The markets are up, and they’re likely to continue going up – that’s the view of BMO Capital’s chief investment strategist Brian Belski, in recent comments on what he describes as a cyclical bull run. The strategist is predicting that the S&P 500 will reach as high as 6,700 next year, which would translate to a gain of ~12.5% from current levels.
Belski sees two main factors providing support to such gains, a combination of better-than-expected earnings growth and the Fed’s return to a policy of looser money and lower interest rates. Describing both, Belski says, “We see the broadening-out effect to be real… You take a look at the other 490 stocks in the S&P 500, their earnings growth is expanding a lot faster… If you look at monetary policy and fiscal policy, that’s what really drives markets, and the train has left the station with respect to monetary policy becoming more loose.”
With a potential gain on the horizon, there are bound to be plenty of opportunities for investors – and Belski’s colleagues among the BMO stock analysts are busy pointing out those opportunities now, while there is plenty of time to buy in.
Using the TipRanks database, we’ve pulled up the details on two of their choices. Here they are, presented along with the comments from BMO’s analysts.
Axalta Coating Systems(AXTA)
First up is an industrial stock, Axalta Coating Systems. We don’t often think about paint or other protective coatings, but they form a vital component of many mechanical systems, protecting fragile parts or lubricating moving parts, for instance, and Axalta, a mid-cap company valued at more than $8 billion, is a prominent player in the industrial coating niche. The Philadelphia-based firm produces multiple lines of coatings, especially powder coatings, and has a strong presence in the transportation industry; Axalta’s products are popular in the automotive and construction industries, and are used in metal finishing processes.
In addition to its powder coating, Axalta also produces lines of liquid coatings – what we normally think of as ‘paint,’ but that simple term covers a wide variety of high-tech, performance-designed coating products. As with the powder coatings, the liquid coatings are used frequently in the automotive industry, as finishing coats on cars, commercial trucks, and even industrial-grade vehicles.
Axalta is no stranger to the industrial scene. The company has been in business for over 150 years, and works with more than 100,000 customers in over 130 countries. In 2023, the company generated $5.18 billion in total revenues, for a 6.1% year-over-year gain.
In its most recent quarter, 3Q24, Axalta reported a top line of $1.32 billion, described as a company record. This was in-line with expectations, although the year-over-year gain was less than 1%. The company’s earnings, 59 cents per share in non-GAAP measures, came in 8 cents per share above expectations – and was up 31% year-over-year. Axalta had $567 million in cash and other liquid assets at the end of Q3. Free cash flow in Q3 was $164 million, compared to $182 million in the prior year quarter; however, the 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, this stock’s chief attractions are its free cash flow and EPS growth. He says of the stock, “AXTA is solidly outpacing its end-markets as execution on cost/efficiency initiatives, new business and robust FCF is driving 35-40%+ EPS growth. With significantly more left in AXTA’s Transformative & Network Optimization cost outs, and an increased focus on top-line growth (with the long-term margin targets already reached), AXTA should continue to post solid DD EPS growth and record ROCE over the next few years. All of this and modest multiple expansion should drive the stock toward the mid/upper $40s. AXTA remains a top SMID cap pick.”
McNulty’s stance backs his Outperform (Buy) rating on AXTA shares, while his $48 price target points toward a one-year gain of 20.5%. (To watch McNulty’s track record, click here)
The overall consensus on AXTA from the Street’s analysts is a Strong Buy, based on 10 reviews with a 9-to-1 breakdown favoring Buy over Hold. The shares are priced at $39.78 and their $44.90 average target price implies a 12-month gain of 13%. (See AXTA stock forecast)
Nutrien, Ltd.(NTR)
Next on our list is an industrial-scale agricultural company. Nutrien was founded in 2018, through an agribusiness merger transaction, and since then the Saskatoon-based firm has built itself into a $20-billion-plus player in the global potash industry. This is vital for agriculture, as potash is an essential ingredient in modern fertilizers, and Nutrien is the world leader in the field of crop inputs and services – that is, the production, distribution, and retail of the potash, nitrogen, and phosphate products needed so that global agriculture can feed the world.
Nutrien’s retail network provides support for more than half-a-million growers around the world. Backing this, the company employs over 26,000 people, invests millions in agricultural communities, and operates in more than 50 countries.
Global large-scale agribusiness is one of the world’s largest economic sectors, and Nutrien leveraged that to generate more than $29 billion in revenues last year. In the company’s last reported quarter, 3Q24, Nutrien brought in $5.35 billion at the top line, down 5% year-over-year – although some $120 million ahead of the forecast. The bottom line, reported as a non-GAAP EPS, was 39 cents per share; this was 6 cents per share lower than had been expected.
Despite these misses, Nutrien maintained its quarterly dividend, declaring it earlier this month for 54 cents per common share. This marked the fourth consecutive payment at this level, and the 28th quarterly dividend payment in a row. The dividend is scheduled for distribution on January 17; the $2.16 annualized payment gives a forward yield of 4.5%.
During 3Q24, Nutrien began an active share buyback program. As of November 5, 2024, the company has repurchased some $75 million worth of its own stock.
BMO analyst Joel Jackson, in his coverage of Nutrien, sees possible headwinds – but believes that the positives outweigh the negatives here, making the risk worthwhile. He writes, “Potash demand continues to improve and pricing seems to have bottomed (Lukashenko seems stressed by these prices, doesn’t he?) while European gas premiums remain supportive for nitrogen. As well the buyback is back on. There are certainly concerns Retail will struggle to grow to $2B over a couple of years, though at current multiples (our target is ~7.5x 2025E EV/EBITDA), NTR appears attractive with upside risk seeming higher probability than downside risk.”
Jackson gives this stock an Outperform (Buy) rating, and a $70 price target that implies a one-year upside potential of 49%. (To watch Jackson’s track record, click here)
This stock has a Moderate Buy consensus rating, based on 16 analyst reviews that include 9 Buys, 5 Holds, and 2 Sells. The shares are priced at $46.87 and their $56.79 average target price suggests an upside of 21% on the one-year horizon. (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 intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
