We’re in the final lap of 2019, with 2020 in clear sight just ahead, and it’s time to start getting your portfolio ready for the next year. On the international front, where there have been recent worries about slowing growth, there are now some hints of optimism. Deutsche Bank, the German financial giant, pointed out in November that the German economy – Europe’s largest – avoided a technical recession in Q3. This was good news, and is supported by DB’s forecast that Q4 will continue to avoid contraction.
Turning closer to home, we find greater optimism in the US. Market conditions are rising along with a robust general economy. Going by the data, the S&P 500 is up 2.2% in the last 30 days, and 27% in 2019, while the November jobs report showed a 50-year low in unemployment and 266,000 new jobs. And, despite the ongoing trade conflict with China, both the US and Chinese governments appear committed to finding an agreeable solution. It’s no wonder that underlying overall optimism has been fueling market growth.
So, investors should have plenty of stock options to choose from in the new year. But how to choose? The experts at Deutsche Bank have a few ideas, from a variety of industries, and we’ve run three of them through the TipRanks database to find out what makes them so compelling. We’ve found that DB has identified stocks with Strong Buy ratings and plenty of profitable upside potential. Let’s take a closer look.
DuPont De Nemours (DD)
First up is the modern incarnation of the famous DuPont chemical company. With almost $86 billion in revenues last year, DuPont is the dominant force in the US chemical manufacturing sector. The company produces structural and elastic adhesives, fluids, reinforcing composites, foams and coatings, rubber and elastomers, and synthetic fibers, along with food and animal nutrition technologies and water purification systems.
In Q3, DuPont beat both the top and bottom line estimates by modest margins. Revenue at $5.43 billion compared favorably to the forecast $5.41 billion, while the EPS of 96 cents beat the 95-cent estimate. The earnings number is more than sufficient to maintain the current 30-cent quarterly dividend payment. At $1.20 per year, the stock dividend shows a 1.85% yield, slightly lower than the average S&P 500 company.
DuPont has a history of expanding via corporate mergers, and in recent weeks has finalized a merger between the DuPont Nutrition and Biosciences division and International Flavors and Fragrances (IFF). The move will create a company worth over $45 billion, with DuPont holding a 55.4% stake in the combined entity. Fibig will continue to lead the new company, but DuPont will have control of the Board of Directors. DuPont will also receive a $7.3 billion one-time cash payment when the merger is completed.
Deutsche Bank’s David Begleiter sees positives for DD now that this merger deal is announced. He writes, “With certainty and clarity on N&B’s value and future now established, investors will be able to focus on the value of remaining DuPont… And here, we believe valuation is compelling [next year] … before any discount for PFOA liabilities, DuPont shares would be $20-$35 higher…”
Begleiter puts a Buy rating on DD, with an $80 price target implying a 23% upside to the stock. (To watch Begleiter’s track record, click here)
DuPont’s Strong Buy consensus rating is based on 4 recent ratings – 3 Buys and 1 Hold. Shares are selling for $64.89, and the average price target stands at $78.67 — 21% upside. (See DuPont stock analysis on TipRanks)
Mesa Air Group (MESA)
We all complain about air travel, but the truth is, the airlines do a competent job of moving masses of people around the globe. Contenting with high overhead, including aircraft acquisition and maintenance costs, and fuel costs, the airline industry must find a profit in small margins. They do this in a variety of ways. The big companies aim for volume. The smaller regional companies aim to localize volume while improving efficiency.
Mesa Air Group is the parent company of Mesa Airlines, which operates under the names American Eagle and United Express. The various names are due to contract agreements with American and United Airlines. In short, Mesa operates the regional feeder airlines.
It does so at a profit, too. MESA has shown positive earnings in the last two years, with the most recent quarter – Q4 FY19 – showing a substantial sequential gain from Q3. The bottom-line EPS number was 35 cents, compared to last quarter’s 9 cents. Revenues, at $12.2 million, were more than 4 times higher than in Q3. For the full year, the company showed an EPS of $1.36 on a net income of $47.6 million. This was a 43% gain from FY18. Reflecting these gains, MESA stock is up 13.4% this year, although it has underperformed the broader markets.
5-star analyst Michael Linenberg, reviewing this stock for Deutsche Bank, wrote, “Despite unforeseen operational challenges, Mesa managed to deliver solid Sep Q performance. We continue to favor Mesa for its low-cost structure, ample supply of pilots, and attractive growth prospects. We believe the company’s earnings trajectory is being underappreciated by the market, as MESA remains the most attractively priced airline stock in our coverage universe…”
Linenberg backs his Buy rating on MESA with a $13 price target, suggesting a 48% upside to this stock. (To watch Linenberg’s track record, click here)
MESA shares get a unanimous thumbs up from the analyst consensus, with 4 recent Buy reviews adding up to a Strong Buy rating. The stock is attractively priced at $8.75, while the $12.25 average price target indicates room for an impressive 40% growth on the upside. (See the MESA stock analysis on TipRanks.)
Black Knight (BKI)
The third stock on our list, Black Knight, is a tech company, providing data services and analytics to the real estate and mortgage loan industries. This sector has been getting a boost from the strong jobs front in the States, as low unemployment and rising wages are good for home purchases and equity loans.
In the third quarter, which BKI reported in early November, the company saw EPS of 51 cents, beating the estimate by 6.3%. Revenues were in line with the forecast, at $299 million, and beat the year-ago number by 6%. These results are congruent with BKI’s overall performance in recent months – the stock is up an impressive 40% for 2019, and has beaten earnings forecasts in 2 of the past 4 quarters.
After meeting with BKI management last week, Deutsche Bank analyst Ashish Sabadra is upbeat about the company’s prospects going forward. He wrote, “The company remains comfortable with the 6-8% mid-term revenue growth driven by pricing, loan growth at existing customers, platform sales, ancillary solutions, and new product innovations. The company expects to preserve margins in 2020 … and we expect the company to resume mid-term margin expansion target starting 2021.”
Sabadra gives BKI a $68 price target, indicating a 7% upside in the coming year, along with a Buy rating. (To watch Sabadra’s track record, click here)
Black Knight’s strong share appreciation this year has pushed the stock price close to the average price target, limiting the upside. Shares are selling for $63.47 now, with an average target of $67 suggesting room for 5.6% further growth. The stock holds a Strong Buy consensus rating, based on 3 Buys and 1 Hold given in recent weeks. (See Black Knight stock analysis on TipRanks)