• Profit taking: The bear market rally is running out of steam
• Portfolio hedging with health, energy and food
• Three market-beating companies promise double-digit returns
The recent positive development of the stock market is not pointing the way for further development, states Mike Wilson, chief US stock strategist at Morgan Stanley. Recent stock rally is running out of breath: “The bear market rally is hitting our original resistance levels – it’s time to fade them out,” he told TipRanks, predicting the return of the bear market.
With the current poor risk/reward trade-off, Mike Wilson recommends stocks in the healthcare, utility and staples sectors. To counter the continued volatility, Morgan Stanley analysts are highlighting these three companies that hit the market in 2022: United Therapeutics, NextEra Energy, and Hostess Brands.
United Therapeutics stock: high-flyer in healthcare
United Therapeutics stock is up nearly 30 percent year-to-date (closing price December 13, 2022) and beat earnings and revenue estimates. In the annual report for the past quarter, the company reported an increase in sales of 16.03 percent compared to the previous year at the beginning of November. Earnings per share were $3.42 compared to $4.91 per share in the same period last year.
The Morgan Stanley analysts point to the approval of five drugs, all of which have contributed to the increase in sales. According to the annual report, United Therapeutics was able, among other things, to increase the number of patients treated with the drug Tyvaso by 66 percent. Research and development spending, on the other hand, was reduced by 17 percent to $66.1 million. According to a NASDAQ article, Zacks Equity Research expects an above-average return for the share in the coming months and rates the stock as “buy”; provided with a VGM score of A and a growth score of B.
According to TipRanks, Morgan Stanley analyst Terence Flynn sees growth as being secured by various internal factors, such as the Medicare coverage that came into force in June or license extensions. He describes United Therapeutics as “undervalued, even compared to other medium-sized companies” and forecasts annual profits of around 18 percent for investors. As a result, he has given United Therapeutics a “buy” rating multiple times, most recently on December 6, 2022, with a price target of $330. The average price target for the stock (eleven analysts) on TipRanks is $293, ranging from $230 to $375. The stock is currently trading at $276.43 (closing price on December 13, 2022).
NextEra Energy Stock: A utility with defensive qualities
With a market capitalization of over 100 billion US dollars, the energy supplier NextEra Energy, which is listed in the S&P 500, is the largest producer of renewable energies in the USA (information on the company website). The energy giant, which operates across North America with focal points in California, Florida and the East Coast, is also considered one of the largest investors in infrastructure. While subsidiary NextEra Resources operates the world’s largest wind and solar farms, the company also generates energy from nuclear power and natural gas.
In the most recent quarter, NextEra Energy generated $6.72 million in revenue, up 53.75 percent from the same quarter last year. Earnings per share for the third quarter were $0.85, an increase of approximately 13 percent compared to the same quarter last year. The company easily exceeded all analyst expectations. A quarterly dividend payout of currently $0.42 also makes the stock attractive. The return of 2 percent paid out in recent years strengthens the defensive qualities of the stock – it is comparatively low compared to the industry average, but the trend is rising.
According to TipRanks, Morgan Stanley analyst David Arcaro points to “robust growth in the renewable energy backlog, likely earnings growth from the Individual Retirement Account (IRA), and lower than expected interest rate risk.” The exceptionally good positioning of the company and the EPS growth outlook of up to 8 percent not only make the Morgan Stanley analysts bullish on the share: the nine analysts listed on TipRanks see the price target as an average of USD 92.89 (highest USD 100 -dollars, lowest US$81.00). This corresponds to an increase of 6.59 percent compared to the current price of $87.15 (closing price December 13, 2022). David Arcaro’s buy recommendation for the stock, which is down around 7 percent since the start of the year, is a price target of $95.
Hostess Brands Stock: Grocery Giant Surpasses Expectations
US food giant Hostess Brands, which sells brands such as Ding Dongs, Donettes, CupCakes, Twinkies and Zingers, specializes in packaged sweet snacks. The leader in this segment generated revenue of $346.2 million in the third quarter, an increase of 20.23 in revenue compared to the same quarter last year. Earnings per share are reported at $0.23, an increase of nearly 10 percent over the prior year. The company thus exceeded analysts’ expectations and was able to raise its sales forecast for the full year. The stock closed at $23.86 on December 13, 2022, up 17.24 percent since the beginning of the year.
According to TipRanks, Morgan Stanley analyst Pamela Kaufman attests to the company’s “strong implementation, driven by innovation, marketing and data analysis” and sees a double-digit increase in sales for her “Top Pick in Packaged Food” for the second year in a row. The price target for the stock, which is rated “Overweight,” is set at $30 and envisages a return per share of 19 percent in the coming year. The average target price of the six analysts listed on TipRanks is $29.17 (high $31.00, low $27.00).
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