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., Amazon.com, 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
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
This is why earnings season went well, and why it’s not sustainable
This was supposed to be the earnings season when a much-anticipated hit to profits started to come into focus. That hasn’t happened. Instead, the North American corporate sector has easily trounced estimates, defying the considerable pressures of an economic slowdown, rampant inflation and soaring interest rates. Most businesses appear unfazed by higher input costs and rising wages, freely passing them on to consumers who have the means and willingness to absorb surging prices. The problem, as Tim Shufelt reports, is that this can go on for only so long.
Stock market bulls eye technical signal for further gains
The S&P 500 is up 15% from its mid-June low, a rally that gained even more momentum after Wednesday’s U.S. inflation data showed consumer prices unchanged for July. The stock surge, which has delivered the S&P’s best eight-week period in more than a year, has brought the index within sight of a 50% retracement of its bear market loss. Will hitting that point mean even greater market gains to come? Saqib Iqbal Ahmed reports.
Being a successful investor is not just about winners
Many investors believe that one must have a minimum 50 per cent of their selections make positive returns to be successful, especially when it comes to small caps or more speculative stocks. If the number is much higher, the results, all else being equal, will be much greater. But under The Contra Guys’ system, one can prosper with less than half of the stocks working out. They explain their strategy and detail one stock they are monitoring right now for possible big gains.
U.S. startup valuations contract as early-stage investors turn cautious
U.S. startups seeking early-stage funding saw a decline in their valuations in the second quarter, as jittery venture capital investors urge founders to make more concessions. Easy fiscal policies and stimulus measures that led to an investment frenzy last year and sky-high startup valuations are now fading away, making investors more cautious.
Others (for subscribers)
Number Cruncher: 11 Canadian equity funds with a focus on value
Number Cruncher: Ten stocks to take advantage of the rebounding U.S. materials sector
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
What’s up in the days ahead
John Heinzl explains why he’s buying more shares of Capital Power for his dividend growth Yield Hog portfolio.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff