Boeing stock (NYSE: BA)
Bernstein upgraded the aircraft manufacturer’s stock from market perform to outperform. The firm also raised its price target from $252 to $279 per share, implying a 27.7 percent increase from Tuesday’s closing price.
“We believe we are finally approaching a tipping point in global travel. Is it time to celebrate? “We are not quite there yet, but the path now appears secure,” Bernstein analyst Douglas Harned wrote in a note Tuesday. “The improving outlook for longer-term commercial aerospace demand is driving our Boeing upgrade.”
Given improving vaccination rates, Bernstein predicts that most major markets will be ready to reopen within six months.
“We have demonstrated how immunity via vaccines and infections drives traffic in the United States and Europe, and how vaccines are beginning to drive traffic in other markets” (e.g. India, Japan). “We have finally seen a rapid acceleration in vaccine penetration in new markets in the last two months,” Harned said.
The firm identified specific challenges for Boeing, such as issues with its 737 Max jets following two fatal crashes of the model in 2018 and 2019.
“Boeing has more company-specific issues as it works to increase 737MAX rates, resume 787 deliveries, and address defense program issues” (e.g. KC-46). However, at the current share price, we believe there is sufficient long-term upside to warrant an Outperform rating,” Harned said.
Boeing’s stock is underperforming the market this year. In 2021, the stock is up 2%, compared to the S&P 500′s 15.9% gain.
Airbus and Spirit were also upgraded and their price targets were raised.
Eli Lilly stock (NYSE: LLY)
Citi raised its rating on Eli Lilly from neutral to buy. The firm also raised its price target for the stock from $210 to $265. The new forecast is 19.5% higher than Eli Lilly’s closing price on Tuesday.
Biogen, a competitor of Lilly, received FDA approval for its Alzheimer’s treatment, Aduhelm, in June, despite limited data on efficacy and an average annual cost of $56,000 per patient. In July, the FDA’s commissioner called for a federal investigation into Aduhelm’s approval, and major clinics announced they would not administer the drug. According to the company, Biogen generated $2 million in revenue in the first few weeks following its approval.
Eli Lilly shares are down 19.7 percent from their August highs.
“Our challenge with LLY has always been value rather than fundamentals/execution. “We believe the recent sell-off following the launch of Aduhelm provides investors with an important entry point into the name,” Citi analyst Andrew Baum wrote in a note.
According to Citi, the approval and commercialization of Eli Lilly’s donanemab Alzheimer’s treatment will go more smoothly than Biogen’s.
“We expect LLY to have a significantly better launch than BIIB’s current Aduhelm launch,” Baum said.
After adjusting for three near-term entrants, the firm values the potential addressable market for Lilly’s drug donanemab at more than $20 billion.
Citi also sees positive trends in Lilly’s medicines for breast and prostate cancer, as well as other drugs in its pipeline.
“While donanemab has received the most attention from investors in the short term, we believe there is upside to consensus expectations across the portfolio,” Baum said.
Asia stocks
“The Singapore market has been well shielded from the wide global market fluctuations and has done comparatively well this year,” Carmen Lee, the firm’s Singapore strategist, wrote in a Thursday note.
The benchmark Straits Times index in Singapore had risen more than 8% year to date as of Tuesday’s close.
In comparison, Hong Kong’s Hang Seng index is in bear territory as of Tuesday’s close, having fallen more than 20% from its 52-week high. So far this year, the index has fallen about 11% as regulatory uncertainty in mainland China has hammered private education and technology stocks.
Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan fell more than 3% on Tuesday. In the United States, the Dow Jones Industrial Average is on track to snap a five-quarter winning streak, having dropped 3% so far in September.
According to Lee, Singapore’s market has “proven to be fairly resilient in these uncertain and volatile times.” Furthermore, trading volume and activity in the country have increased sharply, with the country having its best year in the last four, she added.
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Global markets have seen wild swings in September as a variety of factors weigh on sentiment, including the ongoing fallout from indebted Chinese developer Evergrande.
In Singapore, OCBC’s stock picks include lenders such as DBS Group and United Overseas Bank.
Real estate investments include Ascendas REIT, Ascott Residence Trust, and CapitaLand Integrated Commercial Trust. The investment bank expects those stocks to rise more than 20% from their Monday close.
Reasons to Invest in Singapore Stocks
According to Lee of OCBC, stocks listed in Singapore provide investors with a defensive and fairly resilient exposure against a backdrop of expected market turbulence in the near-to-medium term due to factors such as China’s uncertain regulatory outlook.
She also stated that Singapore’s valuations are attractive when compared to other regional markets.
The strategist noted that the country’s flagging IPO scene could pick up steam, citing recent announcements such as the Singapore Exchange’s acceptance of SPACs on its platform.
“This could potentially help to stem the decline in IPOs while also attracting high-growth companies,” she said.
Singapore’s government has also announced a slew of initiatives aimed at boosting the country’s stock market. Among the measures is an investment in a new fund with the state investment firm Temasek aimed at assisting “promising high-growth” businesses.
Advanced Micro Devices stock (NASDAQ: AMD)
Bank of America analysts led by Michael Hartnett believe the technology and consumer staples sectors will outperform in the final three months of the year. The analysts identified companies with “strong management, balance sheets, earnings growth, and cash flow” using a stock screen dubbed “Best of Breed.”
“We believe the very highest quality companies will continue to generate strong returns relative to the market over the long term,” the analysts wrote in a note published on September 22.
Its picks for U.S. stocks include chip stocks Advanced Micro Devices and Applied Materials, as well as Pinterest. In Asia, the bank is fond of the liquor company Luzhou Laojiao, the biotech company Innovent, and the semiconductor company Tokyo Electron. In Europe, engineering firm Sandvik and energy company E.On are top picks.
Exposure to Europe
Meanwhile, Jefferies said it was keeping a close eye on U.S. stocks while increasing its exposure to Europe in the fourth quarter.
“Europe appears to have gotten their Covid response together and have begun to show improving economic growth that is faster than both the US and China,” the analysts wrote in a note on September 23.
“We decided to concentrate on Buy-Rated names within the Jefferies universe with significant European exposure (as measured by sales) and above-average ROE [return on equity].”
Brunswick Corporation, Guess, Foot Locker, and Callaway Golf are among its consumer discretionary picks; Carlyle Group is among its financial picks; Laboratory Corp and Charles River Lab are among its health care picks; Terex Corp is among its industrial picks; and Cambium Networks, EPAM Systems, and Lattice Semi are among its IT picks.
Possibilities for relocation?
According to Emmanuel Cau, head of the equity strategy research team at Barclays, there is a widespread expectation that people will consume more in the coming months, particularly in Europe, as governments continue to relax social restrictions.
Furthermore, a recent sell-off in equities has pushed share prices lower, making more companies appealing to investors.
“There has been some dislocation recently, and that has created opportunities,” said Emmanuel Cau, head of Barclays’ equity strategy research team.
He stated that leisure and hospitality, energy, banks, automobiles, and luxury goods would be among the bank’s top sectors in the coming quarter.
According to a September 22 note from Barclays, energy stocks such as BP, Repsol, and TotalEnergies have underperformed their peers despite having relatively low valuations.
The bank also singled out Associated British Foods, Carrefour, and Coca-Cola in the food sector, as well as Maersk, Renault, and Valeo in the transportation and automotive sectors.
The dangers
“Covid is still the one to watch,” said Cau of Barclays.
He also stated that investors should exercise caution when purchasing stocks that are vulnerable to changes in monetary policy, given the possibility that central banks will reduce their stimulus in the coming months. “We don’t want our stocks to be reliant on that,” he added. The Federal Reserve said last week that stimulus could be reduced “soon.”
Cau also stated that he is keeping a close eye on China. It comes after concern grew last week about a potential default by Chinese property developer Evergrande, which was one of the factors that contributed to the Dow Jones and S&P500 having their worst days in months.
Meanwhile, Jefferies said it was keeping a close eye on U.S. stocks while increasing its exposure to Europe in the fourth quarter.
Energy stocks
In a note to investors on Monday evening, Lee stated that energy remains his top sector pick, and that he continues to favor his basket of so-called epicenter stocks. Airlines, restaurants, and retailers were among the companies hardest hit by the Covid-19 pandemic.
On Tuesday, Brent crude rose above $80 per barrel for the first time since October 2018, while West Texas Intermediate crude futures reached a more than two-month high. Each contract is now up by more than 50% for 2021.
Lee cited three factors that he believes will continue to drive up crude prices: Capital availability has decreased, resulting in structural shortages; the White House’s stance against new exploration means less supply; and a strong economic recovery may result in a demand surprise.
He added that the aforementioned factors are also beneficial to energy stocks, which, despite being the best-performing S&P group this year, have lagged behind the performance of oil itself.
According to Lee, oil is 14 percent higher than its pre-pandemic level, while the Energy Select Sector SPDR Fund and VanEck Oil Services ETF are 12 percent and 24 percent lower, respectively.
“These are significant performance gaps,” he said, adding that this would be justified if energy companies were poor performers. Instead, due to the sector’s capital discipline, the company’s free cash flow margins have increased from 5.46 percent in 2018 to 7.64 percent today.
“We believe there is a compelling fundamental case for being long energy equities. As a result, we continue to view this as our favorite sector as we approach the end of the year,” he wrote in a note to clients. For the first time, he added, the sector’s consensus is shifting from negative to positive.
Oil reaching new highs is positive for epicenter stocks as a whole because it indicates that the economy is still recovering.
Betting on epicenter stocks has been painful, according to Lee, since the end of June, when the Covid delta variant took hold, resulting in new lockdowns and a drop in consumer confidence. However, the group has the potential for positive surprises in the fourth quarter due to factors such as cost discipline and a recovery in demand.
International oil benchmark Brent crude rose for the sixth day in a row Tuesday, surpassing $80 per barrel for the first time since October 2018, while West Texas Intermediate crude futures advanced for the sixth day in a row to a more than two-month high.
On Monday, energy stocks were the best-performing sector in the S&P 500, rising more than 3% on the day. With a nearly 40% gain in 2021, the energy sector leads the S&P 500 for the year.
“I still think you can get them,” Cramer said before the bell on “Squawk Box.” “In this group, you can literally buy almost anything. It is still functional.”
Investors can buy ConocoPhillips, Pioneer Natural Resources, and Chevron, according to the “Mad Money” host.
“However, it is the worst group imaginable because if it is good, everything else is bad,” Cramer explained.
Cramer has previously labeled oil and gas stocks as “uninvestable,” citing companies’ efforts to reduce carbon emissions in the face of climate change.
“They’re in the carbon business, so it’s not like they’re going to suddenly stop being in the carbon business,” Cramer said, “but I genuinely believe that some of these companies are trying.”
Redwire stock (NYSE: RDW)
“Redwire offers a diverse portfolio of space components that are well-positioned to capture emerging trends around a growing number of small sat launches and expansion into deep space exploration, as well as battle-tested products that provide a solid revenue base,” wrote Jefferies analyst Greg Konrad in a note to investors.
Redwire’s stock rose about 0.2 percent from its previous close of $9.99 on Tuesday. Jefferies has a $15 price target on the stock, as well as $27 and $5 price targets for the upside and downside scenarios, respectively.
Redwire is a space infrastructure conglomerate that debuted on the New York Stock Exchange earlier this month after completing a merger with a special purpose acquisition company, raising up to $170 million in cash. AE Industrial Partners, a private equity firm, founded the company in 2020 before embarking on an acquisition spree that saw it merge seven smaller space companies into one.
“Redwire has assembled a one-of-a-kind portfolio of space products, including spacecraft design, highly engineered components, and next-generation technology centered on in-space manufacturing, positioned for the new space economy,” Konrad said.
According to Jefferies, the company expects to generate $153 million in revenue this year, which will “expand at a 60 percent” compound annual growth rate over the next four years.
“Moreover, we see in-space manufacturing (Made In Space) as driving option value, with future applications tied to expanding human space travel and the ability to build and deploy things in space, with Redwire having first-mover advantage,” Konrad added.
