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SAUDI'S TO INVEST
NOVEMBER NEWSLETTER 11
TO PAY MORE FOREIGN TAXES
It hasn’t become a roar yet, but it is there quietly. The soft voice of “It’s different this time.” While there is always the outside chance that is indeed the case, the market has ripped higher now for almost two years, with no noticeable pullback since early in 2016. Add in the fact that the parabolic rise in bitcoin has bubble written all over it, the signs are there. The question is, with the stock market still the only viable spot for capital, what is the plan going forward?
One great idea for 2018 is to look at value stocks, which are shares of a company with solid fundamentals that are priced below those of its peers, based on analysis of price-to-earnings ratio, yield and other factors. The analysts at Jefferies regularly have a group of value stock ideas that are rated Buy, and a recent research report highlighted four that look like solid ideas for 2018.
This out-of-favor play could be back in good graces in 2018. Peabody Energy Inc. (NYSE: BTU) is a coal company that is engaged in the mining of thermal coal for sale primarily to electric utilities and metallurgical coal for sale to industrial customers. Its mining operations are located in the United States and Australia.
Peabody’s segments are Powder River Basin Mining, Midwestern U.S. Mining, Western U.S. Mining, Australian Metallurgical Mining, Australian Thermal Mining, Trading and Brokerage, and Corporate and Other. It also markets and brokers coal from other coal producers, both as principal and agent, and trades coal and freight-related contracts through trading and business offices in Australia, China, Germany, India, Indonesia, the United Kingdom and the United States.
It’s been a long road back for the company, and the analysts noted this in the research:
The recent sale of the company’s Burton mine and its closure of a $270M million revolver has freed up $300 million in cash. We estimate the company’s free-cash-flow should average ~56% of its EBITDA over the next 5 years due to its low taxes, capex and interest expense and at current coal spot prices, we estimate their FCF yield would average 20%+ over the next 5 years. We expect management to complete its current $500 million buyback and initiate a dividend in 1Q18. While we expect seaborne coal prices to fall from current levels, we believe the large scale capital returns will drive the share price higher.
The Jefferies price target for the stock is $43, and the Wall Street consensus is $39.00. The shares ended Wednesday’s trading at $35.82 apiece.
This company has been very up and down over the past 52 weeks, and it has frequently been the subject of takeover rumors. Ciena Corp. (NASDAQ: CIEN) is a vendor for high-capacity optical transport and Ethernet switching equipment to carriers, enterprises, cable operators and governments. It specializes in transitioning legacy communications networks to converged, next-generation architectures capable of efficiently delivering a broader mix of high bandwidth services.
The company’s Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, Optical Transport Network (OTN) switching and packet switching. Its products comprise the 6500 Packet-Optical Platform, 5430 Reconfigurable Switching System, CoreDirector Multiservice Optical Switches and OTN configuration for the 5410 Reconfigurable Switching System.
Ciena remains a top pick due to an expected multiyear ramp in 100G optical spending, which should continue to accelerate in 2018. The analysts noted this in the report:
We see multiple tailwinds helping to drive strong sales growth and the stock remains a top pick for 2018. We believe Verizon’s metro 100G buildout will be a focus for 2018 and the company could see catch-up spend from the now combined Centurylink. In addition, the new Waveserver products should likely continue to ramp as additional customers are added. We think mgmt’s guidance for 5% revenue growth in 2018 is likely conservative.
Jefferies has a $32.50 price target for the stock, while the consensus target is down at $26.96. The shares closed trading on Wednesday at $21.50.
Facebook Inc plans to book more revenue in the countries where it sells ads, becoming the latest US tech giant to bow to pressure from foreign governments to simplify its tax structure and potentially pay more income taxes overseas. The social networking company on Tuesday said it plans over the next year to start recording advertising sales made through local representatives in the countries where they are located, rather than funneling that money directly through Ireland, which has a lower corporate income tax rate than many other countries. The move would significantly boost Facebook's revenue recorded in the 27 countries where it plans to make the change, including Germany, Japan, and Argentina. It hopes to complete the move by the first half of 2019.
It is not clear how much the change will boost Facebook's tax bills. The company will start booking costs locally, including for the use of intellectual property. That could potentially offset any new taxable income. There is a lot of money at issue for Facebook, which is making its shift more broadly than some other tech firms. In the third quarter, Facebook generated 57% or $5.85 billion, of its revenue overseas. The change will not affect Facebook's self service ads bought directly on its website by millions of advertisers. Facebook's announcement is the latest example of multinational companies, changing tax practices to cope with tighter practices to cope with tighter rules and pressure form governments especially in Europe.
Stocks recently hit all-time highs, and they were indicated to open marginally higher on Monday. The trend that has continued to prevail is investors buying all the big market sell-offs. Investors are also looking for new investing and trading ideas to generate gains and income ahead.
24/7 Wall St. reviews dozens of analyst research reports each day of the week. Our goal is to find new investing and trading ideas for investors and traders alike. Some daily analyst reports and research reports cover stocks to buy. Others cover stocks to sell or to avoid.
Additional color and commentary has been added on most of these daily analyst calls. The consensus analyst price targets mentioned and other valuation metrics are from the Thomson Reuters sell-side research service.
These were the top analyst upgrades, downgrades and other research calls from Monday, December 11, 2017.
Air Products and Chemicals Inc. (NYSE: APD) was raised to Buy from Hold and the price target was raised to $185 from $166 (versus a $160.92 prior close) at Jefferies. The shares were up 1.4% at $163.17 on Monday morning.
Attunity Ltd. (NASDAQ: ATTU) was started as Buy and assigned a $13 price target (versus a $6.82 close) at Needham. This may be a call for the stock to double, but Attunity, a seller of big data management software solutions, had a market cap of only about $117 million and a consensus analyst target price of $11.83 on last look.
Automatic Data Processing Inc. (NASDAQ: ADP) was raised to Buy from Neutral with a $135 price target (versus a $116.02 close) at Goldman Sachs. ADP has a 52-week trading range of $94.11 to $121.77 and a consensus target price of $112.95.
Bluebird Bio Inc. (NASDAQ: BLUE) was raised to Buy from Hold and the price target was raised to $211 from $130 (versus a $171.15 close) at Jefferies. Bluebird Bio was said to have compelling clinical data from its bb2121 program in multiple myeloma, and the firm thinks currently the durability is Darzalex-like and could improve further. Cantor Fitzgerald maintained its Underweight rating but raised its target price to $113 from $58.
Brookfield Property Partners L.P. (NYSE: BPY) was downgraded to In-Line from Outperform at Evercore ISI.
DaVita Inc. (NYSE: DVA) was raised to Buy from Neutral with an $82 price target (versus a $67.71 close) at Citigroup. The 52-week range is $52.51 to $70.16, and the consensus price target is $69.45.
Discover Financial Services (NYSE: DFS) was raised to Overweight from Equal Weight at Barclays.
Essex Property Trust Inc. (NYSE: ESS) was raised to Outperform from In-Line at Evercore ISI.
First Solar Inc. (NASDAQ: FSLR) was raised to Outperform from Neutral with an $82 price target (versus z $70.02 close) at Robert W. Baird. It has a 52-week range of $25.56 to $70.27 and a consensus target price of $64.90.
Hologic Inc. (NASDAQ: HOLX) was raised to Outperform from Market Perform at Cowen. Shares were indicated up 1.25% at $43.25 on Monday.
Illinois Tool Works Inc. (NYSE: ITW) was started with a Buy rating and assigned a $190 price objective (versus a $166.49 close) at Merrill Lynch.
Lexington Realty Trust (NYSE: LXP) was downgraded to In-Line from Outperform at Evercore ISI.
Macerich Co. (NYSE: MAC) was downgraded to Underperform from In-Line at Evercore ISI.
Magellan Midstream Partners L.P. (NYSE: MMP) was started as Outperform with an $80 price target (versus a $67.10 close) at BMO Capital Markets.
Oramed Pharmaceuticals Inc. (NASDAQ: ORMP) was started as Buy at B. Riley, and the $20 price target implied more than 100% upside from the $8.54 closing price. Its shares were indicated higher on Monday, but its market cap is only $122 million. The company’s product portfolio includes ORMD-0801 as an oral insulin capsule.
PACCAR Inc. (NASDAQ: PCAR) was downgraded to Neutral from Overweight at JPMorgan.
Praxair Inc. (NYSE: PX) was reiterated as Buy and the price target was raised to $186 from $176 (versus a $151.41 close) at Jefferies.
SendGrid Inc. (NYSE: SEND) was up 10% at $21.36 on Friday ahead of the world’s largest email marketing platform’s quiet period expiration. The stock was started as Overweight with a $26 price target at KeyBanc. Stifel started it as a Buy with a $25 price target, while Morgan Stanley started it as Equal Weight. SendGrid’s post-IPO range is $13.61 to $22.21.
Square Inc. (NYSE: SQ) was started as Market Perform with a $36 price target (versus a $38.09 close) at Cowen. The firm said that
the current share price target already implies that its potential is fully valued and that interested investors should wait for a better price entry point in the share price. Square has a consensus target price of $38.97 and a 52-week range of $13.53 to $49.56.
SunPower Corp. (NASDAQ: SPWR) was raised to Outperform from Neutral with a $10 price target (versus an $8.34 close) at Robert W. Baird. SunPower has a 52-week range of $5.84 to $11.70. The consensus analyst target is $9.04.
Sunesis Pharmaceuticals Inc. (NASDAQ: SNSS) was raised to Outperform from Market Perform at Wells Fargo. Shares closed up almost 14% at $2.48 on Friday and were indicated up 15% at $2.86 on Monday.24/7 Wall St.
Top Analyst Stays With Large Cap Internet Stocks for 2018: 5 to Buy
Tabula Rasa Healthcare Inc. (NASDAQ: TRHC) was started as Outperform at William Blair.
Total System Services Inc. (NYSE: TSS) was downgraded to Neutral from Buy at Goldman Sachs.
Trade Desk Inc. (NASDAQ: TTD) was raised to Buy from Hold with a $58 price target (versus a $45.25 close) at SunTrust Robinson Humphrey. Shares were indicated up about 4% at $47.00 on Monday.
United States Steel Corp. (NYSE: X) was raised to Hold from Sell at Axiom Capital. U.S. Steel has a 52-week range of $18.55 to $41.83 and a consensus target price of $31.00.
Waste Management Inc. (NYSE: WM) was raised to Buy from Hold at Stifel.
W.P. Carey (NYSE: WPC) was downgraded to Underperform from In-Line at Evercore ISI.I'm interested in the Newsletter
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Commerzbank has opined that the euro will remain weak against the U.S. dollar in 2018 based on tax reform pushing up consumption and investment at a time that Fed rate hikes continue. At the same time, it sees the European Central Bank maintaining an expansionary policy that will keep the euro weak. The Commerzbank call sees the euro at 1.16 by the end of March of 2018, falling to 1.14 in June and then to 1.12 by the third quarter, and at the same level at the end of 2018.
Now that bitcoin has futures trading around it, some of the bitcoin-related stocks were way up and have sold back off ahead of and into the futures launch.
Saudi Arabian Oil Co Tuesday unveiled a plan to invest more than $40 billion a year in projects over the next decade, a significant expansion for the world's largest energy company ahead of its expected public offering next year. The $414 billion proposal is up almost 25% from a 10 year spending plan outlined last by Saudi Aramco . The increased spending is being driven by its goal of maintaining production capacity at about 12 million barrels of oil a day, the most of any country in the world. Saudi Aramco's spending plan coincides with the Saudi government's efforts to prop up oil prices with coordinated supply cuts via the 14 nation cartel it leads, the Organization of the Petroleum Export Countries, and an alliance of 10 other producers