In this article, we’re going to take a closer look at Credit Suisse’s 12 Highest-Conviction Top Picks.
Swiss bank Credit Suisse Group AG (NYSE:CS) has always been on the radars due to the fact that it’s one of the oldest and largest banks in Switzerland, which also classifies as a SIFI (systemically important financial institution). However, in the past few months the bank has been in the limelight for totally different reasons. The bank has been struggling financially and in February 2023, Credit Suisse Group AG (NYSE:CS) reported an annual loss of CHF 7.3 billion ($7.95 billion), the biggest loss since the 2008 financial crisis. Later in March, the financial institution published its 2022 annual report, in which it stated that it had identified “material weaknesses” in controls over financial reporting.
“The material weaknesses that have been identified relate to the failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements and the failure to design and maintain effective monitoring activities relating to (i) providing sufficient management oversight over the internal control evaluation process to support the Group’s internal control objectives; (ii) involving appropriate and sufficient management resources to support the risk assessment and monitoring objectives; and (iii) assessing and communicating the severity of deficiencies in a timely manner to those parties responsible for taking corrective action.”
As a result, Credit Suisse Group AG had to revise its consolidated financial statements for the three years ended December 31, 2021.
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On the back of the financial struggles, Credit Suisse Group AG’s stock price has declined by more than 71% since the beginning of the year, including a 64.5% drop recorded since March 14, when the annual report was published. The drop was further fueled by the bank’s largest investor, Saudi National Bank, stating that it wouldn’t be able to provide more financial aid. Despite Credit Suisse borrowing an additional CHF 50 billion from the Swiss National Bank and attempting to undertake other measures, the panic among its clients and investors was unstoppable. On March 19, another Swiss bank, UBS Group AG (NYSE:UBS) announced a deal to acquire Credit Suisse Group AG for around $3.25 billion, which represented a 60% discount to the stock’s last closing price. In an attempt to halt the financial crisis triggered by the failure of two American Banks, Silicon Valley Bank and Signature Bank, the Swiss government even changed the laws to fast track the acquisition by excluding the requirement of shareholders’ approval.
However, the completion of the deal is still clouded in uncertainty after on April 2, Swiss Federal Prosecutor’s office announced that it had opened an investigation into possible illegal activity related to the takeover and, in particular, the government’s support for the deal.
Credit Suisse’s Highest-Conviction Top Picks: In Retrospect
Nevertheless, as stated earlier, prior to its untimely demise, Credit Suisse was one of the most watched financial institutions in the world and it has been regularly issuing reports in which it outlined some of its top conviction stock picks. At Insider Monkey, we have taken Credit Suisse Group AG’s US Top Picks from July 2022 and decided to look into their performance since then. Out of 38 stocks that the bank highlighted in the report, we selected 12 companies that Credit Suisse mentioned as “above consensus calls”. Moreover, 5 of these stocks made it to the bank’s so-called “top of the crop” list, as they not only are ranked as “Outperform”, but also have least demanding market expectations. These stocks can be found under Credit Suisse’s Top 5 Highest Conviction Picks.
Without any further ado, let’s dive in and see how Credit Suisse’s 12 Highest-Conviction Top Picks have fared since the bank highlighted them in July 2022.
12. American Tower Corp (NYSE:AMT)
Stock performance since July 2022: -20.92%
Number of Bullish Hedge Funds: 61
Let’s kick off with American Tower Corp (NYSE:AMT), on which Swiss bank had a price target of $313 in July 2022, which at the time implied an upside potential of around 22.5%. Analysts suggested that American Tower Corp was well positioned to benefit from growth in capital expenditures of US carriers, as well as improving dynamics in Europe, which could position the operator of wireless communications infrastructure for further expansion in that market.
In the meantime, American Tower Corp’s stock has slumped by nearly 21%, failing to deliver on Credit Suisse’s target. In February, the Real Estate Investment Trust reported a net loss of $1.47 per share, missing the estimates by $2.52, although the revenue of $2.71 billion was slightly higher than expected. All in all, analysts remain bullish on American Tower Corp in the long-run, with most having a ‘Buy’ rating on the stock. In addition, being a REIT, American Tower Corp pays a solid quarterly dividend of $1.56 per share, ranking among our selection of 10 Best Stocks for Dividends.
Among hedge funds followed by Insider Monkey, 61 reported long positions in American Tower Corp as of the end of 2022, with a cumulative value of $3.38 billion.
11. Amazon.com, Inc. (NASDAQ:AMZN)
Stock performance since July 2022: -5.72%
Number of Bullish Hedge Funds: 240
Next in our list of Credit Suisse’s 12 Highest-Conviction Top Picks is tech behemoth Amazon.com, Inc. (NASDAQ:AMZN), whose stock edged down by 5.72% since July 2022. Credit Suisse believed that Amazon is positioned to return to “historical levels of fulfillment center efficiency by 2024, certainly by 2025.” Therefore, analysts had a price target of $185 per share, which following some updates has recently been restated down to $171, although the bank continues to maintain an Outperform rating on the stock.
Amazon.com, Inc. is one of the highest-conviction picks not just at Credit Suisse, as confirmed by the fact that the company is one of the most popular among hedge funds, with a whooping 240 smart money investors in our database having amassed $27.54 billion worth of shares at the end of the last year. Among the most notable shareholders of Amazon.com, Inc. are Warren Buffett’s Berkshire Hathaway and George Soros’ Soros Fund Management, each holding 10.67 million shares and 901,500 shares, respectively.
In its fourth-quarter investor letter, Baron Opportunity Fund also highlighted Amazon.com, Inc., saying:
We believe that Amazon is well positioned to improve profitability back to historical levels, particularly in its core North American retail division. We have already seen some of this play out with reports of Amazon’s increased cost discipline and broad-based layoffs. Particularly within the internet and software sectors, we believe Amazon can sustain premium growth compared to the rest of the market, given its competitive strengths and scale. Longer term, Amazon has substantially more room to grow in e-commerce, where it has less than 15% penetration in its TAM [Total Available Market], and cloud, where it is a clear leader in the vast and growing cloud infrastructure market.”
10. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Stock performance since July 2022: 30.72%
Number of Bullish Hedge Funds: 42
Then there’s Chipotle Mexican Grill, Inc. (NYSE:CMG), on which Credit Suisse was bullish saying that the company was on track to exceed its margins and accelerate unit growth. The stock of the fast food chain operator surged by more than 30% since July 2022, but is still below the bank’s price target of $2,200. During Chipotle Mexican Grill, Inc.’s earnings call for 2022, CEO Brian Niccol said that the company had delivered strong results the previous year, expanding its Average Unit Volume and restaurant-level margins, “despite facing one of the highest inflationary periods on record and an uncertain macro environment.”
“These results demonstrate Chipotle’s resiliency driven by our talented teams, delicious food made fresh daily, convenience, customization, and of course, our tremendous value.”
Overall, Chipotle Mexican Grill, Inc. posted 2022 sales of $8.6 billion, up by 14% on the year, but slightly lower than analysts had predicted. The company’s EPS of $8.29 missed the consensus by $0.60.
There were 45 hedge funds in our database long Chipotle Mexican Grill, Inc. at the end of December, which held $2.81 billion worth of shares, according to the latest round of 13F filings.
9. International Game Technology PLC (NYSE:IGT)
Stock performance since July 2022: 38.86%
Number of Bullish Hedge Funds: 27
On International Game Technology PLC (NYSE:IGT), Credit Suisse had a price target of $62 back in July 2022 and earlier this year it has revised it higher to $66, which is one of the highest price targets on the Street. By comparison, Deutsche Bank has a price target of $33. Even though the stock of the gambling technology company has gained 39% since July 2022, it still has to more than double in value to achieve Credit Suisse’s target. The Swiss bank considers that International Game Technology PLC deserves the Outperform rating due to lottery market strength from which the company is expected to benefit. In addition, International Game Technology PLC announced back in 2021 that it planned to spin off its digital and betting segments, and Credit Suisse considered that the potential transaction was not reflected in the company’s price back in July.
Being a fairly small company (market cap around $5.2 billion), International Game Technology PLC was included in the portfolios of just 27 hedge funds at the end of 2022 , with largest position being held by Ken Griffin’s Citadel Investment Group (2.53 million shares worth $57.38 million). Another investor in the company, Palm Harbour Capital mentioned IGT in its fourth-quarter letter, saying:
“It is worth noting that management hit their 2025 leverage target more than two years in advance, while returning $224 million to shareholders through mid-October 2022. Management confirmed the upper half of their fiscal year 2022 guidance which combined with an improved credit profile drove the share price higher. We still find the steady cashflows and low valuation very compelling.”
8. Ventas, Inc. (NYSE:VTR)
Stock performance since July 2022: -17.80%
Number of Bullish Hedge Funds: 22
With just 22 funds holding long positions as of the end of 22, Ventas, Inc. (NYSE:VTR) is the least popular stock among Credit Suisse’s 12 Highest-Conviction Top Picks. Shares of the REIT are down by 18% since July 2022. In its report, Credit Suisse said that it believed that Ventas, Inc. was positioned to see an increase in its senior housing segment to pre-COVID levels in 2023 and to continue to grow. Another investor bullish on Ventas, Inc. is Baron Funds, which highlighted the REIT in its “Baron Real Estate Income Fund” investor letter for the fourth quarter:
“The company’s scale allows it to swiftly act on large investment opportunities. We believe the company’s senior housing portfolio, which represents approximately 45% of assets, should deliver improved operating results in the next few years. […] The long-term demand outlook is favorable, driven in part by growth of the 80-plus population which is expected to accelerate in the years ahead.”
In March, Ventas, Inc. declared a quarterly dividend of $0.45 per share, unchanged from the previous, which gives the stock a forward dividend yield of 4.22%.
7. T-Mobile Us Inc (NYSE:TMUS)
Stock performance since July 2022: 5.87%
Number of Bullish Hedge Funds: 94
Telecom T-Mobile Us Inc (NYSE:TMUS) also made the list of Credit Suisse’s 12 Highest-Conviction Top Picks in its July 2022 report, with the bank’s analysts having set a price target of $188 amid belief that the company would continue to gain market share and benefit from synergies from the 2020 merger with Sprint Corporation.
Last month, T-Mobile Us Inc announced that it would acquire Mint Mobile, a budget mobile carrier that is partially owned by renowned actor Ryan Reynolds. The deal valued at up to $1.35 billion is expected to close later this year and is subject to Mint’s performance.
There were 94 funds tracked by Insider Monkey with long positions in T-Mobile Us Inc, including Warren Buffett’s Berkshire Hathaway, which disclosed a $733.88 million stake in its latest 13F filing. This ranks T-Mobile Us Inc among the 5 Best Communication Stocks to Buy Now.
6. Goldman Sachs (NYSE:GS)
Stock performance since July 2022: 9.32%
Number of Bullish Hedge Funds: 74
Goldman Sachs (NYSE:GS) has seen its stock gain more than 9% since July 2022 and it’s still below the Swiss bank’s price target of $430. In its report, Credit Suisse said that it believed Goldman Sachs’s business were growth businesses and its investments will provide returns through a more resilient earnings stream. Amid the decline of the whole banking segment triggered by the collapse of Silicon Valley Bank and Signature Bank, the depreciation of Goldman Sachs’s shares put it at a P/E of 10.86 making it quite attractive at these levels. The stock also has a forward dividend yield of 3.06%, which justifies Goldman Sachs ranking among 5 Cheap Dividend Stocks to Buy.
At the end of 2022, there were 74 funds in our database that held shares of Goldman Sachs with a total value of $4.90 billion.
5. Discover Financial Services (NYSE:DFS)
Stock performance since July 2022: 1.18%
Number of Bullish Hedge Funds: 52
On Discover Financial Services (NYSE:DFS) Credit Suisse analysts were bullish on the belief that the company would grow its card balance. However, since then, the price target was revised down from $140 to $120. In the fourth quarter, Discover Financial Services saw an increase in card accounts of 17% on the year, which helped the company grow its sales by 8%. Overall, in 2022, Discover Financial Services saw net income of $15.50 per share in 2022. Moreover, the financial company bought back $2.4 billion worth of stock in 2022 and raised its dividend by 20%.
At the end of 2022, there were 52 funds tracked by Insider Monkey holding $1.34 billion worth of stock, a substantial increase from 40 funds with $1.12 billion worth of shares a quarter earlier.
4. Knight-Swift Transportation Holdings Inc (NYSE:KNX)
Stock performance since July 2022: 18.59%
Number of Bullish Hedge Funds: 34
Transportation company Knight-Swift Transportation Holdings Inc (NYSE:KNX) saw its stock appreciate by 18.59% since July 2022. The company’s latest quarterly results showed an EPS of $1.00, missing the estimates by $0.11. For the current year, Knight-Swift Transportation Holdings Inc expects adjusted EPS between $4.05 and $4.25, and anticipates a more challenging environment in the first half followed by a recovery in the last six months of 2023.
There are 52 investors in our database long Knight-Swift Transportation Holdings Inc according to the latest round of 13F filings. Among the notable shareholders we can mention Dmitry Balyasny’s Balyasny Asset Management and Cliff Asness’ AQR Capital Management with stakes worth $82.10 million and $76.06 million, respectively.
3. Emerson Electric Co (NYSE:EMR)
Stock performance since July 2022: 8.44%
Number of Bullish Hedge Funds: 32
About Emerson Electric Co (NYSE:EMR), Credit Suisse analysts said that they expected it to post strong free cash flow growth as the company would expand its upstream activity towards international markets. The provider of automation solutions for the manufacturing sector is currently attempting to acquire measurement equipment company National Instruments Corp (NASDAQ:NATI), having submitted a $7.0 billion bid. However, National Instruments announced that two other companies, Fortive Corp (NYSE:FTV) and Keysight Technologies Inc (NYSE:KEYS), can also submit their offers, so an official deal is yet to be announced.
During the fourth quarter, Emerson Electric Co saw a decline in hedge fund sentiment as the number bullish investors declined to 32 from 48, while the total value of their holdings slid to $780.90 million from $1.15 billion.
2. Motorola Solutions Inc (NYSE:MSI)
Stock performance since July 2022: 36.20%
Number of Bullish Hedge Funds: 38
Then there’s Motorola Solutions Inc (NYSE:MSI), another profitable pick of Credit Suisse, as the stock has advanced by more than 36% since July 2022. Swiss bank’s analysts stated that they had strong conviction in the company’s business model and pipeline, among other things. In the fourth quarter, Motorola Solutions Inc recorded EPS of $3.60 and revenue of $2.71 billion, topping the consensus estimates by $0.17 and $171.78 million, respectively.
In its fourth quarter investor letter, ClearBridge Investments mentioned Motorola Solutions Inc as a profitable long-term holding, saying that the company “continues to execute at a high level and should see further upside from stimulus money directed toward public safety investments as well as increasing penetration of its software and services offerings.”
Overall, there were 38 funds bullish on Motorola Solutions Inc at the end of 2022, up by five over the quarter.
1. Teck Resources Ltd Class B (NYSE:TECK)
Stock performance since July 2022: 22.57%
Number of Bullish Hedge Funds: 62
Last, but not least, Teck Resources Ltd Class B (NYSE:TECK) saw its share price grow by 22.57% since Credit Suisse mentioned it in its July 2022 report, highlighting the strong outlook on the Met Coal and the company’s growth in the copper mining segment. Similarly, hedge funds tracked by Insider Monkey also maintain a bullish sentiment on Teck Resources Ltd Class B with the number of investors with long positions jumped by 15 to 62 during the fourth quarter of 2022.
Recently, Teck Resources Ltd Class B has been approached by mining giant Glencore, which made an unsolicited offer to acquire Teck in an all-stock deal. However, Teck Resources Ltd Class B rejected the transaction as it is planning to restructure its business and create two independent companies by spinning out its steelmaking coal business. The spin-off will allow Teck Resources to focus on metals, in particular copper. Shareholders are expected to vote on the split in April.
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This article is originally published at Insider Monkey.
