It’s reassuring to know that RBC Capital is still bullish on the markets for 2019.
The firm writes: “Despite the volatility that we have witnessed in the global markets, for 2019 our analysts are maintaining a pro-growth, pro-cyclical bias.”
But that’s not to say you should just carry on regardless. Portfolios should be adjusted to the current economic situation.
As RBC explains “[Given] that we are entering the 10th year of this bull cycle and perhaps the later stages of a multi-year economic expansion, we are being circumspect with our investment recommendations.”
With this in mind, the firm’s selections for 2019 skew towards best-in-class operators in their respective verticals. “We point investors to industry leaders, taking a more nuanced approach to our positive bias” says the firm.
Here we cover 7 of the most compelling stocks from the firm’s Top Global Ideas for 2019. Using TipRanks, we also ensure that all these stocks score a ‘Strong Buy’ consensus from the Street.
Let’s take a closer look now:
1. CVS Health (CVS– Research Report)
CVS Health is at an inflection point in its corporate life cycle. The company has just acquired insurer Aetna for a whopping $69 billion.
“We view the valuation on CVS shares as very attractive given the expected earnings power of the combined company, the synergies between the two businesses, the potential upside from reducing healthcare costs, and the strong cash flow of the combined company” writes RBC Capital.
The firm expects earnings growth to drive share out-performance over the next few years. This will see the valuation on CVS shares closing the gap with peers.
Indeed, it has a $100 price target on CVS shares, indicating huge upside potential of 59%. See what other Top Analysts are saying about CVS.
2. Facebook (FB– Research Report)
“Arguably the best risk-reward in Large Cap Internet” is how RBC’s Mark Mahaney (Track Record & Ratings) sums up FB stock. His $190 price target indicates upside potential of 53%.
He is remaining bullish on FB because it stills owns two of the largest media assets in the world (Facebook & Instagram) & the two largest messaging assets in the world (Messenger & WhatsApp).
All four of these assets still have significant monetization potential. Indeed, Messenger and WhatsApp are still in the early stages of monetization.
Plus FB’s aggressive investments are improving platform security and creating future revenue streams (Stories & Watch & VR/AR); and even under pressure, FB is producing impressive growth (25%+ 3-yr Revenue CAGR & ~20% EBITDA CAGR through 2021). See what Top Analysts are saying about FB.
3. GDS Holdings (GDS– Research Report)
Turning to China, we have IT stock GDS. This is a company that designs, builds, and operates data centers, with approx 370 customers across China.
“We believe GDS has potential to outperform its peers given its positioning in an under- penetrated, growing market with strong customer demand trends and limited competitive supply” writes the firm’s Jonathan Atkin (Track Record & Ratings).
This Top 15 analyst believes GDS is well positioned to capitalize on strong datacenter and IT outsourcing demand trends from multiple sectors, including Chinese and international cloud and Internet firms.
Also in the stock’s favor is the unique barriers to entry for foreign competitors in the Chinese datacenter market. Atkin sees prices more than doubling to hit $52. See what Top Analysts are saying about GDS.
4. Lululemon Athletica (LULU– Research Report)
True- the retail sector is a challenging spot right now. But LULU continues to stand out from the crowd.
“In a softlines space desperate for growth, our Outperform rating on LULU is based on our expectation for sustained baseline mid-teens top-line” states RBC Capital.
Looking ahead, the firm’s Brian Tunick (Track Record & Ratings) sees LULU smashing its current targets:
“With 2020’s $4B sale’s target easily within reach, we expect LULU’s path to $6B+ from $3.2B today should look similar to what we see now, including at least 10% footage growth, men’s business north of $1B, a digital ecomm penetration of 30%+, and International.”
He has a $165 price target on the stock for 46% upside potential. See what Top Analysts say about LULU.
5. Prudential Financial (PRU– Research Report)
From the financial sector we have insurance giant Prudential.
“Prudential is our overall favorite idea in the life insurance sector” writes RBC’s Mark Dwelle (Track Record & Ratings). He is predicting 56% upside from current levels.
As Dwelle points out, the company has delivered a 13-14% ROE (return on equity) over each of the last two years. The best part, he expects them to do it again in 2019. “The company is a market leader across most major product lines and all the business units have performed both consistently and well” says the top-ranked analyst.
Shareholders also benefit from a significant capital return program. Think about the $2 billion of buybacks planned for 2019 and a rising dividend. Right now the dividend produces a lucrative yield of over 4%.
“With shares trading at a discount to book value, we see reasons to expect multiple expansion and we believe the shares make an attractive core holding for investors seeking broad exposure to the sector” concludes the analyst. See what other Top Analysts are saying about PRU.
6. Restaurant Brands (QSR– Research Report)
Despite under-performing the restaurant sector in 2018, five-star RBC analyst David Palmer (Track Record & Ratings) picks QSR as his no. 1 stock.
He spies a favorable setup heading into 2019 given three catalysts: 1) Tim Hortons improvement with all-day breakfast, loyalty, kids meals, a new coffee program, and marketing initiatives; 2) Popeyes unit growth accelerating internationally and; 3) re-acceleration in Burger King US sales with a greater value and premium balance.
“An unwarranted valuation discount to peers and an over 3% yield should attract long-term oriented investors in 2019” predicts Palmer.
Over the next five years, he estimates that QSR could average annual total return of 15% (12% EPS growth plus 3% dividend yield). That’s with relatively high-visibility unit growth (6%+) and free cash flow (6%+).
“Given this powerful growth algorithm, we believe shares could be worth $108 in five years, which implies an over 100% return assuming reinvested dividends” sums up the analyst.
Interestingly, we can also see that QSR boasts only buy ratings from analysts in the last three months. See what other Top Analysts are saying about QSR.
7. Xylem (XYL– Research Report)
Last but not least comes Xylem. A well positioned water pure-play is how RBC’s Deane Dray (Track Record & Ratings) describes the stock.
Xylem is the largest publicly-traded US water equipment and services pure-play company. This sets the company up for a strong 2019.
As Dray explains “With investors increasingly nervous over the industrial cycle peaking and a potential economic deceleration, we expect defensive names with long-term megatrend appeal and a dedicated base of water-focused investors like Xylem to benefit from any prospective risk-off market rotation.”
And Xylem specifically offers attractive scarcity value. This is thanks to its differentiated water treatment know-how, including its early-mover advantage in the relatively new arena of smart water networks. “Broadly, we continue to be impressed by Xylem’s leverage to the sustainable/defensive megatrends of water quality, water scarcity, and water security” concludes Dray. See what Top Analysts say about XYL.
Enjoy Research Reports on the Stocks in this Article:
CVS Health (CVS) Research Report
GDS Holdings (GDS) Research Report
Lululemon (LULU) Research Report
Prudential Financial (PRU) Research Report
Restaurant Brands (QSR) Research Report
Find fresh investing inspiration with the TipRanks Analysts’ Top Stocks tool. This tool gives you the lowdown on the most popular stocks from the Street’s top analysts. These are the analysts that consistently outperform. You can find ‘Strong Buy’ stocks in the sector that interests you now. Go to Analysts’ Top Stocks now.
