2024 has really gotten rolling, and the chief issue for investors is finding the best portfolio composition to take advantage of a likely bullish environment. John Stoltzfus, chief investment strategist at Oppenheimer, believes that the main factors to consider this year will likely be continued economic resilience and a policy shift by the Federal Reserve toward cuts in interest rates. Stoltzfus sees as many as four rate cuts coming this year, but suggests that three are more likely.
Getting to specifics, Stoltzfus advises investors to stick with stocks – but also to diversify. A broader base of portfolio holdings is a good idea, generally. In current conditions, combining both bullish sentiment and a degree of market uncertainty, a diverse investment base, to Oppenheimer, looks like the best way to cash in on the markets.
As Stoltzfus puts it, “The recent turnaround showed value in ‘staying the course.’ In our view, the sharp reversal in the direction of bond yields and the attendant rally in stocks illustrated the importance of investor patience and adherence to diversified portfolio allocations. The rally in bonds and the upturn in stock indexes occurred in a relatively short period of time, from the end of October into November, highlighting a need to stay invested… We remain positive in our outlook for stocks as prospects for improved fundamentals this year show potential to be realized.”
Following this course, the stock analysts at Oppenheimer have been picking out a varied array of equities for investors to consider. These are the shares that the investment bank recommends as Buys, believing now is the time to “pull the trigger” on them. We’ve used the TipRanks database to find out what the rest of the Street has to say about their recent picks. Let’s take a closer look.
Albemarle Corporation (ALB)
We’ll start in the chemical industry, with Albemarle. This company, from its North Carolina base, operates through three main divisions: lithium refining, bromine refining, and chemical catalysts. Albemarle has, in recent years, become a major player on the US lithium scene, and is an important domestic supplier of battery-grade lithium in the electric vehicle industry. The company is active in the global lithium chain, and sources the element from multiple locations, including mines in Nevada, Australia, and Chile.
One of Albemarle’s more important moves is its 49% stake in Talison, a West Australian firm working in both the production and refining of lithium. Talison has been working its Greenbushes mining ops for over 20 years, and recently embarked on a $320 million expansion project, building out a second chemical-grade lithium concentrate production facility.
This is part of Albemarle’s ongoing work to maintain itself as a global leader in the reliable supply of high-quality lithium. The company puts a priority on building a responsible extraction and supply network for the lithium industry.
Headwinds in the lithium industry, including drops in raw material prices and lower prices on the lithium commodity markets, put pressure on Albemarle over the past year. The company saw declines in both revenues and earnings during 2023, and its share price has fallen by more than 52% in the last 12 months. The last quarter, however – 4Q23 – showed a potential turnaround, as both the top and bottom lines beat the forecasts.
In its 4Q23 report, Albemarle showed quarterly revenues of $2.36 billion. While down almost 10% year-over-year, this figure beat expectations by $180 million. The company’s bottom line earnings came to $1.85 per share by non-GAAP measures, an EPS that was 74 cents ahead of the forecast. The company also announced a set of active measures designed to ‘unlock’ more than $750 million in cash flow going forward. These measures include reductions in capital expenditures and costs.
From Oppenheimer, 5-star analyst Colin Rusch sees reason to buy ALB shares now, citing the company’s recently improved financial performance and its move toward cash generation. He writes, “With ALB resetting expectations on financial performance and tweaking how it reports EBITDA relative to the Talison JV, we believe the company is establishing a floor on estimates for cash flow, ROI on new capex, and demonstrating its ability to effectively navigate the bottom of the lithium growth cycle. We are encouraged to see the optionality in ALB’s capex spend giving it flexibility to adjust timing and remain in compliance with debt covenants. We believe cell and vehicle inventories are rebalancing and channel health will likely improve with normal seasonal strength in vehicle sale as weather improves. We anticipate the next 4-8 weeks will be instructive on timing for a recovery on lithium prices. We remain bullish…”
Putting this into quantifiable terms, Rusch goes on to give the shares an Outperform (Buy) rating, with a $188 price target that implies a 12-month gain for the stock of 64%. (To watch Rusch’s track record, click here)
The Oppenheimer view is one of the Street’s more bullish ones. The 18 recent analyst reviews here break down to 9 Buys, 8 Holds, and 1 Sell, for a Moderate Buy consensus rating – while the $114.82 trading price and $144.11 average target price together suggest the stock will appreciate 25.5% by the end of this year. (See Albemarle’s stock forecast.)
DraftKings (DKNG)
Next up is DraftKings, a leader in the world of online sports betting and fantasy sports leagues. DraftKings is best known for its online sportsbooks, that allow customers to bet on a comprehensive package of professional sport leagues, and for its fantasy leagues, that let customers build their ‘dream teams’ and bet on their performance. DraftKings makes its online sports betting and other products available in 23 states, and covers most domestic and international professional sports, including football, baseball, basketball, hockey, and international soccer. In addition, the company also covers college basketball, which is not professional but is enormously popular. The company has also made inroads into online casino gaming.
DraftKings bases its success on a simple formula, of getting sports fans more excited about the game – enough to place bets. The company sums that up by saying that the games are more alive when fans have some skin in them.
Earlier this month, DraftKings announced an important acquisition, one that promises a solid expansion of the company’s online gambling offerings. On February 15, DraftKings announced an agreement to acquire Jackpocket, the leader among US online lottery apps. The transaction is valued at $750 million, of which 55% will be paid in cash and 45% will be paid in stock. DraftKings expects that the Jackpocket acquisition will drive between $60 million and $100 million worth of adjusted EBITDA by fiscal year 2026. Pursuant to shareholder approvals, the deal is expected to close during 2H24.
Also this month, DraftKings released its financial results for Q4 and fiscal year 2023. For the quarter, the company had a top line of $1.231 billion, up 44% when compared to the prior-year period’s $855 million. The company had an adjusted EPS of $0.29 in non-GAAP measures, compared to the 14-cent EPS loss in 4Q22. When compared to the forecasts, the Q4 revenue came in just $10 million below expectations, while the EPS beat by 11 cents per share. DraftKings finished 2023 with deep pockets, reporting $1.27 billion in cash and other liquid assets.
Oppenheimer analyst Jed Kelly covers DraftKings, and he is impressed by the company’s ability to navigate the difficult regulatory landscape, noting that rules can change from state to state, but this company finds ways to make them work in its favor. He is also upbeat on the Jackpocket acquisition. Summing up, Kelly writes, “Investor conversations imply all-time high sentiment, and outside any unforeseen regulatory developments, we see a conducive operating environment to achieving medium-term profitability targets (one meaningful competitor). We believe Jackpocket acquisition (5.5x ‘24 revenue, growing 70%) will enhance cross-selling opportunities while providing valuable databases in states such as TX. Additionally, DKNG’s regulatory relationships likely accelerate states adopting digital lottery capabilities. Expecting NC to have similar launch dynamics as OH/MA (both states achieved contribution profit in two months. Forecasting ‘24E incremental margins of 55% on revenue growing 2,800bps faster than Opex.”
These comments support Kelly’s Outperform (Buy) rating here, and the analyst raised his price target to $60 (from $55), to suggest a one-year upside potential of 45%. (To watch Kelly’s track record, click here)
That Wall Street likes DraftKings is clear from the Strong Buy consensus rating, based on 27 recent reviews that include 23 Buys, 3 Holds, and 1 Sell. The shares are currently priced at $41.32 and the average price target of $47.62 implies a gain of 15% on the 12-month horizon. (See DraftKings’ stock forecast)
Hannon Armstrong (HASI)
Last on our Oppenheimer-endorsed list is an Annapolis-based investment company that specializes in taking a ‘climate positive’ stance on capital investments. Hannon Armstrong has over $12 billion in managed assets on the books, mainly in assets that will facilitate an energy transition to a cleaner future. The company has taken a proactively positive stance on this, requiring that all of its prospective investments be either neutral or negative on incremental carbon emissions, or barring that, that they offer some other tangible benefit to the long-term climate future.
Hannon Armstrong has been standing on this principle for over 40 years, and has built up an impressive portfolio of assets that fall into three broad categories. The largest is ‘behind the meter,’ dealing with energy efficiency and distributed solar storage; the next largest is ‘grid connected,’ which is direct assets in wind and solar power generation and power storage; and the smallest portfolio component is ‘fuels, transport, and nature,’ a set of assets involved in renewable natural gas, fleet decarbonization, and ecological restoration.
The company follows four main theses in choosing its investments, to ensure a quality return on climate-friendly capital deployment. The theses include more efficient technology, for a higher economic return; lower portfolio risk through smaller-scale investments; aligning assets with both scientific consensus and societal beliefs, to reduce regulatory costs; and finally, choosing assets with connections to reduced carbon emissions.
Following these rules, Hannon Armstrong delivered total revenue of $86.58 million in 4Q23, up an impressive 48.5% year-over-year, although missing the forecast by $7.5 million. At the bottom line, the company delivered EPS of $0.53, also falling shy of the forecast – by 5 cents. For dividend investors, Hannon Armstrong has declared a 41.5-cent payment for 1Q24, representing an increase of 5% over the previous quarterly dividend. Tracking forward, the new dividend will annualize to $1.66 per share and give a yield of 6.4%.
Despite the recent misses, Noah Kaye, another of Oppenheimer’s 5-star analysts, takes an optimistic look at Hannon Armstrong stock, noting the company’s commitment to both sustainable climate investment and providing solid returns. He says of this opportunity, “We view HASI as a sustainable finance play on the growth of energy efficiency and renewables with a strong management team, a differentiated investment strategy, an increasing deal pipeline, and a track record of earnings and dividend growth. We believe HASI’s business model will enable the company to navigate interest rate risk and identify high-yield niche investments.”
Kaye goes on to set an Outperform (Buy) rating here, along with a $48 price target that shows his confidence in an 85% potential gain for the year ahead. (To watch Kaye’s track record, click here.)
Once again, we’re looking at a stock with a Strong Buy consensus rating. The 8 recent reviews here include 6 to Buy and 2 to Hold, and the $37.14 average price target implies a 43% increase from the current share price of $25.93. (See HASI stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
