The Federal Reserve is holding its November meeting today and is widely expected to announce a fourth consecutive 75 basis point rate hike. Of course, the likely move by the Fed is in response to continued high inflation – but additional context is needed. Recent earnings reports, especially among the tech giants, have been dismal (Apple being the exception), the housing market and consumer savings rates both falling; All of this fuels recession fears, which higher rates will only exacerbate.
However, in this bleak outlook, a prominent bear is actually offering a glimmer of hope. Morgan Stanley strategist Mike Wilson believes the Federal Reserve will soon move away from higher interest rates and monetary tightening, and the S&P 500 could rebound to as high as 4,150, or 6%, in the second half. early next year.
Noting that markets have shown strong gains recently, despite poor Q3 earnings reports, Wilson said, “This kind of price action isn’t unusual late in the cycle, especially as the Fed moves forward. close to the end of our tightening campaign, which we think is approaching.” And if the tightening cycle is coming to an end, investors should start planning for a recovery.
Against this backdrop, Morgan Stanley stock analysts have picked out two stocks for investors to consider, predicting a 40% gain or better next year. Run the code through TipRanks databasewe learned that each received a “strong buy” consensus rating from the rest of the street.
Targa . Resource Corporation (TRGP)
We’ll start with Targa Resources, a mid-sized company in the energy industry. Targa’s network is centered around the company’s home state of Texas, and extends from the Texas-New Mexico and Oklahoma border through Texas to the Gulf Coast and into Louisiana. In addition, the company has assets in North Dakota, in the Badlands. Targa’s assets include natural gas and NGL pipelines, terminals and collectors, fractionation equipment, LPG export facilities, and gas plants. The company is one of the largest independent midstream operators, with a market capitalization in excess of $15 billion.
Targa’s stock has been volatile this year, but overall the company has benefited from high prices in the natural gas market. TRGP shares are up 34% so far and have been up since the end of September.
The company will report its results for the third quarter of year 22 on November 3; meanwhile, it might be beneficial to look back at Q2. Targa showed just over $6 billion in total revenue in the second quarter, up 77% year over year, and net income of $596.4 million. The company had a distributable cash flow in Q2 of $533.4 million — an important metric, as it supports dividends.
Targa last declared its dividend on October 13 for the third quarter, with payouts on November 15 at 35 cents per common share. This is the fourth quarter in a row that the dividend is at this level. The annual payout of $1.40 per share of common stock yields a return of 2%, in line with the broader market average.
5 star analyst Robert Kad wrote Morgan Stanley’s view of Targa and believed the company was poised to become profitable in the future.
“We wanted the opportunity to engage in yield recovery through favorable basin positioning and improved gas exposure under GOR rather than demanding a strong commodity price call… Potential catalysts include upward adjustments to estimates and return, with focus now likely to shift to universal share Kad noted.
These comments support Kad’s Overweight (i.e. Buy) rating on the stock, while his $108 price target suggests a 12-month upside potential of ~58%. (To see Kad’s achievements, click here)
Overall, the last 7 analyst reviews of Targa have been positive, making Strong Buy’s consensus rating on the stock unanimous. Targa shares are selling for $68.37, and the $97.29 median price target shows a ~42% gain from that. (View TRGP stock forecast on TipRanks)
Avantor, Inc. (AVTR CHI)
The second stock we’re looking at, Avantor, is a Pennsylvania-based chemicals and materials company that provides important products and services to customers in the bio-care, biologicals, and healthcare industries. health, applied materials, education and government. Avantor distributes more than 6 million products worldwide and employs more than 13,000 people globally. The company boasts a market capitalization of more than $13 billion, as well as more than 200 facilities in 30 countries.
The company reported its Q3 22 results on October 28 and showed peak profit of $1.86 billion and adjusted EPS of 34 cents. These numbers are almost unchanged from year to year. At the same time, the company’s third-quarter revenue just beat estimates and EPS was one cent higher than forecast 33 cents.
While Avantor has been able to stay profitable through this year’s market swings, the company’s stock is still down 52% since January.
However, Morgan Stanley’s Tejas Savant consider the company’s current position as an opportunity for investors to buy. Taking this position, Savant writes: “There are certainly some short-term challenges ahead for AVTR to address, particularly regarding the performance turnaround at Masterflex/Ritter and work on standardizing inventory post-COVID, in addition to navigating the uncertain/worsening macro backdrop, especially in Europe. However, in light of the steep pullback, we view the ’23 reset as essentially an attractive risk/reward support clearing event for patient investors… “
To this end, Savant evaluates AVTR stock Overweight (i.e. Buy) and places a $28 price tag to suggest a one-year gain of ~40% over the next 12 months. (To see Savant’s achievements, click here)
The Strong Buy consensus rating for Avantor stock is supported by 14 recent Wall Street analyst ratings, including 11 Buy and 3 Hold. Street’s average target of $27.92 is practically the same as Savant’s. (View AVTR stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important to do your own analysis before making any investments.