Every time a new year rolls around, it creates a timely excuse for Wall Street brokerage firms and research firms to refresh their annual views, economic outlooks and make changes to their lists of top stock picks. With such a strong gain of almost 29% in the S&P 500 in 2019, many investors not have made all the portfolio changes they wanted to make, and many are unsure of where they should put their money. Credit Suisse has updated its list of #1 Top Picks for its investors who invest in individual stocks rather than just in ETFs and mutual funds.
Being a #1 Top Pick is not intended to represent a portfolio view, and Credit Suisse notes each time it updates these that they are snapshots of the best opportunities each analyst has in their coverage universe. That means these can change on a dime, with any good news or bad news creating a major change in the list.
Among 52 Top Ideas, there are 43 with Credit Suisse Outperform ratings. For the start of 2020, six new stocks were named to the list. Investors also should understand that Credit Suisse has had some of these rated as Outperform for some time.
To show how conservative or optimistic these are, we have included consensus analyst target prices from Refinitiv. Investors also should consider that typical new Buy/Outperform ratings from most firms tend to have upside targets of about 8% to 10% for established companies in major indexes at this stage in the decade-plus bull market. A last reminder is that no single analyst call should ever be an investor’s sole basis for buying or selling a stock position.
Here are Credit Suisse’s most recently added #1 Top Picks for 2020.
Arena Pharmaceuticals: Making Waves Treating Ulcerative Colitis!
Arena Pharmaceuticals Inc. (NASDAQ: ARNA) stock is rated as Outperform with a $77 target price. What stands out here is that this target represents an implied upside expectation of about 67%, and the target is roughly $10 higher than the consensus target price. The firm believes positive Phase 3 ulcerative colitis data from Bristol-Myers Squibb’s ozanimod mid-year will meaningfully de-risk Arena’s lead agent etrasimod in the indication. The firm sees etrasimod as a best-in-class oral agent potential in ulcerative colitis. The firm noted that Phase 3 etrasimod data is not expected until deep into 2021, but any positive data readouts would push the stock higher.
As for the biggest risk to the upside, Credit Suisse noted that there remains significant clinical risk for etrasimod and the most meaningful clinical catalysts are still over a year out.
Honeywell: Stable Growth Even in a Flat Macro Picture!
Honeywell International Inc. (NYSE: HON) stock is rated as Outperform, and the target price of $195 represented only about 10% implied upside from Credit Suisse’s reference point. It is called a quality cyclical player with a strong balance sheet that can see earnings growth without using up its balance sheet and without meaningful improvement on the macro side. Each operating segment is seen as having leverage to a multiyear growth story from a more streamlined company.
The firm sees high-single-digit organic growth rates based on its backlog and order trends, and that lowering fixed costs will help to generate over $5.7 billion in free cash flow while still maintaining “significant balance sheet optionality.”
Honeywell’s price of just under $180 comes with a consensus target price of $188.55 and just over a 2% dividend yield.