Best stocks to buy now according to UBS
According to UBS, the United States is the “safest” region for dividend yields, with the probability of a dividend cut at 9.9 percent over the next 12 months, while the emerging markets region has a dividend growth rate of 11.6 percent, according to a July 1 research note.
“Consumer Discretionary has the highest forecasted dividend growth, and Energy appears to be at the highest risk of a dividend cut, with a probability of a dividend cut of 29.9 percent,” the analysts added — the figures are the overall average and include the United States, Pacific, Europe, Japan, and emerging markets.
The overall dividend yield for consumer discretionary stocks is expected to grow at a rate of 19.4 percent, followed by 16.6 percent for materials.
The following are nine stocks from the bank’s list of high-quality, dividend-paying companies. Each stock is the market leader in its respective industry.
UBS chose Intel in technology, with a dividend yield of 2.48 percent, and American Tower Corporation, a telecommunications infrastructure operator, in real estate, with a dividend yield of 2.07 percent.
UBS analysts chose NextEra Energy, a renewable energy company, with an estimated dividend yield of 2.18 percent, and EOG Resources, an oil company, with a dividend yield of 2.3 percent.
UBS selected European stocks such as Porsche, which has a projected dividend yield of 4.07 percent, and Santander, a Spanish bank, which has a projected dividend yield of 5 percent. It also chose South African telecoms company MTN Group for its communications services sector, with a 3.51 percent expected yield.
The bank’s top industrial pick is military shipbuilder Huntington Ingalls, which has an estimated dividend yield of 2.35 percent, and its top health care pick is Merck, which has an estimated dividend yield of 3.41 percent.
According to UBS analysts, they have changed the way they evaluate stocks for the screen and now use fewer data sources to avoid inconsistencies. To evaluate stocks, the firm employs algorithms. “We seek stocks that have a high-quality dividend stream, as well as the earnings power and balance sheet to back it up. We also quantify the potential for the name to outperform its industry,” the analysts wrote.
Analysts then evaluate the top-scoring firms based on “subjective” factors such as investor sentiment and company management. “Throughout the process, we have emphasized the stability and growth potential of dividend streams rather than the current yield,” UBS said.
Best stocks to buy now according to Morgan Stanley
An increase in diesel margins and a shift to gas are two trends that could benefit oil refiners and gas distributors, according to analysts at the investment bank in a research note.
“We see oil marketers and refiners as key players in tighter oil markets, as they benefit from improving diesel/jet fuel margins,” the analysts said. According to the June 24 note, higher crude prices may also prompt customers in India to switch to gas.
On Wednesday morning in Asia, Brent crude was near flat at $74.57 per barrel, while US crude was 0.12 percent higher at $73.47. Oil prices have risen due to increased demand, but they have also become more volatile as a result of a disagreement within the OPEC+ energy alliance.
Morgan Stanley’s “key picks” are companies that have access to new markets, are upgrading their products, and are unwinding debt.
Trend number one is an increase in diesel margins.
Oil markets are performing well in part because of increased global mobility as a number of countries return to pre-pandemic levels of life.
According to Morgan Stanley, energy demand is recovering at a time when the refining industry’s capacity is 3 percent to 4 percent lower than it was previously due to global consolidation.
Analysts wrote, “We see demand recovery in air travel having a second derivative effect to an improvement in diesel margins.”
As of Tuesday’s close, Hindustan Petroleum had a price target of 363 Indian rupees, representing a 19.2 percent increase.
Bharat Petroleum has a price target of 480 Indian rupees, with a 4.8 percent upside.
Reliance has a price target of 2,262 Indian rupees, representing a 6.5 percent increase.
The “key picks” are Hindustan Petroleum (HPCL), Reliance, and Bharat Petroleum because “half of the refinery product output benefits from normalization in diesel margins, which we expect to double by 2022,” according to the note.
Hindustan Petroleum is a company that refines crude oil and sells petroleum products. Consolidation in refining markets, hardware upgrades, improved capital efficiency, and increased investments in enabling the energy transition can all help HPCL’s return quality.
Its margins could double as capacity increases by around 40%, and return on capital — a measure of a company’s profitability and how efficiently its capital is employed — could average 15% over the next three years.
“These factors should drive HPCL’s earnings to outperform global peers… as (the) refining upcycle takes shape,” according to the note.
Trend number two is the increasing use of gas.
If oil prices remain high, more customers may choose to use gas, which will support growth and margins as India’s production rises, according to the investment bank.
According to Morgan Stanley, the following stocks could benefit from this trend:
Gujarat Gas: Price target of 733 Indian rupees, a 9.4 percent increase from Tuesday’s close.
GAIL: Price target of 165 Indian rupees, with a 9.7 percent upside.
Indraprastha Gas Limited has a price target of 605 Indian rupees, with a 7.5 percent upside potential.
Gujarat Gas is a company that buys, sells, transports, and distributes natural gas.
“We see Gujarat Gas benefiting from improved pricing power for industrial sales, expanding (the total addressable market) from ceramics and chemical segments, higher penetration of gas sales for transportation, and upside from improved domestic gas supplies,” said the investment backer.
It went on to say that rising gas production in India coincides with Gujarat Gas’ expansion.
The bank forecasts a 22 percent compound annual growth rate from 2021 to 2024, owing to factors such as rising compressed natural gas demand and new chemical companies looking to switch to gas in the Indian states of Gujarat and Maharashtra.
“These factors should cause earnings to more than double in the next three years,” the report stated.