Disney (DIS) is a reopening stock on the raise
“If you truly believe, obviously, that the economy will open globally, I come back to the fact that this is still not a Covid play, but a post-Covid play,” Cramer said on “Squawk on the Street.”
The “Mad Money” host, whose charitable trust recently re-invested in Disney after exiting its position earlier this summer, acknowledged that Wall Street is very focused on the company’s flagship streaming service, Disney+, which benefited greatly from people spending more time at home during the coronavirus pandemic.
As a result, Disney shares have trailed the broader market this year as investors rebalanced their portfolios toward cyclical stocks that benefit from the removal of pandemic restrictions and global economic growth.
“People will talk about Disney+ all the time, just like they did about ESPN for a long time,” Cramer predicted. “I believe that in the future, you will hear about cruise lines, attendance, merchandise, and, yes, going to the movies.”
“I think the world of this stock now because it has paid its dues,” added Cramer, whose charitable trust purchased Disney shares in late September for around $171 per share. That was slightly lower than the stock’s closing price in June, when the investment trust sold out of Disney for the first time in 16 years.
Cramer’s remarks JPMorgan equity analysts raised their price target on Disney to $230 per share for December 2022 on Thursday. This represents a roughly 28% increase from the stock’s Thursday levels of around $179 per share.
Disney is rated overweight by JPMorgan analysts. According to FactSet, 24 analysts have a buy or overweight rating on Disney, while five have a hold rating.
Cramer believes that as the pandemic outlook improves, large money managers will return to Disney.
“This will become a standard name for large institutions if they believe Covid, the delta variant, is under control,” Cramer predicted. “It’ll be like, ‘OK, yeah, sure, I sure own Disney.'” You know those stocks where the rich just say, ‘Yeah, I own Disney.’ It’ll be like that again after a short break.”
Goldman upgrades Nio (NIO)
The Wall Street firm upgraded the stock to a buy from neutral. Goldman maintained its Nio 12-month price target of $56 per share, which is approximately 66 percent higher than the stock’s Wednesday close.
The stock has fallen nearly half its value since its January high. Increased scrutiny from Beijing regulators in a variety of industries this year has made investors wary of Chinese equities. Nio also faced supply issues and a fatal crash involving one of its vehicles that used driver-assistance features.
Nio debuted its first sedan, the ET7, at the start of the year. Goldman compares the car’s design to the Mercedes S-class and the BMW 7 series, as well as its price to the Mercedes E-class and the BMW 5 series.
“With this price point, ET7 becomes China’s most expensive car model ever launched by a domestic manufacturer, strengthening Nio’s brand equity in the premium space,” Fang said.
Goldman believes the ET7′s battery format and “battery as a service” purchase plan set it apart from competitors. According to the bank, “battery as a service” is a method for customers to lease batteries, lowering the purchase price.
The ET7′s assisted and autonomous driving features, according to Goldman, also distinguish the product.
Nio’s next sedan, the ET5, is expected to be released early next year, according to the company. In terms of pricing and product, Goldman compared the ET5 to the Tesla Model 3, BMW 3-series, and Mercedes C-class.
Asia dividend stocks
Given recent market volatility, investors seeking yield may be looking for low-volatility stocks with sizable and stable dividends.
Morgan Stanley used a “Enhanced Dividend Screen” in an Oct. 5 note to identify MSCI Asia Pacific ex Japan index constituents with a market capitalization of more than $2 billion and a minimum dividend yield of 2.5 percent.
Analysts at the bank, led by Gilbert Wong, believe the resulting stocks will outperform in the coming year and will be the least likely to announce dividend cuts. The bank rates them all as overweight.
Picks for stocks
Hong Kong-traded According to Morgan Stanley, PetroChina, a subsidiary of China National Petroleum, is expected to deliver a hefty dividend yield of 6.5 percent for the full year 2021. Because of its significant exposure to marginal oilfields, the bank sees the Chinese oil and gas producer as a proxy for rising oil prices. Because of its vast natural gas resources, it is also well positioned to benefit from China’s push for carbon neutrality, according to analysts. They went on to say that China’s transition from regulated domestic gas pricing to a market-based pricing structure should benefit the company’s gas segment as well.
Morgan Stanley also likes Sun Hung Kai Properties, a real estate conglomerate. The Wall Street firm expects the company’s dividend yield to remain unchanged for the full year at 5.1 percent, citing the company’s consistent growth in recurring income and dividend per share payouts. It believes that an increased land bank in Hong Kong and an increase in leasing space in China could provide the company with additional rental income upside.
Longfor Group, a Hong Kong-listed real estate developer, also made the bank’s list, with a full-year dividend yield of 5.5 percent expected. The bank expects the developer to post “solid sales growth of 15% year on year in 2021 and 15-20% year on year in 2022-2023,” as well as “double-digit earnings growth” during the same period.
In recent months, China has enacted a steady stream of regulatory tightening, with the implementation of a slew of new rules affecting a wide range of industries. With indebted China Evergrande in the spotlight, China’s property sector has also come under intense scrutiny, fueling fears that authorities will tighten credit access even further.
Hana Financial and KB Financial, both listed in South Korea, made Morgan Stanley’s list of the top ten dividend-paying stocks, with projected dividend yields of 6% and 5.3 percent, respectively.
South32, an Australia Stock Exchange-listed mining and metals company, has the highest projected increase in dividend yield on the bank’s list. According to Morgan Stanley, it is expected to be 5.2 percent for the full year, up from 2.2 percent in 2020.
A number of A-shares (domestically traded shares of companies based in mainland China) were also included on the list. China State Construction Engineering and the state-owned Industrial and Commercial Bank of China are among them. For the full year, they are expected to deliver dividend yields of 5.1 percent and 6 percent, respectively.
Pricing power describes the effect that a price change has on the demand for a given product. A company with strong pricing power and a distinct value proposition should be able to raise the price of a product without reducing demand.
With inflation at its highest in 30 years, many investors are looking for opportunities to invest in such companies.
“Rising input costs, supply chain challenges, and labor constraints remain front and center issues for corporates and investors,” Goldman said this week in a note. “Specifically, our Portfolio Strategy team estimates that Russell labor costs account for 16% of total revenues, compared to 11% for the S&P500, making them more vulnerable to rising wages.”
The Russell 2000, an index of 2,000 small-cap companies, has outperformed the S&P500 by nearly 6% since mid-August, according to Goldman, owing to increases in the 10-year US Treasury yield and oil prices, both of which have historically supported small-cap stocks.
Goldman highlighted companies that its analysts believe will have strong pricing power and operating leverage through 2022E. Here are some of their recommendations:
Goldman analysts anticipate that gross and operating margins will recover to levels above 2019 earnings levels in 2021, with room for further expansion through 2022 earnings.
Kosmos Energy, Gates Industrial, Herc Holdings, Avient, and Evoqua Water Technologies were among the companies that made up the firm.
Analysts predict that Kosmos’ gross margins will increase to 45 percent in 2022, up from 23 percent in 2019 and a 1 percent decrease last year.
Wingstop is the only restaurant stock on the list, and its gross margins are expected to rise from 80 percent in 2020 to 81 percent this year and in 2022.
Green Plains, an ethanol producer, is expected to see one of the largest increases in gross margins. Goldman expects 14 percent by next year, up from 2 percent in 2019.
Morgan Stanley upgrades Five Below (FIVE)
In August, Morgan Stanley downgraded the stock to equal weight, citing valuation concerns. However, the stock is now down approximately 25% from its peak that month.
Despite the decline, Morgan Stanley believes Five Below’s long-term story remains intact.
Five Below has a price target of $230 per share set by Morgan Stanley.
On Wednesday, the hedge fund manager spoke with David Faber at the 13D Monitor’s Active-Passive Investor Summit in New York City. As of 2019, Starboard Value manages approximately $5.5 billion in assets. Smith spun the New York-based hedge fund out of the Ramius investment firm in 2011.
Animal Health Elanco
According to Smith, Starboard Value recently increased its stake in Elanco Animal Health “dramatically.”
“The company went public, spun out of Eli Lilly years ago, and there was a lot of hope that they would be able to follow the blueprint and dramatically improve their margins,” Smith explained. “It’s a fantastic business.” It is concerned with animal health in both pets and farm animals.”
However, the investor was dissatisfied with Elanco’s recent merger with Bayer’s animal health business because the company’s margins did not increase as expected.
Still, Smith believes it is “water under the bridge,” and he believes Elanco has great value and is on track to deliver promising results for its shareholders.
“We get to invest in the company, which is a fantastic business, at roughly the same price as when it spun out and went public, except it is a much better-positioned company. We believe it has a good chance of succeeding. “We need to see the promise followed by the execution,” Smith said.
Elanco shares are up about 6.5 percent this year, following a 4 percent gain in 2020.
According to a recent 13D regulatory filing, Smith’s next investment is in chemical manufacturer Huntsman, in which he has a $500 million-plus stake.
“Huntsman is a fantastic company. It’s a chemical company attempting to replace their manufacturing footprint. “It’s nearly impossible to compete with their technology and know-how,” Smith said. “Terrific barriers to entry, unfortunately, the stock hasn’t done anything since the IPO.”
According to the Nasdaq, the company went public in 2004 at $23 per share, and shares are currently trading around $31 as of Wednesday.
Smith is optimistic about the company’s recent moves to restructure its portfolio to focus more on value-added chemicals, which he believes will result in increased revenue and margins.
Smith is also pushing for changes at Colfax Corporation, which has two businesses: welding and medical devices.
Smith described the businesses as “terrific in their own right, but obviously they don’t belong together.” “We’ve seen it time and again. If you can free those businesses, each management team will be able to focus solely on their own operations.”
The activist investor stated that the current leadership will continue to lead the med-tech business, which he believes will grow in revenue and margins.
“There is an opportunity for operational improvement, particularly in the med tech business… we believe you’re getting the med tech business for nearly half the price with the opportunity to improve that business,” Smith said.
Colfax stock has risen by more than 24% this year.
Credit Suisse top stock picks
The company keeps a “one-stop shop” list of the best ideas from researchers. Every analyst in the United States selects their top stock pick for the next six to twelve months.
The list includes companies from a wide range of industries, including consumer, health care, industrial, and technology.
Constellation Brands, the parent company of Tommy Hilfiger and Calvin Klein, and Netflix are among the newcomers in October.
Credit Suisse’s top household products and beverages pick is Constellation, which owns Corona and Modelo. Constellation is expected to benefit as the spiked seltzer craze fades due to the company’s limited exposure to the category, according to the firm. Meanwhile, Constellation’s beer and wine portfolio should help the company grow, according to Credit Suisse.
Constellation’s quarterly earnings report on Wednesday fell short of Wall Street expectations, but the company raised its fiscal year 2022 guidance. This week, the stock is trading higher.
Credit Suisse’s top softlines and global brands retail pick is retail conglomerate PVH. PVH is “in the early innings of a significant business transformation,” according to Credit Suisse, and is backed by a new CEO.
PVH is expected to focus on international growth and e-commerce while exiting less profitable legacy segments, according to Credit Suisse. The stock is up for the week.
Netflix has surpassed Credit Suisse as the leading telecom and media stock. The company anticipates that the third-quarter viral series “Squid Games” and a strong fourth-quarter content slate will drive subscriber growth.
Credit Suisse is bullish on Netflix because of its high customer satisfaction and usage, as well as its large annual content budget.
Targa Resources, a provider of energy infrastructure, Arena Pharmaceuticals, a biopharmaceutical company, and Parker-Hannifin, a motion control technology company, are among the newcomers to Credit Suisse’s list.