The markets are on the rise, and will likely continue to rise – that is the view of Brian Belski, chief investment strategist at BMO Capital, in recent comments on what he describes as a cyclical bull run. The strategist predicts that the S&P 500 will reach a level of 6,700 next year, which would translate into a gain of ~12.5% from current levels.
Belski sees two main factors supporting such gains: a combination of better-than-expected earnings growth and the Fed’s return to a policy of looser money supply and lower interest rates. Belski describes both this way: “We see that the easing effect is real… Look at the other 490 stocks in the S&P 500; their earnings growth is growing much faster… If you look at monetary policy and fiscal policy, that’s what’s really driving the markets, and the train has left the station on loosening monetary policy.”
With potential profits on the horizon, there will undoubtedly be plenty of opportunities for investors – and Belski’s colleagues among BMO’s equity analysts are busy pointing out those opportunities now, while there’s still plenty of time to buy.
Using the TipRanks database, we retrieved the details of two of their picks. Here they are, along with commentary from BMO’s analysts.
Axalta coating systems (AXTA)
First up is an industrial stock, Axalta Coating Systems. We don’t often think of paint or other protective coatings, but they are an essential part of many mechanical systems, for example protecting vulnerable parts or lubricating moving parts, and Axalta, a mid-cap company valued at more than $8 billion, is a prominent player in the industrial coatings niche. The Philadelphia-based company produces multiple coating lines, primarily powder coatings, and has a strong presence in the transportation sector; Axalta products are popular in the automotive and construction industries and are used in metal finishing processes.
In addition to powder coating, Axalta also produces lines of liquid coatings – what we normally call “paint,” but that simple term covers a wide range of high-tech, performance-oriented coating products. As with powder coatings, liquid coatings are frequently used in the automotive industry, as a finishing layer on cars, commercial vehicles and even industrial vehicles.
Axalta is no stranger to the industrial scene. The company has been around for more than 150 years and works with more than 100,000 customers in more than 130 countries. In 2023, the company generated a total of $5.18 billion in revenue, a gain of 6.1% year over year.
In its most recent quarter, 3Q24, Axalta reported revenue of $1.32 billion, described as a company record. This was in line with expectations, although annualized gains were less than 1%. The company’s earnings, 59 cents per share by non-GAAP measures, were 8 cents per share above expectations – and up 31% year over year. Axalta had $567 million in cash and other liquid assets at the end of the third quarter. Free cash flow in the third quarter was $164 million, compared to $182 million in the year-ago quarter; however, free cash flow for the first nine months of 2024, $274 million, was significantly higher than the $193 million 9-month FCF reported for January through September 2023.
For BMO’s John McNulty, the main attractions of this stock are free cash flow and earnings per share growth. He says of the stock: “AXTA is easily outperforming its end markets as execution of cost-efficiency initiatives, new business and robust FCF drive earnings growth in excess of 35-40% per share. With significantly more remaining in AXTA’s transformative and network optimization costs, and an increased focus on revenue growth (with long-term margin targets already achieved), AXTA should continue to deliver solid DD EPS growth and record ROCE over the next few years . year. All this and modest multiple expansion should push the stock into the mid/upper $40s. AXTA remains a top choice for SMID caps.”
McNulty’s view supports his Outperform (Buy) rating on AXTA stock, while his $48 price target suggests a one-year upside of 20.5%. (To view McNulty’s track record, click here)
The overall consensus on AXTA from Street analysts is a Strong Buy, based on 10 ratings with a 9-to-1 split favoring buy over hold. The shares are priced at $39.78 and their average price target of $44.90 implies a 13% upside over twelve months. (To see AXTA stock forecast)
Nutrien, Ltd. (NTR)
Next on our list is an industrial scale farming operation. Nutrien was founded in 2018 through a merger transaction in the agricultural sector, and since then the Saskatoon-based company has developed into a more than $20 billion player in the global potash industry. This is vital to agriculture, as potash is an essential ingredient in modern fertilizers, and Nutrien is the world leader in crop inputs and services – i.e. the production, distribution and retailing of the potash, nitrogen and phosphate products. necessary so that global agriculture can feed the world.
Nutrien’s retail network supports over half a million growers around the world. To support this, the company employs more than 26,000 people, invests millions in farming communities and operates in more than 50 countries.
The global large-scale agricultural industry is one of the largest economic sectors in the world, and Nutrien leveraged that to generate more than $29 billion in revenue last year. In the company’s last reported quarter, 3Q24, Nutrien raked in $5.35 billion in revenue, down 5% year over year – although some $120 million earlier than expected. Operating income, reported as non-GAAP earnings per share, was 39 cents per share; this was 6 cents per share lower than expected.
Despite these misses, Nutrien maintained its quarterly dividend, which was set earlier this month at 54 cents per common share. This was the fourth consecutive payment at this level, and the 28th quarterly dividend payment in a row. The dividend is expected to be paid on January 17; the $2.16 annualized payment yields a forward yield of 4.5%.
During the third quarter of 24, Nutrien started an active share buyback program. As of November 5, 2024, the company has repurchased approximately $75 million worth of its own shares.
BMO analyst Joel Jackson sees potential headwinds in his coverage of Nutrien, but believes the upside here outweighs the negative, making the risk worthwhile. He writes: “Potash demand continues to improve and prices appear to have bottomed out (Lukashenko seems stressed about these prices, doesn’t he?), while European gas premiums remain supportive for nitrogen. The buyback has also started again. There are certainly concerns that retail will struggle to grow to $2 billion in a few years, although at current multiples (our target is ~7.5x EV/EBITDA in 2025) NTR looks attractive, with upside risk greater then appears to be the downside risk.”
Jackson gives this stock an Outperform (Buy) rating and a $70 price target, implying a 49% one-year upside potential. (To watch Jackson’s track record, click here)
This stock has a consensus rating of Moderate Buy, based on 16 analyst ratings, including 9 Buys, 5 Holds, and 2 Sells. The shares are priced at $46.87 and their average price target of $56.79 suggests a 21% upside over one year. (To see Nutrien’s 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 for informational purposes only. It is very important to do your own analysis before making an investment.
