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Credit Suisse’s list of top 40 U.S. stock ideas is an interesting one for domestic investors and the inclusion of Canada’s Teck Resources is only one reason why. The list combines the expertise of the research team’s analysts and the use of Credit Suisse’s proprietary cash flow model to support the analysts’ top ideas.

Teck Resources was chosen by analyst Curt Woodworth as his top selection in the North American mining sector. Mr. Woodworth believes the miner’s cash flow generation potential is underappreciated by the market, even with lower metallurgical prices. Teck also has the best production growth profile for copper within his coverage universe. The analyst’s C$63 price target is almost 50 per cent above current levels.

The remaining 39 U.S. stock ideas consist of 35 buy recommendations and four short ideas. The non-energy and financial buys (Canadian investors favour domestic stocks for these categories) are Crown Cork & Seal Co., Air Products and Chemicals, International Game Technology, Yeti Holdings Inc., Chipotle Mexican Grill, Ventyx Biosciences Inc., Insmed Inc., Intellia Thera CS, HCA Holdings Inc., Unitedhealth Group Inc., Emerson Electric, Fortune Brands Home & Security, Quanta Services, Parker Hannifin Corp., Knight-Swift Transportation Inc., Ceridian HCM Holdings Inc.,, American Tower Corp., Motorola Solutions, Microsoft, Confluent Inc., and T-Mobile U.S.

The short or underperform ideas are Western Union Co., American Express Co., National Health Investors and Robert Half International Inc.

Beginning with these lists of analyst picks, Credit Suisse then applied their proprietary HOLT selection methodology to find the best of the best ideas. (The HOLT acronym is formed of the last initials of the original development team in the 1980s).

The HOLT team implements a trademarked valuation measure called cash flow return on equity or CFROI® which measures the ability of companies to turn cash flow into profit over time.

Credit Suisse organized all of the top ideas according to above consensus calls – cases where the analyst is more bullish than average – and selections where the current CFROI® understated future profit growth.

The three stocks that fit into both categories, attractively valued and where analysts are extremely bullish, were Discover Financial Services, Fortune Brands Home & Security and Microsoft.

In the case of Fortune Brands, analyst Daniel Oppenheim expects sales growth in the plumbing and outdoor renovations divisions to result in profit margin expansion. Analyst Phil Winslow expects Microsoft to increasingly dominate cloud spending for companies with its Azure platform.

In usual circumstances, I only use a top picks list to find potential candidates for further research. In this case, the added layer of cash flow analysis makes it more interesting.

-- Scott Barlow, Globe and Mail market strategist

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