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UBS reveals its highest conviction inventory picks for the remainder of 2022

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EyeOfPaul

UBS surveyed its analysts for shares with enticing upside vs. draw back in risky markets.

“We have targeted on shares the place we consider our analysts have a really differentiated view vs. consensus, and the place we’ve attention-grabbing or proprietary knowledge sources (from UBS Proof Lab or elsewhere),” strategist Keith Parker wrote in a observe. “From a method perspective, we have discovered that threat/reward is enticing when this a lot recession threat is priced (>80pctl) however as we transfer later cycle, avoiding the largest underperformers turns into much more vital for portfolio returns.”

“Certainly, our analysts have recognized alternatives with enticing upside vs draw back skew in these risky markets.”

The highest conviction picks by sector are:

  1. DuPont (NYSE:DD), value goal $96: “We consider the market shouldn’t be presently appreciating the numerous shift in DuPont’s publicity and progress following a sequence of strategic actions.”
  2. Metal Dynamics (STLD), $105: “We assess metal costs ought to discover assist round pre-Russia/Ukraine ranges of U $900-1,000/st into 2H22 (vs US$1,300/st spot), as a consequence of elevated iron ore/met coal costs, nonetheless well-above historic ranges.”
  3. Berry International (BERY), $78: “We consider decrease leverage, steady/rising earnings, rising round feedstock combine, and a shift in money return coverage (extra returns and progress investments) as elements that ought to shift investor sentiment extra constructive, pushing the inventory greater.”
  4. Graphics Packaging (GPK), $26: “Our Purchase score on GPK displays our view that the boxboard market is underappreciated following years of stagnant progress and restricted pricing energy.”
  • Capital Items & Industrials (XLI)
  1. Boeing (NYSE:BA), $263: “We consider BA is now a show-me story till confidence rebuilds which we expect will start with 787 deliveries restarting, constantly greater 737 deliveries and resumption of 737MAX operations/deliveries in China.”
  2. Saia (SAIA), $240: “In our view, SAIA inventory already displays the expectation of a major freight downturn contemplating SAIA inventory is off 45% in 2022 (vs the S&P 500 -18%). We consider the present valuation (14x on our 2022 EPS) is enticing.”
  3. MSCI (MSCI), $564: “Whereas valuation stays elevated by historic requirements, we proceed to level to MSCI’s best-in-class earnings progress and potential upside alternatives, particularly ESG and Local weather, which ought to command a premium a number of.”
  4. 3M (MMM), $118: “Whereas 3M might be thought of undervalued on the core enterprise (natural progress/margins), we consider the inventory nonetheless has draw back threat because of the massive uncertainty round ongoing/potential litigation.”
  5. TE Connectivity (TEL), $165: “The post-Covid financial system has accelerated in the direction of TEL behind a heightened give attention to constructing resiliency and investments in connectivity. As these tendencies proceed to take share of capex wallets, we see a sustainable uplift in market outgrowth vs historic ranges – constructive for each EPS &valuation.”
  6. Caterpillar (CAT), $250: “We expect the narrative across the inventory has been across the disappointing margins in the course of the post-COVID upcycle and CAT lacking a chance to capitalize on robust demand.”
  1. Alaska Air (ALK), $80: “We have maintained ALK as our prime decide in US airways in 2022 given they navigated Covid notably nicely by avoiding shareholder dilution and shoring up their steadiness sheet/bettering web debt.”
  2. Spectrum Manufacturers (SPB), $119: “The bull case for Spectrum Manufacturers has all the time been predicated on unlocking worth in an underappreciated asset, and whereas inventory efficiency from right here will hinge on deal timing, we consider the HHI divestiture and potential strategic actions for HPC are significant steps in the direction of unlocking worth.”
  3. Nomad Meals (NOMD), $26: “Given the inflationary setting, we consider PL might want to take a number of rounds of value as nicely or will face important revenue stress.”
  4. Walmart (WMT), $165: “We consider it is now approaching an inflection level, the place it could leverage expertise to cut back bills and velocity up its productiveness loop. It is reached a vital mass in on-line grocery, which ought to give it an edge as shoppers turn out to be extra open to that channel put up Covid-19.”
  5. Hilton (HLT), $157: “We consider HLT will outperform MAR due to higher unit progress and we additionally see a catalyst for the lodging area with the return of enterprise journey, because the incremental enchancment in occupancy restoration now could be prone to be made up of extra high-margin enterprise journey vs leisure.”
  6. Owens Corning (OC), $137: “We mannequin OC producing over $1bn of free money stream/yr by means of 2024 and shopping for again ~13% of its shares.”
  7. Mattel (MAT), $36: “Mattel’s goal of 16-17% revenue margin for ’23 is nicely inside attain, in our view, given the accretive progress from key owned manufacturers, and acceleration in progress from franchise manufacturers.”
  8. McDonald’s (MCD), $290: “We view elevated US sss power as sustainable and proceed to see a global gross sales restoration forward, w/ market share positive aspects possible in most key markets globally.”
  9. O’Reilly Automotive (ORLY), $750: “Sector tendencies ought to maintain up high-quality in a recessionary backdrop whereas it additionally has stable pricing energy ought to inflation persist for longer. “
  10. On Holding (ONON), $39: “The market sees On as primarily a working shoe model and doesn’t totally respect the model’s potential to deal with a bigger market.”
  1. Generac Holdings (GNRC), $450: “Dominant market share (~80%) and robust demand for house stand-by energy have insulated already excessive residential product margins from inflationary price pressures.”
  2. Sempra Power (SRE), $198: “Because the clear vitality transition accelerates, we see the potential for progress at Sempra to speed up which might be upside to our base case.”
  3. Cheniere (LNG), $184: “We consider the market doesn’t respect how liquefaction capability is financed on the challenge stage (& IG rated).”
  • Financials (XLF) and Actual Property (XLRE)
  1. Widespread (BPOP), $122: “BPOP ought to outperform with low provision charges and an enormous reserve simply as mainland banks bolster reserves and wrestle with deposit runoff.”
  2. Financial institution of America (BAC), $64: “We view BAC as each a cyclical and a secular winner, nicely positioned to ship peer main returns within the greater fee setting, if the financial growth cycle continues; whereas additionally providing draw back safety, ought to the financial circumstances deteriorate.”
  3. Ameriprise Monetary (AMP), $350: If “freed up capital is deployed to develop AWM, we consider it strengthens the case for a number of growth.”
  4. Nasdaq (NDAQ), $213: “The corporate’s strategic pivot to allocate capital to its quickest rising companies (Funding Intelligence and Market Expertise) has been well-received and has pushed double-digit non-transaction natural progress in latest quarters (+11% on common between 1Q19-1Q22).”
  5. Allstate (ALL), $160: “We consider fee will increase in ALL’s private auto enterprise will start to offset loss pattern as frequency comps get simpler in 2Q22 and fee begins to catch as much as elevated severity tendencies.”
  6. Reinsurance Group of America (RGA), $149: “We consider RGA’s shares proceed to overly replicate mortality threat for COVID and we view RGA’s low cost as unwarranted given the improved underwriting commentary in 1Q22 and a number of potential sources of near-term earnings upside.”
  7. Fairness Residential (EQR), $104: “With each certainly one of its markets seeing greater rental charges in comparison with 2019 ranges, we consider EQR can see that momentum proceed nicely previous the height Spring leasing season.”
  1. Vertex Pharma (VRTX), $321: “At present ranges, the market is giving VRTX no credit score for its pipeline vs our conservative $58/sh estimate.”
  2. Acadia Healthcare (ACHC), $86: “We mannequin every pillar of the corporate’s progress technique and see practically $170 mn of balanced EBITDA contribution, supporting 10%+ EBITDA progress over the following 5 years, even when contemplating potential stress from Medicaid reimbursement.”
  3. Laboratory Corp of American (LH), $326: “We consider LH’s a number of ought to develop because the influence of COVID diminishes and the well being of the bottom enterprise emerges.”
  4. IQVIA (IQV), $290: “Conviction in IQV’s data-driven affected person recruitment technique plus a positive business backdrop assist our above-consensus estimates, which along with a number of growth can allow ~45% inventory appreciation within the subsequent 12 months.”
  • Data Tech (XLK) and Communication Providers (XLC)
  1. T-Cell US (TMUS), $175: “We see significant upside to shares as EBITDA progress accelerates, FCF ramps and a multi-year buyback program commences.”
  2. SBA Communications (SBAC), $400: “Because the pure-play public tower operator, we consider the corporate is greatest positioned for the upcoming 5G funding cycle.”
  3. Reserving Holdings (BKNG), $2,800: “Not solely will we consider that BKNG can profit from the continued journey restoration, however we see elevated give attention to direct visitors and Related Journey as potential tailwinds.”
  4. MYT Netherlands (MYTE), $15: “MYTE’s goal of excessive web price people constructing wardrobes are sometimes extra resilient to financial cycles, which ought to permit MYTE to ship higher than feared progress.”
  5. Apple (AAPL), $185: “We forecast roughly 235/235 million telephones bought in FY22and FY23 respectively whereas Providers and Wearables ought to develop materially above iPhone income progress over the following a number of years pushed by rising penetration charges of the iPhone put in base throughout by each Service choices and ancillary merchandise just like the Watch and AirPods.”
  6. Fox (FOXA), $47: “We see Fox as higher positioned amongst conventional media networks as a consequence of its strategic give attention to sports activities and information with minimal publicity to leisure.”
  7. Visa (V), $292: “Buying and selling at 23 occasions our FY23 EPS, we consider valuation doesn’t totally value in Visa’s 5-year progress potential, and overstate threats from community disintermediaries and regulation.”
  8. Micron (MU), $120: We “consider that as fundamentals and cycles show to be extra sturdy, there’s a important re-rating potential.”
  9. CrowdStrike (CRWD), $240: “A observe report of robust execution, an increasing core end-market, and underappreciated profitability hold us constructive on shares.”
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