Beyond the ASX 200: Top 5 US stocks for investors to watch in 2020
We look at five US-listed stocks that Australian investors may consider worth watching in the months ahead.
Beyond the ASX 200: The case of underperformance
Australian indices have struggled to gain much traction in recent times, underperforming their US counterparts year-to-date – with the ASX 200 benchmark down around 7% since January, opening Wednesday’s session at the 6,195 point level.
Broadly speaking, tech – or more accurately big tech – has been the winner of the coronavirus pandemic, as more and more people work from home, spend more time in-doors and travel and movement restrictions see activity across a number of key sectors flail – such as bricks and mortar retail, tourism and air travel.
Against this lens, the broad underperformance of Australian equities should come as little surprise, given the index’s heavy weighting towards financials, materials, and healthcare.
The S&P 500, by comparison, is weighted predominately towards tech and, importantly, skewed towards a handful of mega-caps – with Apple, Alphabet, Amazon, Facebook and Microsoft accounting for more than 20% of the index.
Of course, tech has its own set of detractors, with many labelling the space overvalued. Indeed, tech stocks, having run up strongly from March to September continue to trade at elevated valuations, with the likes of Amazon and Netflix still trading on well above-market earnings multiples, touting PE ratios of 126x and 90x, respectively.
With all this considered, below we look beyond the ASX 200 benchmark and highlight five US-listed stocks from Morgan Stanley’s ‘Fresh money buy list’, including:
For reference, Morgan Stanley has Overweight ratings on all five of these stocks.
5 US Stocks for investors to watch in 2020
Below we provide a brief summary of the above listed stocks, including their year-to-date performance, their current share price and Morgan Stanley’s respective price targets (PT).
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Citizens Financial Group share price: -31% YTD
Though Citizens Financial Group reported robust revenue growth in the second quarter of fiscal 2020, the bank saw its earnings slide – with Q2 net income coming in at $253 million, down significantly from the $453 million recorded in Q2 of FY19. Earnings per share also came in lower, at 53 cents.
Though the company's bottom-line has suffered, the bank remains well capitalised, reporting a CET1 ratio of 9.6%.
Commenting on these quarterly results, the bank's Chairman and CEO, Bruce Van Saun said:
‘We successfully navigated the challenging external environment, taking great care of customers and colleagues, while demonstrating the diversification and resilience of our business model.’
Looking forward, Citizens is set to report its third quarter earnings results on 16 October.
Morgan Stanley has a price target of $33.00 on Citizens Financial Group.
Linde share price: +11% YTD
Linde PLC – a German-American chemicals company – has seen its share price trend moderately higher since January, potentially driven by investors looking to gain exposure to defensive assets.
Indeed, despite the pandemic, the company’s cash flows and other key metrics have remained resilient, with Linde in the second quarter reporting:
- Adjusted income from operations of $1,005 million, up 1%
- Operating cash flow of $1.8 billion, up 76%
- Flat operating profit margins
- Earnings per share (EPS) of 87 cents per share, down 7%
Speaking of the current outlook, Linde’s CEO – Steve Angel – said:
'Looking ahead, the full effects of COVID-19 and the rate of recovery are uncertain. However, the growth opportunities for Linde remain strong from our high-quality project backlog, defensive end markets and leading infrastructure and technology in support of the secular trend in clean energy.'
Morgan Stanley has a price target of $275.00 on Linde.
Ally Financial share price: -10% YTD
Set against a backdrop of historically low interest rates and macroeconomic uncertainty – Ally Financial's share price trajectory has broadly followed that of Australia’s banking complex – with the stock down approximately 10% since January.
In spite of that, Ally Financial posted stable Q2 revenues of $1.53 billion and a sharp rebound in earnings per share from the quarter prior.
Elsewhere, Ally has also seen its total deposits continue to grow – hitting $131.0 billion in Q2 FY20. The bank's preliminary CET1 ratio stood at 10.1% in Q2, which, the bank said:
‘Reflects strong overall capital position and earnings growth along with lower commercial floorplan balances and suspension of share repurchase program.’
Morgan Stanley has a price target of $31.00 on Ally Financial.
Humana share price: +19% YTD
Despite the pandemic – Humana Inc, which operates in the health insurance space – reported an impressive set of Q2 figures, well up on a PCP basis.
Specifically, Humana reported Q2 (GAAP) revenues of $19,083 million; against pre-tax (GAAP) income of $2,586 million. In Q2 FY19 those figures stood at $16,245 million and $1,229 million, respectively.
This equated to the company delivering adjusted (GAAP) earnings per share of $13.75 per share. Looking forward, the company is currently guiding for full-year (GAAP) EPS of between $17.36 to $17.86 per share.
Despite those strong results, the company flagged that it:
‘Anticipates its second quarter results will be offset in the latter half of 2020 as demand for previously deferred care normalizes, combined with the financial impact of the company's ongoing relief efforts to ease the burden of the Pandemic for its constituents.’
Morgan Stanley has a price target of $500.00 on Humana, implying moderate upside potential from current price levels.
PVH share price: -40% YTD
PVH Corp – owner of iconic menswear brands such as Tommy Hilfiger and Calvin Klein revealed the double-edge sword of the coronavirus pandemic as part of its recent second quarter results: Online and digital sales surged, but overall sales fell sharply.
Looking at these results in more detail, for Q2 FY20 and on a year-over-year basis, PVH reported:
- Revenues of $1.58 billion, down 33%
- Revenues from digital channels surged 50%, while it was noted that 'sales through its directly operated digital commerce businesses [were] up 87%’
- Earnings per share came in at negative 72 cents per share, down from 13 cents per share from the prior corresponding period and on a non-GAAP basis.
Despite this challenging operating environment, PVH’s CEO – Emanuel Chirico – said:
‘Our second quarter revenue exceeded our expectations, reflecting better than expected performance in all our markets and channels. We continue to see outperformance in our digital businesses and across our comfort and casual assortments.’
Looking ahead, Mr Chirico added that:
‘As we head into the third quarter, trends in China and Europe continue to be very encouraging.’
Morgan Stanley has a price target of $87.00 on PVH Corp.
How to trade US listed stocks – long and short
As an Australian investor, you can use CFDs to trade both rising and falling markets, including the stocks we have discussed today as well as other key US shares, through IG’s world-class trading platform now.
For example, to buy (long) or sell (short) Apple using CFDs, follow these easy steps:
- Create an IG Trading Account or log in to your existing account
- Enter ‘Apple’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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