We’re in a bear market now, as economies everywhere have been hard hit by the coronavirus pandemic and the quarantines and restrictions imposed to combat it. But there’s a saying on Wall Street: Bulls and bears make money, while the pigs get slaughtered. Yes, the markets are falling, but a savvy investor can still find profitable plays – just don’t get greedy, and you can turn a profit no matter what the market conditions.
Since the virus scare began, and during the economy’s swing from bull to bear, investment bank JPMorgan has kept its finger on the pulse of the stock market. The firm’s analysts are seeking out the stock moves that offer potential profits – or pitfalls. With institutional wisdom stretching back over 200 years, JPM brings a long-term perspective to the markets.
We’ve looked into JPMorgan's recent bullish calls, and using the TipRanks database, we’ve chosen two stocks with particularly high yield dividends and substantial upside potential – over 50% for the coming months, while the third is warding off the analyst community. Let’s take a closer look.
Nutrien, Ltd. (NTR)
We’ll start Down Under, with an agricultural company. Nutrien started doing business under its current name in January 2018, after the PotashCorp and Agrium merged. Now based in Saskatoon, Saskatchewan, Nutrien is the world’s largest producer of potash and nitrogen fertilizers, essential in modern agriculture and big-business farming. Even after the current market drops, the company still has a total market cap of $15 billion.
Finishing up 2019, NTR reported Q4 earnings of 9 cents, far below the forecast 29 cents. Revenue was also well below estimates, at $3.44 billion. Looking ahead, the company provided FY2020 EPS guidance in the $1.90 to $2.60 range, this was below the consensus, which had expected $3.04. Despite the disappointing quarterly report, NTR shares actually rose slightly after the release – and did not drop sharply until the first week of March, when the coronavirus hit was unavoidable.
Nutrien has maintained its 45-cent quarterly dividend, with the next payment scheduled for mid-April. The annualized payment is a healthy $1.80, and the yield is 6.8%. Considering that the average yield among S&P listed companies is only 2%, and that the Fed has cut its key rate to near zero, NTR shares offer a substantial return for investors.
4-star analyst Jeffrey Zekauskas, in his recent comments of NTR, gave the stock an upgrade from Neutral to Buy. Along with this, his $44 price target implies an upside potential of 69%.
Supporting his stance, Zekauskas says, “We think that the stability of agricultural demand and overall financial return will prove alluring to investors in an uncertain global industrial demand environment affected by COVID-19... We think that Nutrien’s large retail business is well positioned for 2020 given likely increases in planted acres in corn and soy.” (To watch Zekauskas’ track record, click here)
Overall, Nutrien has received 9 Buy ratings and 4 Holds in recent weeks, giving the stock a Moderate Buy rating from the analyst consensus view. NTR shares are selling for a discounted price, $26.63, and the average price target, $51.85, suggests a premium of 92% over the coming months. (See Nutrien stock analysis on TipRanks)
BHP Group, Plc. (BHP)
Next up is an Aussie mining conglomerate BHP. The company has major mining operations in Australia, North American, and South America, as well as oil and gas extraction operations in the US, UK, Algeria, and the Caribbean. Mining ops, making up the bulk of the company’s efforts, focus on coal, copper, and iron ore. BHP saw revenues in excess of US$44 billion in 2019.
BHP reported positive results just as the corona virus epidemic began to spread. Company management has stated that they do not expect COVID-19 to put a strong impact on current operations, but could do so if the disease outbreak extends beyond March. China, the coronavirus epicenter, is a major buyer of BHP’s Australian iron ore.
That said, in 2H19, BHP reported solid results, with a half-year profit of US$4.9 billion and free cash flow of US$3.7 billion. The gain in free cash flow was attributed to higher prices for iron ore. The solid fiscal performance underlay the company’s 65-cent dividend announcement. BHP pays out dividends semi-annually, and adjusts the payment to ensure sustainability. The current annualized dividend is $1.30, giving a strong yield of 8.24%. The firm financial footing puts BHP in a sound position to weather the current market storm.
JPM analyst Lyndon Fagan, in a recent report, upgraded his rating on BHP, moving from Neutral to Buy. His price target, AUD$42, suggests an upside to the stock of 55%.
In his comments, Fagan wrote, “While the COVID-19 crisis is yet to peak, and bond markets are pricing in a global recession, BHP's key customer is China, where the situation is improving. We see significant upside in the share price for investors willing to look through the crisis.” To watch Fagan’s track record, click here)
Fagan’s review offers the most recent upside for BHP stock. The shares hold a Moderate Buy from the analyst consensus, based on 2 Buy-side reviews and 1 Hold. (See BHP’s stock analysis at TipRanks)
Occidental Petroleum (OXY)
Last on our list is JPM’s bear case, Occidental Petroleum. OXY is a major hydrocarbon exploration company, with operations in the US, Colombia, and the Middle East, and petrochemical manufacturing facilities in the US, Canada, and Chile. The company is a major player in the Texas oil industry, which in recent years has made the US the world’s largest producer of crude oil – and more recently, a net exporter of petroleum products.
Despite its status as a large oil and gas producer, and despite growing revenues, OXY missed on earnings in Q4 2019. The company saw total revenues for the quarter of $6.8 billion, beating the estimate by 3.6% and growing 41% year-over-year. EPS, however, missed badly, showing a net loss of 30 cents per share compared to the expected loss of 9 cents.
OXY management maintained its 79-cent quarterly dividend, and set a payment date of April 15, even though earnings are insufficient to sustain it. The annualized dividend payment is $3.16, which is high in and of itself – but after the share price depreciated in the recent market falls, that annualized payment gives a stunning yield of 27.8%. In today’s climate of low oil prices and falling markets, OXY presents real risks for investors – but that dividend yield may make it worthwhile, especially considering the company’s 14-year history of keeping the dividend payments reliable.
JPM’s 5-star analyst Phil Gresh sees it otherwise, however. He writes of OXY, “OXY had become far more levered to the downside oil price case and in need of the trifecta of high oil prices, perfect synergy execution and significant asset sales to bridge the gap. [...] Our Underweight rating is based on our view that OXY’s valuation is not compelling enough to compensate investors for its elevated dividend burden and financial leverage [...] Bottom line, we believe there is “no easy way out” of this financial predicament, absent a higher oil price case or a dividend cut.” (To watch Gresh’s track record, click here)
OXY’s analyst consensus rating is a Hold, based on 15 recent reviews. These include 8 Holds and 5 Sells, as well as 2 Buys. The stock’s price has been pushed down to just $11.34, but there is play here for investors willing to shoulder some risk: the average price target of $25.55 suggests an upside potential of 125%. (See Occidental stock analysis on TipRanks)