Barclays' Top Stock Picks for 2014 in Every Sector

December 10, 2013 3:05 PM EST Send to a Friend
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Price: $98.75 --0%

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    12 Buy, 8 Hold, 1 Sell

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Barclays released its 2014 Global Top Stock Picks list Tuesday. Head of Equity Research Stu Linde said investors should remain overweight equities relative to bonds, even though there is less upside given 2013's major run-up. However, they continue to prefer non-US equities in favor of Europe and emerging market equities. Barclays' equity strategists expect 27% total returns from European stocks in 2014.

The Top Picks for 2014 in the America's include:

Basic Industires:
LyondellBasell Industries NV (NYSE: LYB) (Overweight, $88 PT): LyondellBasell represents the best risk/reward in our coverage due to its best-in-class operating profile, leverage to U.S. natural gas, and low-risk capital allocation strategy. Although LYB is no longer the undiscovered name it was in 2011, several company-specific initiatives - such as the upcoming expansion of several U.S. olefins, polyolefins, and methanol assets - could lead to meaningful upside. An investment in LYB today is largely based on oil-to-gas arbitrage margin levels in the U.S. (very advantaged levels vs. the rest of the world), confidence in management to execute on its growth projects (which should add $1.2bn EBITDA or 20% by the end of 2015), and share repurchases (we expect 12% of float by the end of 2015). A combination of bottom-line growth and an above-average dividend yield keeps LYB as our preferred investment name.

Other top picks in the sector are: CF Industrie (NYSE: CF), Freeport-McMoRan (NYSE: FCX), Goldcorp (NYSE: GG), Rock-Tenn Co (NYSE: RKT)

Beam (NYSE: BEAM) (Overweight, $75 PT): As a pure-play spirits entity, Beam brings solid scale in the United States, a select number of attractive brands, and a results-focused management team. The reemergence of stable industry pricing and accelerating international sales growth should drive consistent category volume growth, and we expect BEAM to outperform on all fronts.

Others top picks in the sector are: Ambev (NYSE: ABMV), Jarden (NYSE: JAH), Modelez (NASDAQ: MDLZ), GNC (NYSE: GNC)

Valero (NYSE: VLO) (Overweight, $64 PT): The U.S. refining industry has been undergoing a multi-year four-phase structural improvement. It is currently in phase 3, where the U.S. Gulf Coast is transforming into a structural crude oil discount market. We believe Valero Energy is among the biggest primary beneficiaries of this third phase. Despite the shares’ strong performance over the last several years, we believe VLO remains significantly undervalued based on our bottom-of-the-cycle earnings and cash flow methodology. Using 2009 as a baseline and adjusting for the company’s major projects along with our estimate of long-term sustainable crude differentials (Brent-LLS at $2-4/bl, LLS-WTI at $6-8/bl, and WTI-Bakken at $4-5/bl), we estimate VLO can earn more than $3/share and $4.6 billion in EBITDA at the industry’s next major downcycle. In addition, because of insufficient alternative takeaway capacity to clear all the light oil barrels from the Gulf Coast in the near term, we think that the Brent-LLS differential could average in excess of $10/bl in 2014 and that 2014 could potentially be a repeat of 2012 in terms of the group’s share performance.

Others top picks in the sector are: Suncor Energy (NYSE: SU), Energy Transfer Equity LP (NYSE: ETE), EOG Resources (NYSE: EOG), Concho Resources (NYSE: CXO), Enerplus Corporation (NYSE: ERF), Schlumberger Ltd (NYSE: SLB).

Financial Services:
Everbank (NYSE: EVER) (Overweight, $21 PT): EverBank is among a select number of “growth” financial stocks, having grown its assets, loans, and deposits at 20%+ CAGRs since 2007. Its recently renewed focus on its mass-affluent client base and a moderation in its mortgage banking gain on sale activity should drive more predictable earnings. Finally, we look for its valuation discount vs. peers to narrow as it shows adjusted ROE stability and its commercial loan mix (45% at 3Q13 vs. 19% at 4Q09) continues to grow.

Others in the sector include: TCF Financial (NYSE: TCB), JP Morgan Chase & Co. (NYSE: JPM), AFLAC Inc (NYSE: AFL), ACE Limited (NYSE: ACE), NASDAQ OMX Group, Inc. (NASDAQ: NDAQ), Fidelity National Financial (NYSE: FNF), 7 Manulife Financial (NYSE: MFC), Simon Property Group Inc. (NYSE: SPG)

Regeneron Pharmaceuticals (NASDAQ: REGN) (Overweight, $339 PT): Regeneron Pharmaceuticals is a large-cap biotechnology company with flagship drug Eylea (partnered with Bayer) driving the large majority of revenues and profits in the area of ophthalmology. We believe Eylea will continue to gain share from both Avastin and Lucentis in the wet age-related macular degeneration (AMD) space. Further, we are positive on REGN's late-stage pipeline assets, including alirocumab and sarilumab, which both compete in multi-billion-dollar markets.

Other top picks in the sector, include: Aetna Inc. (NYSE: AET), HCA Holdings Inc. (NYSE: HCA), Gilead Sciences (NASDAQ: GILD), Covidien PLC (NYSE: COV), Actavis, Inc. (NYSE: ACT)

TransDigm Group (NYSE: TDG) (Overweight, $170): TransDigm has experienced a sizable compression of trading multiples relative to other premium aerospace stocks. It now trades at 18.5x our fiscal 2015 EPS estimate, a level that we see as highly attractive given our belief that the company can generate at least mid- to high-teens EPS growth over the longer term, assuming only modest M&A activity relative to the company’s history. We think investors will revisit TDG in 2014 as it remains one of the purest ways to position for a recovery in commercial aftermarket volumes.

Other top picks in the sector, are: FedEx Corp. (NYSE: FDX), General Motors (NYSE: GM), Delta Air Lines (NYSE: DAL), Mohawk Industries Inc. (NYSE: MHK), Verisk Analytics (NASDAQ: VRSK), CEMEX (NYSE: CX), Mastec (NYSE: MTZ), Terex Corp (NYSE: TEX), General Electric (NYSE: GE).

Internet and Media:
Comcast (NASDAQ: CMCSA) (Overweight, $53): We believe Comcast is the most attractive name in the cable/satellite space due to positive subscriber trends and consistent high growth in its high-speed data (HSD) and business services segments. Despite its size, we see considerable room for growth given low HSD penetration levels compared to peers. In spite of these factors, the company’s core cable business is trading at a discount to the rest of the sector (assuming a 10x 2014E EBITDA multiple for the NBC Universal business).

Other top picks in the sector, are: Zillow (NYSE: Z)

Power and Utilities:
Dominion Resources (NYSE: D) (Overweight, $73 PT): Dominion Resources is a top utility growth story that also features a thriving midstream gas business offering further potential upside. The core electric utility in Virginia is a premium business, in our view, and grows at above-average 5%-plus rates with a clear regulatory path for four years. The midstream business is growing even faster, at 28% LTM y/y with an announced MLP offering in 2014.

Other top picks in the sector: None

Royal Caribbean (NYSE: RCL) (Overweight, $50 PT): Royal Caribbean is our top leisure pick in 2014. Our view is that RCL will: 1) continue to generate positive net yield growth; 2) benefit from premium pricing on its newer vessels; and 3) maintain good cost control next year. Near-term risks include increasing industry capacity in the Caribbean, macroeconomic issues affecting cruise demand, and the potential for rising fuel prices.

Other top picks in the sector, are: Bloomin’ Brands, Inc. (NASDAQ: BLMN), Alsea S.A.B. De C.V., Canadian Tire Corp., Ltd., Best Buy Co., Inc. (NYSE: BBY), Gap (NYSE: GPS)

Corning (NYSE: GLW) (Overweight, $22 PT): We see 32% potential upside for Corning based on an improving market for its core Display segment as inventory eases and price declines subside. Performance should be neutral to positive in its other businesses, and we see valuation support from the significant cash return to shareholders from both share buybacks and dividends. We believe the integration of the global Display business with the Samsung Corning Precision Materials (SCP) joint venture should drive margin expansion as Corning optimises the business on a global business and eliminates extra costs and investments.

Other top picks in the sector, are: F5 Networks, Inc. (NASDAQ: FFIV), Visa (NYSE: V), NXP Semiconductors NV (NASDAQ: NXPI), VMware (NYSE: VMW)

American Tower (NYSE: AMT) (Overweight, $95 PT): As a leading global provider of infrastructure services to leading wireless carriers, American Tower is well positioned to benefit from the continued growth in wireless data traffic. Domestically, we believe the company will continue to benefit from wireless data growth and network technology transition to 4G. Internationally, the company is benefitting from both the expansion of network coverage and the need to improve capacity requirements as smartphone penetration matures. AMT stock is an attractive way to gain exposure to a segment of the wireless ecosystem that is high growth, relatively
immune to pricing pressure, and relatively high margin

Other top picks in the sector, are: Quebecor Inc.

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