Investors are always on the lookout for stocks poised to deliver hefty returns. While it’s true anyone can measure a stock’s potential by themselves, as in any field, the pros probably have the best tools at hand to assess the choices the market presents.
This is where we turn to the analysts on the Street. Some of the best amongst them are currently employed by famed investment firm RBC Capital, as the company sits at the top of the heap of TipRanks’ Top Performing Research Firms.
The company, like many in the industry, begins a new year by reassessing the future potential of stocks under its coverage.
With this in mind, we decided to take a look at three tickers the investment firm thinks have the potential to take off in 2020. All currently have Buy consensus ratings from the Street and all, according to RBC analysts, have the potential for gains in the magnitude of at least 25% in the year ahead. Let’s check them out.
Constellation Brands (STZ)
Cannabis stocks took a heavy beating in 2019, with some companies losing a significant amount of value along the way (Tilray, Aurora and Cronos come to mind). Though not strictly a cannabis stock, with its main business driven by the alcoholic beverage industry, Constellation’s massive investment in Canopy Growth, which boasts the largest market cap among Canadian cannabis producers, has positioned it at the forefront of the struggling pot industry.
Despite Canopy’s plethora of struggles last year (consecutive quarters of disappointing results, CEO Bruce Linton being removed and replaced with a Constellation appointment), Constellation’s recent F3Q20 report beat expectations on most fronts. Sales of $2 billion beat the estimate’s $1.95 billion. More impressively, EPS came in at $2.14, beating the consensus’s call of $1.84. The most cheer was provided by the company’s beer business, with Constellation’s Modelo Especial brand up by almost 15%, and cementing itself as the fourth-largest beer brand in the US. The company also raised its guidance of EPS for the whole year, too, from $9-$9.20 up to $9.45-$9.55.
The positive print has RBC’s Nik Modi betting on STZ. Modi reiterated an Outperform rating on the stock alongside a price target of $250, which implies 32% upside potential from current levels. (To watch Modi’s track record, click here)
The 5-star analyst said, “The beer business is fine and should benefit from the Corona Seltzer launch (expected beginning of FY'21 - March 2020). W&S remains messy due to the divestiture, but there are some green shoots that suggest the portfolio will be in a better place post-divestiture. Canopy is still an overhang, but with David Klein in place, we think costs will come under control. All in all, a lot of noise, but we are nearing visibility into 2021 earnings power.”
The Street is currently split down the middle with regards to the alcohol producer’s prospects. 6 Buys and 6 Hold ratings coalesce into a Moderate Buy consensus rating. The bulls, though, have the edge as the average price target comes in at $223 and indicates potential gains of 18% over the coming months. (See Constellation Brands stock analysis on TipRanks)
Nutrien Ltd (NTR)
A big name in the agricultural industry, Nutrien was formed in January 2018 following the huge merger of Agrium and PotashCorp. The company is the world’s largest agricultural input retailer and fertilizer producer.
Technological advancements are an increasingly important growth catalyst in many different industries, and the agricultural sector is no different. Nutrien has been maneuvering itself into a leading position in what is known as digital agriculture. The company’s digital platform was launched almost 2 years ago and provides farmers with data on climate and weather conditions to assist in the process of planting, fertilizing and harvesting. The platform met with immediate success and it took only 6 months from its launch for more than 50% of the company’s North American retail sales customers to start making use of it.
Nutrien has also been busy on the acquisition front, the latest of which was only announced last week. The company agreed to purchase Brazilian Ag retailer Agrosema Comercial Agricola, an important player in the Brazilian agricultural industry. The purchase comes hot on the heels of several other acquisitions since the launch of its digital platform and RBC’s Andrew Wong thinks there is more to come.
The analyst said, “We believe the company will continue the roll-up strategy in North America, spending ~$300–500M annually on accretive acquisitions. In Brazil, we expect Nutrien to gradually build up a base through acquisitions that may be priced above typical valuations (due to less natural synergies), but eventually build a business model similar to the highly successful North American business. The Wholesale segment is working on several cost savings and expansion projects that should result in lower potash production costs and higher nitrogen volumes.”
To this end, Wong kept his bullish call on Nutrien with an Outperform rating and price target of $60. The figure represents potential gains in the shape of 27%. (To watch Wong’s track record, click here)
What side of the field does the Street stand on regarding the fertilizer producer’s potential, then? On the growing side, as it happens. A Strong Buy consensus rating breaks down into 6 Buys and 2 Holds. The average price target comes in at $56.60 and therefore indicates room for growth of another 20%. (See Nutrien stock analysis on TipRanks)
Mosaic Co (MOS)
A fellow giant in the agricultural industry is the US’s largest producer of potash and phosphate fertilizer, the Mosaic Company.
Mosaic had a difficult 2019 with its share price losing almost 25% over the year. Slipping margins, bad weather and the effect of the US and China trade war all played their part in suppressing the share price. The recent easing of the trading tensions saw Mosaic’s stock climb out of the doldrums in December; China is one of the company’s biggest markets and its willingness to buy more US agricultural products is a part of the phase one trade deal, and could provide a boon for US fertilizer producers.
Like Nutrien, Mosaic has also been busy in Brazil; in 2018, the company acquired Vale’s Brazil-based phosphate and potash business. By the end of last year it had run-rate synergies of $275 million, with the company targeting a further $200 million EBITDA benefit from the business by the end of 2022.
Despite a disappointing 2019, Andrew Wong, who also covers MOS, believes the phosphate markets are “close to bottoming." The analyst further added, “Mosaic provides strong leverage to the potash and phosphate markets, and we believe it would be an ideal investment in a commodity upside scenario. The acquisition of production and distribution assets in Brazil further enhances the company’s exposure to the fastest-growing agriculture market and provides significant synergy potential.”
With this in mind, Wong reiterates an Outperform rating on the potash producer, along with a $26 price target, which implies possible upside of 26%.
With 6 Buys, 1 Hold and 1 Sell, Mosiac receives a Moderate Buy consensus rating from the Street. If the average price target of $24.13 can be met, investors stand to pocket a 17% over the next 12 months. (See Mosaic stock analysis on TipRanks)