This Analyst Is Betting on Bouncebacks in 2019

Most of Wall Street is done picking stocks in 2018. Standpoint is just getting started on 2019.

Rich Smith
Rich Smith
Dec 26, 2018 at 2:31PM
Industrials

Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

'Twas the day after Christmas, and all down Wall Street, not an analyst was stirring, none making a peep -- except for Standpoint Research.

Stock ratings watchers StreetInsider.com and TheFly.com show Wall Street analysts mostly quiet in this abbreviated trading week. Standpoint Research, however, is making some high-profile bets on some of the market's biggest names bouncing back in 2019. According to StreetInsider.com (subscription required), so far today Standpoint has already slapped buy or accumulate ratings on no fewer than seven new stock picks, and upgraded five more, making for a round dozen of potential winners in 2019.

Here's what you need to know.

Glowing red stock arrow trending down

2018 was a lousy year for these stocks. Might 2019 be better? Image source: Getty Images.

What Standpoint likes

UPS and General Mills, Citigroup and Caterpillar -- these are just a few of the dozen names Standpoint likes to outperform in 2019. But why these stocks in particular?

The stock market as a whole is down abysmally this year, with the S&P 500 having lost 12% of its value, the Dow down more than 11%, and the Nasdaq off more than 10%. But most of the stocks that Standpoint highlighted today have suffered even more. Of the 12 stocks named, only three -- Target, Hewlett-Packard, and Oracle (NYSE:ORCL) -- have outperformed the averages. Everyone else has underperformed, with Kraft Heinz in particular falling 45% since the year began, and AbbVie, Carnival (NYSE:CCL), Eastman Chemical and Marathon Petroleum all off by big double-digit percentages.

If I may be forgiven for mixing metaphors, it looks to me like Standpoint is both scraping the bottom of the barrel...and shooting any fish it finds down there.

"Cheap" is the watchword for 2019

Because these stocks are cheap-with-a-capital-C. I mean, just look at the valuations! A quick review of P/E ratios, which you can do yourself by entering Standpoint's picks into a screener like finviz.com, will show you that every single stock being picked today sells for a forward price-to-earnings ratio of less than 12. For that matter, even when valued on the more reliable data of trailing P/E, every single stock Standpoint has picked comes in below the S&P 500's average P/E ratio of 18.

In short, these stocks look cheap.

But not just cheap

Neither StreetInsider nor TheFly have much information to add about Standpoint's reasons for picking these 12 stocks in particular to outperform in 2019. Indeed, aside from confirming the analyst's ratings, there's no additional information to be had -- not so much as a target stock price.

And yet, you have to figure that cheapness isn't the only thing Standpoint Research is on the lookout for as we head into 2019. After all, Ford and General Motors stocks, for example, are both trading for less than six times forward earnings today, but Standpoint didn't upgrade either of them. So what else could it be that the analyst is looking for?

Well, take Oracle for instance. Earlier this month, Fool.com contributor Todd Campbell singled out Oracle as one of the top stock repurchasers of 2018. Oracle spent more than $10 billion buying back its own shares last quarter alone -- and $51.5 billion over the past five years. That kind of repurchase activity speaks not only to Oracle management's conviction that its stock is bargain-priced. If it continues, it will provide a backstop that should prevent the shares from falling as much as the broader market. (And indeed, Oracle shares are down less than 10% -- and less than the S&P 500 -- over the past year.)

Or consider the case of Carnival. Its shares got pummeled after Q4 earnings last week. Yet Carnival met expectations, achieved "the highest revenue yields in [its] history," and predicted that 2019 would be another year of record sales and profits. Running a successful and profitable business, it seems, is another mark in stocks' favor for Standpoint.

And of course, there's the obvious point: In addition to cheapness, all of the 12 stocks recommended by Standpoint Research today pay dividends -- and most of them yield more than the sub-2% average dividend yield on the S&P 500 today. Indeed, according to finviz data, AbbVie, General Mills, and Kraft Heinz all yield over 5% -- more than twice the average dividend yield of most other stocks.

The upshot for investors

According to The Wall Street Journal (subscription required), some of the best-performing stocks of 2018 were the so-called "Dogs of the Dow" -- large stocks selling for cheap P/E ratios and paying solid dividends. And it sure looks to me like Standpoint Research is betting that 2019 will look a lot like 2018.

Maybe it's right about that, and maybe it's wrong. Either way, I suspect investors can't go too far wrong by focusing on buying cheap stocks with big dividends as we enter the new year in the midst of a roaring bear market.