With the market still trading close to all-time highs, stocks are getting to the point where they are so expensive that investors looking to buy some of the top companies are experiencing some sticker shock. One of the ways to stay in the game is to think outside the box and go for some of the more contrarian ideas Wall Street has to offer. While they sometimes take longer to play out, they can bring some big gains.
In a recent report, Credit Suisse definitely goes outside the box to show clients some ideas in which its analysts are positioned much differently than their Wall Street peers. The report said this:
We screened our current US coverage universe to identify companies where our analysts’ views diverged from that of the Street, focusing on rating, earnings projections as well as target price. To further strengthen the list of stocks, we worked closely with the research analysts to select stories in which our conviction level is high.
Here are the six contrarian stocks rated Outperform at Credit Suisse.
This consumer staple has one of the most recognized brands in the world. Hershey Co. (NYSE: HSY) is the number one confectionery company in the United States, with sales over $5.0 billion. Key brands include Hershey’s, Reese’s, Kit Kat, Twizzlers and Ice Breakers. The company also produces cookies, snack bars, baking ingredients, toppings and beverages.
Credit Suisse cites the low cocoa prices, which have recently collapsed, and more importantly that the company currently trades at only a 7% premium to it peers, and that’s versus a historical premium of 18%. While the firm is inline with consensus for this year, the analyst thinks the company’s 2018 revenue could come in higher than the Wall Street consensus.
Investors receive 2.25% dividend. The Credit Suisse price target for the stock is $121. The Wall Street consensus target is $112. The shares closed last Friday at $109.52.
This stock is down over 20% from February highs and is offering a very enticing entry point. Nationstar Mortgage Holdings Inc. (NYSE: NSM) provides servicing, origination and transaction based services primarily to single-family residences in the United States.
The company operates in three segments. The Servicing segment offers conventional residential mortgage loans and home equity conversion loans, while the Originations segment operates an integrated residential loan origination platform that is primarily focused on customer retention. The Xome segment provides technology and data-enhanced solutions to home buyers, home sellers, real estate professionals and companies.
Credit Suisse cites the refinancing of debt as a key catalyst as the company could save $20 million per year in interest expense. The firm is above the consensus estimates for 2017 and 2018 and feels there is $0.15 per share to be realized from the debt refinancing that is not baked into the current numbers.
Credit Suisse has a $22 price target, but the consensus target is $23.14. The shares closed last Friday at $15.85.
The volatile price of natural gas over the past year has weighed on this top energy company. ONEOK Inc.’s (NYSE: OKE) primary asset is its general partnership and limited partnership interests in ONEOK Partners L.P. (NYSE: OKS). OKS is a master limited partnership (MLP) primarily engaged in natural gas gathering and processing and natural gas liquid gathering and marketing.
Credit Suisse sees the stock having the potential for 25% total return, and the point to an increase in volumes across the company’s different segments. The report noted this:
Key driver of strong volumes is demand from three world class stream crackers scheduled to come online in the second half of 2017 with more in 2018. The Ethane uplift to contribute ~$200 million the next few years with ~$40-$60 million in 2017. Per fourth quarter earnings release there were 10-12 rigs on dedicated acreage in the SCOOP/STACK region with estimates it could reach 17-20 by the end of the year which should drive further volume growth in the region.
ONEOK investors receive a 4.32% dividend. The $64 Credit Suisse price objective is well above the consensus target of $55.92. The stock closed last Friday at $56.19.