We recently compiled a list of the Oppenheimer’s Favorite Stocks For Next 12 Months: Top 32 Stock Picks. In this article, we are going to take a look at where International Flavors & Fragrances Inc. (NYSE:IFF) stands against Oppenheimer’s other favorite stocks for the next 12 months.
The tail end of August is appearing to turn a fresh page for Wall Street. The highlight event of the month was the Federal Reserve’s Jackson Hole Economic Summit, where Fed Chair Jerome Powell was expected to set the tone for the central bank’s interest rate cut cycle. Powell didn’t disappoint and commented that the “upside risks to inflation have diminished. And the downside risks to employment have increased” which leads him to conclude that the “time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
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Naturally, investors took this in full stride and the benchmark S&P flagship index soared by 1.01% to be just 1% shy of its record high in July. Before Chair Powell’s comments, earlier in the month, investment bank Oppenheimer had released its latest list of 32 stocks for the next twelve months. These stocks have been picked on the basis of their fundamentals, say the firm’s analysts, and are the “most timely” as per the firm’s analysts.
This latest set of stock picks comes as the firm has grown progressively bullish about the stock market over the course of 2024. The year started out with a report that set a 2024 close target for the flagship benchmark S&P index at 5,200. Right now, the index is at 5,634, so safe to say, the market has continued to defy expectations primarily because of investor mania for artificial intelligence. As he quoted chief investment strategist John Stoltzfus’s 5,200 index target, analyst James Watt admitted that while 2024 is the crucial election year in America, his firm’s clients should instead focus on the economy.
Taking a bullish view, the analyst shared that with “growing GDP, a jobs picture that continues to be strong, moderating inflation, and stable interest rates, our economic statistics look good.” Watt also commented on the interest rate scenario and conceded that “long term interest rates are notoriously hard to predict.” However, the economists’ expectations back then were “anywhere between one and three interest rate cuts,” and these could lead to the “tremendous amount of cash on the sidelines which will eventually be invested over the coming years” creating further upward pressure on equities.
One key factor that Watt mentioned is something that we’ve come across in analysis done by other investment firms too. Sharing “that the universe of investable stocks has significantly decreased over the years,” he also shared that “there are only 35 companies with a capitalization over $200 billion and just 83 companies with a capitalization over $100 billion.” These “are the companies the vast bulk of funds are invested in,” with the analyst warning that the key implication from this could lead to the supply and demand driving “the price of these dramatically due to limited supply.”
As the second quarter of 2024 came to a close, Watt’s views on the bifurcation in the stock market based on market capitalization remained unchanged. In his overview for Q3 2024, the analyst shared that “the NASDAQ and S&P are not really diversified when it comes to performance.” Since this concentration in just a handful of securities tends to nudge investors towards a non diversified stock portfolio, the analyst added that this “anomaly hasn’t always been the case but the long term benefits of diversification have remained a constant way to get through various market gyrations.”
However, by Q3, the financial firm’s views on the benchmark flagship S&P index had evolved. By then, Stoltzfus has first increased the target to 5,500 from 5,200 in March, sharing that an evolution in investor “mindset driven not so much by fear and greed but a need to invest for intermediate to longer-term goals suggest to us an opportunity to tweak our target higher.” As if this wasn’t enough, the strategy lead was out with another revision in August.
This boosted the target to 5,900 on the back of an upward revision of the P/E multiple to 23.1 from the earlier 22. Two additional key factors that drove the strategist’s optimism were an innovation cycle that was both cyclical and secular driving all 11 S&P sectors, and a generational shift in investment strategies driven “not so much by fear and greed but a need to invest for intermediate to longer term goal.”
Stoltzfus followed up a month later with an in depth analysis of the top 500 S&P index firms’ Q2 earnings to see which sectors had done well despite the mixed economic climate. Mind you, this analysis came just before his firm had released its latest set of 32 stocks, so it is important to learn its conclusions from the Q2 2024 earnings season. The strategist shared that the four sectors that were seeing double digit earnings growth were health care, financials, utilities, and consumer discretionary. Their earnings growth sat at 17%, 13%, 15%, and 16%, respectively. Stoltzfus added that nine out of 11 sectors had shown positive earnings growth, with the 8.5% overall growth leading to a surprise upside.
Looking at the robust data set, the analyst concluded:
“We remain overweight US equities while maintaining some meaningful exposure to international developed and emerging markets as the US Central Bank moves towards easier policy on greater confidence that its efforts to put untoward levels of inflation in check have been or are growing closer to being met. Volatility should be expected as the economy and the markets navigate the transitions taking place in the economy and monetary policy in a move towards greater normalization.”
So, as Oppenheimer continues to keep its eye on the evolving US economy and markets, we decided to see which stocks are on its radar.
Our Methodology
To make our list of Oppenheimer’s top stocks, we ranked its latest list of 32 stocks by the average analyst share price percentage upside.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A lab technician analyzing natural food protection ingredients to ensure quality products.
International Flavors & Fragrances Inc. (NYSE:IFF)
Share Price Upside: 2%
Number of Hedge Fund Investors In Q2 2024:46
Average Analyst Share Price Target: $102.51
International Flavors & Fragrances Inc. (NYSE:IFF) is a specialty raw materials provider that sells chemicals and fragrances used in perfumes, materials used by the pharmaceutical industry, ingredients used in food and beverages, and other items. This lends its business a degree of diversification and cyclical and non cyclical exposure that few companies enjoy. For instance, it allows International Flavors & Fragrances Inc. (NYSE:IFF) to generate stable pharma revenue when the economy is slow, and when it picks up, then its scents division kicks into high gear due to higher discretionary spending by consumers. International Flavors & Fragrances Inc. (NYSE:IFF)’s scale, as evidenced by its 21,500 employees also gives it global exposure which further hedges the business against territory specific macroeconomic headwinds even as it divests its pharma division. Volumes and pricing power are key tenets of International Flavors & Fragrances Inc. (NYSE:IFF)’s hypothesis, and Oppenheimer believes that it has managed economic turbulence well since the firm “is emerging from the industry downturn as a healthier business as it continues to execute on its strategy, productivity initiatives, and balance sheet optimization.”
International Flavors & Fragrances Inc. (NYSE:IFF)’s management shared key details for the lessons that it has learned over the past years during its Q2 2024 earnings call:
“As I did last quarter, I would like to give a brief update on our progress as we work across the organization to refresh our strategy and focus on a business-led operating model. IFF has had a challenging last three years. Constraints on our balance sheet led the Company to underinvest in our core businesses and focused on divestitures. The Company was not structured to effectively navigate the complex and fast moving environment, and we underperformed relative to our peers. We have now had several quarters of growth as we have taken decisive actions to get our businesses back on-track. Our strategy moving forward will be driven by four key pillars: our people, our customer focus, our position as an innovation powerhouse and our operational excellence.
We will engage and empower our people to deliver customer success while we drive profitable market share growth over time. We will also continue to develop sustainable new products and applications that are aligned with our customers’ needs now and in the future, all while being relentless in our commitment to safety, quality and the efficiency in our operations. We have already taken several steps toward resetting and refocusing our operating model, including the announced divestiture of Pharma Solutions, which is still on-track to close in the first half of 2025, and our pivot to an end-to-end business-led operating model that will promote greater accountability and better performance. We are also working hard to improve employee engagement and are seeing positive results.”
Overall IFF ranks 26th on our list of Oppenheimer’s favorite stocks for the next 12 months. While we acknowledge the potential of IFF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IFF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
