With the rotation back into the stock market, Colgate-Palmolive is trading at a significant discount, according to Credit Suisse.
Gajrawala raised the stock to outperform from neutral, adding that investors should no longer worry about year-to-year comparisons for Colgate’s business.
“Fears of a category slowdown (anti-recovery) and commodity headwinds have weighed on Colgate shares, which have underperformed the S&P 500 by 22 points in the past year.” Difficult comps and an increase in inflation are masking a fundamentally better business,” according to the note.
According to Credit Suisse, Colgate’s sales growth appears to have accelerated since the pre-pandemic period.
“Colgate’s retail sales in tracked channels in the United States are down 15% year to date. However, on a two-year [compound annual growth rate] basis, category growth has increased by 6% since April 2020, or twice the rate in the year preceding the pandemic,” according to the note.
Despite concerns about inflation, Credit Suisse believes Colgate will be able to increase its margins this year.
The firm increased its price target for the stock by $15 per share to $95 per share. This target represents a 14.6 percent premium over the stock’s closing price on Tuesday.
Unlike more conventional brokerage businesses, Coinbase may have to experience the same growing pains as it expands into a new asset class, according to Raymond James.
Only FactSet data indicates that O’Shaughnessy is the only prominent analyst that assigns a sell-equivalent rating to the stock.
“The vast majority of its current revenues come from trading commissions, and history has repeatedly shown that brokerage and exchanges see excess profits competed away unless there is a structural barrier to entry,” according to the note. “Because we don’t see a structural barrier to entry here, we expect significant pricing degradation over time, with growth in non-transaction revenues struggling to compensate.”
The rise of low-cost and free trading from firms like Robinhood forced legacy brokers to lower their fees as well, making the space less profitable for firms. This has resulted in industry consolidation, with Charles Schwab merging with TD Ameritrade and Morgan Stanley acquiring E-Trade.
Coinbase went public in April through a direct listing, with shares trading at $381 at the time. Following an initial surge, the stock has struggled. On Tuesday, it closed at less than $221 per share.
Raymond James did not set a formal price target for Coinbase, but stated that the company’s fair value was around $95 per share.
According to FactSet, the company has 12 buy ratings, 4 hold ratings, and 1 sell rating from Wall Street analysts.
Inflation and market returns
Investors have been watching for signs of inflation in recent months, which has raised concerns about a possible rollback of the Federal Reserve’s easy-money policies. The core personal consumption expenditures index, a key inflation indicator, rose 3.1 percent year on year in April, exceeding the forecast 2.9 percent increase. Although central bank chief Jerome Powell stated that rising costs should be temporary, market participants are looking for any clues about how to play even a temporary change in prices.
Goldman examined periods of higher inflation since 1962 and discovered that the median monthly market return was 2% annualized when inflation was high and rising, compared to a 15% gain when inflation was high and falling.
Furthermore, when inflation was low and rising, stocks returned an annualized 4%, while when inflation was low and falling, they returned a whopping 19%, according to Goldman. According to Goldman, when inflation was high, stocks returned 9%, while when inflation was low, stocks returned 15%.
By comparing year-over-year core Consumer Price Indexes with the Federal Reserve’s estimate of consensus long-term inflation expectations, the Wall Street firm classified the periods of inflation.
Goldman also advised clients on the best way to play rising cost periods based on historical inflation data.
“Within the market, periods of high inflation have corresponded with outperformance in the Health Care, Energy, Real Estate, and Consumer Staples sectors,” Kostin explained.
Materials and technology stocks have performed the worst during inflationary periods, according to the firm.
Goldman also advised clients that owning stocks with high and stable gross margins is a good way to trade higher inflation. The gross margin is the amount of sales revenue that a company has left over after deducting the costs of producing the goods. In other words, these businesses have negotiating power.
Examine Goldman’s list of stocks with high and consistent gross margins.
Goldman’s list included companies like Adobe, Aspen Technology, Activision Blizzard, Etsy, and Williams Companies.
Goldman’s list also included Zoetis, Philip Morris International, IHS Markit, Under Armour, and PPG Industries.