5 Contrarian Stocks That Credit Suisse Thinks Will Outperform
Does the recent market volatility created by Brexit have you wondering how to best play the markets right now? Credit Suisse has updated its list of contrarian stock ideas for investors to consider.
Credit Suisse identified "companies where our analysts stand apart from the consensus view" and "companies where our analysis reveals opportunities that the market has not yet priced in," in a July 5 report.
The report, titled "Out on a Limb: 10 Contrarian Stock Ideas," considered stocks in Credit Suisse's U.S. coverage universe. The analysis focused on ratings, earnings projections and target prices, as well as a high "conviction level" from its equity analysts. The report identified 10 stocks in total: five that analysts were more optimistic about than Wall Street (all rated outperform) and five that the analysis was more cautious onco than consensus (all rated underperform).
Here are the five outperform contrarian ideas from Credit Suisse.
Credit Suisse has an outperform rating and a target price of $7 on AK Steel
.
The consensus estimate for AK Steel's 2016 earnings is 20 cents a share, according to Bloomberg. Credit Suisse forecasts AK Steel's full-year earnings at 57 cents a share.
Credit Suisse's Curt Woodworth wrote that the market is "overly focused" on AK Steel's contract exposure (approximately 45% of volumes) and "underappreciating the company's exposure to the spot market (at 30-35%, with varying degrees of lag) given the recent upswing in flat-rolled prices," according to the note.
Credit Suisse is also "more optimistic than consensus on steel prices given cut in BOF capacity and limits on imports," the note said.
Shares of AK Steel are up 28.9% this year.
Credit Suisse has an outperform rating and a target price of $86 on Kellogg
.
The consensus estimate for Kellogg's 2016 earnings is $3.69 a share, according to Bloomberg. Credit Suisse's forecasts Kellogg's full-year earnings at $3.73 a share.
"We believe Kellogg represents the best risk-reward in our space," wrote Credit Suisse analyst Robert Moskow.
"We expect the benefits from SG&A leverage, including the implementation of zero-based budgeting across its business geographically to more than offset investment in improving the quality of its food and sets the table for strong operational leverage in 2016," Moskow wrote.
Shares of Kellogg are up 13.8% this year.
Credit Suisse has an outperform rating and a target price of $19 on Nationstar Mortgage
.
The consensus estimate for Nationstar's 2016 adjusted earnings is $1.46 a share, according to Bloomberg. Credit Suisse's forecasts Nationstar's full-year earnings at $1.56 a share.
"Investors remain skeptical of NSM's ability to continue to generate profitable returns on its servicing portfolio (especially in light of continued decline in rates) and improve profitability of its Xome platform and ultimately monetize that business. NSM has guided 5+ bps of profitability on its servicing portfolio for the full year 2016, and we have them improving from these levels in 2017 on the back of lower premium amortization (which will require rates to at least stabilize)," Credit Suisse analyst Douglas Harter wrote.
Shares of Nationstar Mortgage are down 22.2% this year.
Credit Suisse has an outperform rating and a target price of $26 on U.S. Steel
.
The consensus estimate for U.S. Steel's 2016 adjusted earnings is a loss of $1.80 a share, according to Bloomberg, but Credit Suisse's forecasts U.S. Steel's full-year loss at 13 cents a share.
"We believe the street is failing to appreciate the immense operational leverage that US Steel has to rising steel sheet prices," Credit Suisse analyst Curt Woodworth wrote. "We see developments in the U.S. sheet market that support material U.S. steel pricing spread expansion relative to global steel prices and to raw material prices. Furthermore, we anticipate that US Steel will be able recapture most of the automotive contract ASP headwind from 2016 as we model $60/ton in annual contract price increase for 2017 relative to the $80/ton reduction in 2016."
Shares of U.S. Steel are up 119% this year.
Credit Suisse has an outperform rating and a target price of $40 on Whole Foods Market
.
The consensus estimate for Whole Food's 2016 adjusted earnings is $1.52, according to Bloomberg. Credit Suisse forecasts the organic food chain's full-year earnings at $1.50 a share.
"Though headlines have not been favorable, the drop in the stock only creates a better set-up. We maintain the view that investors should own this name when sentiment is low and as comps bottom, and believe an inflection is likely in coming quarters," wrote Credit Suisse analyst Edward Kelly.
Shares of Whole Foods are down 3.9% this year.