JPMorgan: 3 Stocks That Could Climb Over 35%


Last week saw the strongest stock market gains in 46 years, as a bear market rally sparked a surge of opportunistic buying and investor confidence. Investors appear to have gotten used to the idea that times are bad right now; the shock has worn off, and traders are willing to buy again despite heightened risk.

In a technical analysis report on recent trading, a JPMorgan team led by Jason Hunter, advised, “Key tactical support rests at 2350-2386. Breaks below would open the door for a more substantial retest of the Mar low. If that unfolds, we expect support in the 2100s to hold. We believe that area marks a floor for the market this quarter. Look for 2750-2850 area to cap rallies over that period.”

In the meantime, investors will be looking for stocks to buy and JPMorgan analyst Jimmy Bhullar has tagged three as potentially strong investments. Each offers buyers a reliable dividend with at least 2.5% yield, and, in Bhullar’s view, at least 30% upside in the coming year. We’ve opened up the TipRanks database, and pulled up the details on Bhullar’s stock picks.

Reinsurance Group of America (RGA)

First on our list is a $6.75 billion mid-cap player in the insurance industry. Reinsurance Group of America is a holding company, whose subsidiaries hold assets worth more than $76 billion and underwrite some $3.5 trillion worth of life insurance. The company’s offered policies, in life and health-related reinsurance, allow customers to manage both risk and capital.

Insurance is a cash-rich niche, and RGA brought in $14.3 billion in total revenue last year, realizing a net income of $870 million. This came out to $13.62 per share, a high figure by any measure. The company’s solid financials allow it to maintain its 70-cent quarterly dividend, a payment that has held steady for the last three quarter and been raised three times in the last three years. RGA has a 20-year history of keeping up its dividend; the rock-solid reliability – common among insurance giants – makes up for the small yield of 2.5%. Even at that low level, the dividend yield still outpaces the S&P average and US Treasury bonds.

Bhullar reviews RGA while looking squarely at the COVID-19 epidemic – a sensible approach to a life insurance company in such a time. He notes that RGA holds a strong defensive position, with plenty of liquid assets available to meet claims, pointing out that the USA has seen “about 2.8 million deaths in the U.S. in each of the past two years, and an average of about 45k deaths from the flu over the past five years. While tragic, virus related deaths are relatively modest in this context.”

Bhullar goes on to upgrade RGA from Neutral to Buy, even though he admits that COVID-19 presents an earnings risk to the company. He says of RGA’s prospects going forward, “Potential COVID-related claims [are] a key risk, but we feel that this is already reflected in the stock price and the company is defensively positioned otherwise… Our fundamental outlook for RGA remains positive. We project the company to generate a strong ROE and steady EPS growth over time, helped by rational price competition in the U.S. life reinsurance industry, attractive growth potential in foreign markets, and a defensive business mix.”

Bhullar backs up his upgraded Buy rating with a $150 price target implying an upside here of 38%. (To watch Bhullar’s track record, click here)

The Street largely seems to echo Steves’ positive sentiment, considering TipRanks analytics showcase RGA as a Buy. Out of 5 analysts polled by TipRanks in the last 3 months, 3 are bullish on Reinsurance stock, 1 remains sidelined, and 1 is bearish on the stock. With a potential upside of 18%, the stock’s consensus target price stands at $128.80. (See RGA stock analysis at TipRanks)

MetLife, Inc. (MET)

You probably know MetLife, or at least you remember its old TV commercials, which featured Snoopy in the late 1980s. The company still uses the iconic character in its advertising, paying as much as $12 million annually for the licensing rights. And that shows the underlying strength of Met Life. The company brings in some $68 billion in annual revenues, and sees a net income of $5.7 billion. And with a $31.4 billion market cap, MetLife can afford the licensing rights on a property as valuable as Peanuts.

Finishing up 2019, MET reported strong earnings for the final quarter, beating the estimates by 41%. Full-year EPS, at $6.06, was up 23% year-over-year, on the income of $5.7 billion mentioned above. Before the bottom fell out of the markets, MET shares had gained 23% in 12 months.

MET’s dividend is solid, as the financials would suggest. The most recent quarterly payment, made on March 13, was 44 cents, a payment which has been steady for the last four quarters. MET has paid out reliably, and gradually increased the dividend, for the last 7 years. At 22%, the payout ratio shows that MET can easily afford the dividend at current income – and has plenty of room to let it keep growing. The yield, of 5.2%, is more than 2.5x the average among MET’s S&P listed peer companies.

Looking at MetLife, Bhullar takes the long view. He admits that Q1 will likely see a decline in earnings, and that foreign exchange will be a headwind for this international insurer, but believes that the strengths overbalance the vulnerabilities. The analyst wrote, “Our outlook for MetLife remains constructive given its leading franchise in the group benefits business, where the company is expanding in the voluntary and small/mid-group insurance markets… Valuation is compelling as well as MET trades at a discount to the sector.”

Bhullar’s $59 price target on MET is highly bullish, and indicates his confidence in a 68% upside for the stock. This is in-line with his Buy rating.

Met’s Moderate Buy analyst consensus rating is based on 5 Buy ratings along with 3 Holds. The stock is trading for $35.09 and the $44.13 average price target implies a valuable upside potential of nearly 29%. (See MetLife stock analysis on TipRanks)

Lincoln National Corporation (LNC)

Third on today’s list is another financial holding company, heavily involved in the insurance sector. Lincoln is based in Pennsylvania and the company’s subsidiaries operate the business segments. LNC’s operations are divided into four segments: annuities, life insurance, retirement plan services, and group protection.

Lincoln showed mixed earnings results at 2019 drew to a close. The company saw EPS, at $2.41, miss the forecast while showing year-over-year growth of 12%. Revenues showed the opposite pattern, edging over the estimates but contracting slightly yoy. The top line came in at $4.5 billion. All four main business segments showed modest growth in the quarter. Backing its policies, Lincoln holds assets in excess of $334 billion.

Like the other stocks in this list, LNC pays out a generous dividend. The yield, at 4.9%, is high, and made more attractive by the company’s reliable 11-year history of dividend maintenance. This stock shows the lowest payout ratio of the three listed, at just 16%. The annualized payment is $1.60 per share.

Covering LNC for JPMorgan, Bhullar sees the stock as both a long-term with compelling risk-reward and an undervalued buying opportunity. He rates the stock a Buy, and backs that with a $76 price target – showing that he believes there is a whopping 145% upside potential in these shares.

Supporting his view, Bhullar writes, “In our opinion, LNC’s strong franchise, superior product development capabilities, and broad distribution will drive healthy organic growth over time…  we feel that investors do not fully appreciate the better quality of its in-force book compared with most peers’… LNC trades at a sizable discount to the sector…”

With 9 recent reviews, including 4 Buys and 5 Holds, LNC has a Moderate Buy rating from the analyst consensus. The stock sells for $33.65, while the $46.89 average price target indicates room for a robust 45% upside potential. (See Lincoln National stock analysis on TipRanks)

To find good ideas for financial stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

 

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