Wall Street hit some rough waters last week. With the Presidential elections only two days away, spiking COVID-19 numbers and hopes for a pre-election stimulus package dwindling, stocks posted their worst week since the height of the pandemic in March. All three of the major U.S. stock indexes also reported a second consecutive monthly decline. According to the pros on Wall Street, uncertainty is ruling the markets. That said, some strategists point to this month’s Federal Open Market Committee meeting, which will take place on November 4-5, as potentially helping to reassure investors. Should more liquidity be provided, stocks could gain in the mid to long-term, even if there’s no additional stimulus. What’s more, the pros argue the recent sell-off could present an opportunity to snap up compelling names at a more attractive entry point. Bearing this in mind, we turned to the expert stock pickers from Wells Fargo for some inspiration. The investment firm lands a top 10 spot on TipRanks’ list of Top Performing Research Firms. Taking a look at three Wells Fargo-backed tickers, we used TipRanks’ database to find out why the firm’s analysts see each as such an exciting opportunity. RealReal (REAL) First up we have RealReal, which is a leader in the online authenticated luxury consignment space. On the heels of a major new partnership, Wells Fargo has high hopes for this retailer. On October 5, REAL announced a new partnership with Gucci, which is one of the most popular brands on REAL’s platform. As per the terms of the deal, the two companies will develop an online platform for the sale of pre-owned Gucci products, with the site also promoting a more circular economy for luxury. This platform will operate as a website within a website on REAL’s platform, and will carry products supplied primarily by third party consignors, as well as some supplied directly by Gucci. For every item sold, the company will plant a tree through nonprofit organization One Tree Planted. Representing Wells Fargo, analyst Ike Boruchow sees several positives coming from this collaboration, with it representing “a clear win for the bulls in the near-term.” He explained, “The fact that REAL is partnering with one of the highest-profile luxury brands in the world should give them significantly more credibility with consumers (and the luxury industry overall). Interestingly, in an interview with Women’s Wear Daily, Gucci brand CEO Marco Bizzarri stated that the growing popularity of the resale market is very interesting to us.” Additionally, the agreement reflects another vehicle for acquiring supply, which is essential as “unlocking supply is one of the biggest growth drivers for REAL,” in Boruchow’s opinion. He further points out that even though Gucci is only supplying a limited number of pieces, it will be “incremental to REAL’s supply.” If that wasn’t enough, Boruchow argues the partnership highlights the environmental benefits of the resale market. The analyst thinks this will continue to make “make the resale market increasingly attractive to consumers who are becoming increasingly conscious of sustainability and environmental factors.” When it comes to the business fundamentals, Boruchow believes supply has been a bigger issue than demand in 2020, especially during the COVID-19 pandemic. That said, REAL has found new ways to acquire supply, which can “help unlock REAL’s long-term growth potential,” according to the analyst. Summing it all up, Boruchow commented, “As a result, we believe gross merchandise value will continue to accelerate in the coming quarters, and that the long-tern runway growth is extremely compelling.” As a result, Boruchow stayed with the bulls. In addition to an Overweight rating, he puts a $20 price target on the stock. Investors could be pocketing a gain of 59%, should this target be met in the twelve months ahead. (To watch Boruchow’s track record, click here) Turning to the rest of the Street, opinions are split almost evenly. With 3 Buys and 2 Holds assigned in the last three months, the word on the Street is that REAL is a Moderate Buy. At $17.25, the average price target implies 37% upside potential. (See RealReal price targets and analyst ratings on TipRanks) JELD-WEN (JELD) Next up we have JELD-WEN, which is one of the world’s largest door and window manufacturers. Calling JELD one of the firm’s “favorite Housing equities,” Wells Fargo thinks big things could be in store. Writing for the firm, analyst Truman Patterson tells clients that based on his channel checks, Windows and Interior Doors channel inventories are lean and delivery lead times have extended by 2-3 weeks. This led the analyst to conclude that “industry manufacturers across both products are running at or near full capacity.” It should be noted that over the last few years, JELD has had to deal with Windows’ production inefficiencies that “at times have been driven by an inability to adjust to rapid demand shifts.” This has shaken investor confidence, and led to a lower valuation, according to the analyst. That being said, Patterson sees better days on the horizon. “Despite the unexpected rebound in demand following COVID, leading JELD to ramp production near full capacity, we believe JELD has improved its Windows manufacturing operations as contacts suggest the company’s product quality control issues are a thing of the past. We give management the benefit of the doubt going forward as the Global Footprint rationalization and JEM initiatives are starting to gain traction, which represent a potential $200 million-plus EBITDA tailwind,” Patterson explained. On top of this, he argues improving manufacturing operations should lead to multiple expansion by itself. Adding to the good news, pricing announcements across both products are solid. Following unprecedented Interior Doors price hikes earlier this year, it appears both JELD and its peer Masonite are set on structurally improving the industry’s pricing, in Patterson’s opinion. Expounding on this, the analyst stated, “Further, it appears JELD has announced a nationwide 7%-11% Window price hike (3 points above normal), and major competitors have followed suit with hikes of similar magnitude. Given the aforementioned industry-wide shortages across both products, and the rapid rebound in New Res, we believe JELD will be able to realize at least the traditional 40%-50% of the announced pricing across its product portfolio.” So, Patterson sees JELD achieving North America 2021 pricing in the 4.5% range, and after some SG&A/investment inflation post-COVID, he expects 200-300 basis points of EBITDA margin expansion. “We do not believe the above is fully appreciated by the Street as JELD is only one of three equities in our 20 company HB/BP coverage that is flat or down year-to-date,” he noted. To top it all off, there has only been one manufacturing issue, driven by a badly-timed and unexpected product line reset from a large Home Center. “Given the robust demand environment which is likely depressing inventory levels at the Home Centers (HD/LOW’s SSS up 20%-30%), we believe the HCs will make sure not to disrupt their supply chain, and should be more receptive to price increases,” Patterson said. It should come as no surprise, then, that Patterson left an Overweight rating and $32 price target on the stock. To this end, the upside potential lands at 52%. (To watch Patterson’s track record, click here) Other analysts are more cautious about JELD. A Hold consensus rating breaks down into 3 Buys, 6 Holds and 1 Sell. With an average price target of $24.35, the upside potential comes in at 16%. (See JELD-WEN stock analysis on TipRanks) Associated Banc-Corp (ASB) Associated Banc-Corp takes its place as the largest bank headquartered in Wisconsin, with a total branch network of over 200 locations serving over 100 communities, primarily within its three-state footprint of Wisconsin, Illinois and Minnesota. While the company has had to work through some challenges, Wells Fargo believes it has taken steps in the right direction. Firm analyst Jared Shaw tells clients that although the Q3 results were mixed, he has high hopes for the banking player. A higher-than-expected provision expense fueled EPS of $0.24, $0.01 ahead of the consensus estimate. As for NIM, management thinks the 2.31% figure marks a trough, and that margin is set to improve from here. Credit was more of a mixed bag, as NCOs increased from 44 basis points to 49 basis points due to oil and gas (reserved at 15.3% rate), and NPAs expanded by 24 basis points thanks to the migration of two mall-oriented REITs. However, “deferrals were a bright spot,” with total deferrals dropping 69% from peak levels to 2.1% of loans, compared to its peers which average a 72% decline and 2.8% of loans in deferral. “Thus far, consumer loans that have seen their deferrals expire have had a 97% cure rate, giving us some optimism around the remaining balances,” Shaw mentioned. What’s more, the ALLL ratio increased by 8 basis points quarter-over-quarter to 1.60% ex PPP. “We expect little incremental build from here as we see the most at-risk areas adequately reserved and are encouraged by deferral trends,” Shaw commented. Adding to the good news, ASB was the first bank in Shaw’s coverage to highlight cost savings initiatives coming out of COVID-related shutdowns. These initiatives appear to be paying off, as the expense targets announced last month were reiterated. Q4 expenses are expected to be $175 million and 2021 expenses are forecasted to be $685 million, versus 2020’s $712 million estimated core expenses. Should the $685 million figure be reached, it would mark the lowest annual expense level since 2014. “With tailwinds from expense initiatives, likely improving NIM, shares trading at just 87% of current TBV, and a 5.1% divvy,” Shaw sees big things in store for ASB. In line with his optimistic approach, Shaw sides with the bulls, reiterating an Overweight rating and $18 price target. This target conveys his confidence in ASB’s ability to climb 31% higher in the next year. (To watch Shaw’s track record, click here) Looking at the consensus breakdown, 1 Buy and 3 Holds have been issued in the last three months. Therefore, ASB gets a Moderate Buy consensus rating. Based on the $15.67 average price target, shares could surge 14% in the next year. (See Associated Banc-Corp price targets and analyst ratings on TipRanks) 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.
More China coal investments overseas cancelled than commissioned since 2017
More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.
The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.
Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.
Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.
But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.
China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.
But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.
Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.
Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.
Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.
(Reporting by David Stanway; Editing by Kenneth Maxwell)
Bank of Montreal CEO sees growth in U.S. share of earnings
Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.
“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”
($1 = 1.2145 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Leslie Adler)
GameStop falls 27% on potential share sale
Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.
The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.
“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”
Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.
Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.
Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.
AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.
“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”
Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.
GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.
GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.
The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.
In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.
(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)