With 2019 fading fast and 2020 rapidly approaching, investors are having to reflect on where the markets started out this year and where they are likely going in in the year ahead. There are many risks and pitfalls, but there are also many great opportunities for nimble investors who know where to go. With better than 20% gain in the Dow Jones industrials and S&P 500 in 2019, many investors might be worried that the gains for 2020 already have been eaten up. Many analysts, strategists and investors alike do not believe that is the case at all. There are predictions for even more all-time highs ahead.
24/7 Wall St. has been collecting and sifting through many forecasts, sector views and market strategy calls throughout December to see what may be in store for 2020. Credit Suisse has a list of its so-called #1 Top Picks, which are the firm’s unofficial list of top picks for 2020. Some of these companies may be updated or eliminated in January, but there were 41 top Outperform and nine top Underperform ideas for investors. What was amazing about this list was that many of the top names were actually showing very little implied upside ahead.
It would seem, at least on the surface, that Credit Suisse is either going to need to raise some price targets or will have to find some new ideas. After digging deeper into the list of top picks, it turns out that three stocks have price targets that imply upside opportunities of 50% or more. Most analyst calls with Outperform or Buy ratings are coming with 8% to 10% implied total returns at this stage in the decade-long bull market. These are substantially higher than that.
We have offered a synopsis of each call, the Credit Suisse price target, and what that implies in upside, and we have compared them against the Refinitiv consensus analyst target prices. Here are three Credit Suisse #1 Top Picks that are showing an implied upside of 50% or more for 2020 as of mid-December.
Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) has a $174 price target, which is an implied upside of 58% from the current $110 or so share price. Analyst Martin Auster thinks the recent IP setbacks are fully reflected in the valuation here, and he expects Alexion shares to recover as the focus of investors should shift back to its strong execution on the core business, its drug pipeline opportunities and even the strategic flexibility as Ultomiris expands addressable markets over time.
The stock is down from a 52-week high of $141.86, and the consensus target price is about $147.40. This biotech still has a $24 billion market cap, and the consensus forecast is for 2019 revenues of about $4.9 billion to rise to almost $5.6 billion in 2020.
Constellium S.E. (NYSE: CSTM) has an Outperform rating, and the Credit Suisse target price of $23 represents about 64% upside from the recent $14 share price. It should be noted that Credit Suisse’s target is the highest of all sell-side firms ($15.84 is consensus), so the case the firm is laying out is the most bullish of all other analysts.
Analyst Curt Woodworth has it as the top pick in the aluminum space due to its depressed valuation of only about five times expected 2021 EBITDA. Drivers are expected to be U.S. can sheet demand and a clear pathway for U.S. Body in White growth in the auto sector. The firm believes Constellium should be closer to a 7.5-times multiple on EBITDA. Woodworth said:
While the market often penalizes companies with high leverage, in this case we see asymmetric upside to the equity given the expected pace of deleveraging coupled with multiple re-rating potential as Constellium executes on its growth strategy. Every 1x turn of EV/EBITDA is worth $5 per share based on our 2021 estimate.
Sunrun Inc. (NASDAQ: RUN) was next on the list. Credit Suisse’s Michael Weinstein has a $24 price target that represents an implied upside of 62% from a $14.75 share price. That compares to a consensus target price of $20.40. Weinstein expects Sunrun to grow deployments by more than 15% per year, despite labor issues in 2019 that have depressed deployment growth at a rate of only about 10% to 11%.
Sunrun also continues to retain the highest market share, 16.2%, and it has robust project profitability. The company is also shown to have cash generation of about $100 million annually, along with a $50 million stock buyback over the next three years (versus a $1.8 billion market cap). Weinstein assumes installation growth of 10% in 2019, followed by 18% in 2020 coming from California’s rooftop mandate, and then growth of 10% from 2021 to 2023.
Investors should always use many other sources of information before deciding to buy or sell any shares. These are generally among the most bullish scenarios offered by Wall Street analysts as well.