it is effectively a pre-revenue speculative company. UltraGenyx also has a $2.5 billion market cap, and the consensus price target is lower at $94.63. Mackay’s report said:
We see pullback ahead of near-term accelerated approvals for Ace-ER & KRN23 as a buying opportunity. We see potential for KRN23 to become one of the highest selling rare disease drugs, and model more than $4 billion in peak sales. We anticipate a launch above Street estimates based on RARE’s XLH patient registry.
Scorpio Tankers Inc. (NYSE: STNG) is also a speculative marine transport player in the energy sector. Greg Lewis has an $8 target price that would imply upside of right at 70% from the $4.71 share price listed in the report. It too also has a double-digit implied yield but its market cap is a mere $850 million. Lewis said:
Scorpio Tankers is the BETA play for the product tanker trade with a lot of optionality (dividends, buybacks, yield spinoff). The company should benefit from a pickup in product tanker dayrates as US exports ramp.
PDC Energy Inc. (NASDAQ: PDCE) is covered by Credit Suisse’s Mark Lear, who has an $81 price target. This independent exploration and production company has a $2.5 billion market cap, which is still rather small in the oil and gas sector. Still, that target implies upside of 51.3% if the $81 price is seen again. Lear’s report said:
PDC Energy screens as one of the cheapest names on multiples, trading at 5.1x 2018 EV/EBITDA, a 4.5x discount to our coverage universe despite offering one of the best growth trajectories in small to mid-cap E&P. PDC Energy noted that a majority if its well completions in the first quarter came towards the end of the quarter and set the company up for second quarter growth. We project a 27% growth CAGR through 2018 with leverage going to 0.5x at year-end 2018 (from 0.8x in 2016).
Sportsman’s Warehouse Holdings Inc. (NASDAQ: SPWH) is covered by Seth Sigman. The firm’s $16 price target implies upside of 61.6% from the $9.90 listed price. It is important to know that this was one of the special small-cap selections, with a market cap of only $422 million. An excerpt from his report said:
We view Sportsman’s Warehouse as one of our most interesting small cap ideas. We continue to believe Sportsman’s Warehouse offers a unique growth store in this group, with a store growth strategy that is working and should insulate it more from competition going forward, along with a supportive industry demand outlook along with a number of merchandising initiatives … we believe Sportsman’s Warehouse has found a store recipe that works … we believe Sportsman’s Warehouse is sheltered from many of the disruptive issues that others in the sector are facing. … We believe Sportsman’s Warehouse has been successful in finding smaller markets where its unique, low cost model can earn strong returns but protects it from larger competition … these smaller market stores should help shelter it from any marketplace disruption from The Sports Authority liquidation sales in the short term.
Sunrun Inc. (NASDAQ: RUN) is one of the stocks that could have massive upside if Credit Suisse is right. Here too the analyst is Jobin, who has an $18 price target, implying more than 200% upside to the $5.00 listed price. The firm sees slowing growth and reduced returns over time and factors that into the valuation. The report said:
Sunrun is the third largest US residential solar installer with 9% market share. The company has a differentiated multi-channel strategy with 1) a direct-to-customer channel and direct installation business, 2) a partner network of lead generators, distributors, and installers, and 3) strategic partners looking to leverage existing partnerships and brand power on the Sunrun platform. Sunrun is also unique by utilizing a customized pricing approach, enabling the company to focus on earning above-average returns, all else equal, instead of approaching each market with a fixed price for solar energy …
Euronav N.V. (NASDAQ: EURN) also is covered by Lewis. His $15 price target implied upside of 78% from the listed price of $8.40, but that does not include its implied double-digit dividend yield. This shipper has a market cap of $1.3 billion, and Lewis said in his call:
Euronav’s position as a dominate VLCC and Suezmax spot player makes it the beta crude tanker stock for the tanker market up cycle. In addition, with a net debt to capital of 31%, Euronav is moderately leveraged, which should provide management with ample flexibility for fleet acquisitions and to return cash shareholders in an up-cycle (where we are). Euronav expects to pay out 80% of net income as dividends (~9.5% 2016 yield).
Affiliated Managers Group Inc. (NYSE: AMG) is covered by Craig Siegenthaler at Credit Suisse. This asset manager has a $7.6 billion market cap, and the $220 price target implies upside of 55.9% from the $141.03 listed price. The firm’s report is calling for capital deployment via deals and buybacks. It was also worth noting that the $220 price target compares to a 52-week high of $212.56. Siegenthaler’s report said:
We look for one to two deals over the next 12 months. Affiliated Managers has announced 5 new deals since the first quarter of 2016, and its deal pipeline remains robust, skewed towards Alt Managers (currently ~35% of earnings). Additionally, we expect buybacks to provide support in the event of slower deal execution. (2) Diverse Manager Base of 36 high quality asset managers has cushioned recent retail channel weakness (US driven). However, MF flows have rebounded in 2016, with 1H16 OG tracking at 1.9% (annualized).