Berkshire Hathaway’s big mystery stock wager could be revealed soon

Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.

David A. Grogan | CNBC

Berkshire Hathaway, led by legendary investor Warren Buffett, has been making a confidential wager on the financial industry since the third quarter of last year.

The identity of the stock — or stocks — that Berkshire has been snapping up could be revealed Saturday at the company’s annual shareholder meeting in Omaha, Nebraska.

That’s because unless Berkshire has been granted confidential treatment on the investment for a third quarter in a row, the stake will be disclosed in filings later this month. So the 93-year-old Berkshire CEO may decide to explain his rationale to the thousands of investors flocking to the gathering.

The bet, shrouded in mystery, has captivated Berkshire investors since it first appeared in disclosures late last year. At a time when Buffett has been a net seller of stocks and lamented a dearth of opportunities capable of “truly moving the needle at Berkshire,” he has apparently found something he likes — and in the financial realm no less.

That’s an area he has dialed back on in recent years over concerns about rising loan defaults. High interest rates have taken a toll on some financial players like regional U.S. banks, while making the yield on Berkshire’s cash pile in instruments like T-bills suddenly attractive.

“When you are the GOAT of investing, people are interested in what you think is good,” said Glenview Trust Co. Chief Investment Officer Bill Stone, using an acronym for greatest of all time. “What makes it even more exciting is that banks are in his circle of competence.”

Under Buffett, Berkshire has trounced the S&P 500 over nearly six decades with a 19.8% compounded annual gain, compared with the 10.2% yearly rise of the index.

Coverage note: The annual meeting will be exclusively broadcast on CNBC and livestreamed on CNBC.com. Our special coverage will begin Saturday at 9:30 a.m. ET.

Veiled bets

Berkshire requested anonymity for the trades because if the stock was known before the conglomerate finished building its position, others would plow into the stock as well, driving up the price, according to David Kass, a finance professor at the University of Maryland.

Buffett is said to control roughly 90% of Berkshire’s massive stock portfolio, leaving his deputies Todd Combs and Ted Weschler the rest, Kass said.

While investment disclosures give no clue as to what the stock could be, Stone, Kass and other Buffett watchers believe it is a multibillion-dollar wager on a financial name.

That’s because the cost basis of banks, insurers and finance stocks owned by the company jumped by $3.59 billion in the second half of last year, the only category to increase, according to separate Berkshire filings.

At the same time, Berkshire exited financial names by dumping insurers Markel and Globe Life, leading investors to estimate that the wager could be as large as $4 billion or $5 billion through the end of 2023. It’s unknown whether that bet was on one company or spread over multiple firms in an industry.

Schwab or Morgan Stanley?

If it were a classic Buffett bet — a big stake in a single company —  that stock would have to be a large one, with perhaps a $100 billion market capitalization. Holdings of at least 5% in publicly traded American companies trigger disclosure requirements.

Investors have been speculating for months about what the stock could be. Finance covers all manner of companies, from retail lenders to Wall Street brokers, payments companies and various sectors of insurance.

Charles Schwab or Morgan Stanley could fit the bill, according to James Shanahan, an Edward Jones analyst who covers banks and Berkshire Hathaway.

“Schwab was beaten down during the regional banking crisis last year, they had an issue where retail investors were trading out of cash into higher-yielding investments,” Shanahan said. “Nobody wanted to own that name last year, so Buffett could’ve bought as much as he wanted.”

Other names that have been circulated — JPMorgan Chase or BlackRock, for example, are possible, but may make less sense given valuations or business mix. Truist and other higher-quality regional banks might also fit Buffett’s parameters, as well as insurer AIG, Shanahan said, though their market capitalizations are smaller.

More from Berkshire Hathaway’s Annual Meeting

Buffett & banks

Berkshire has owned financial names for decades, and Buffett has stepped in to inject capital — and confidence — into the industry on multiple occasions.

Buffett served as CEO of a scandal-stricken Salomon Brothers in the early 1990s to help turn the company around. He pumped $5 billion into Goldman Sachs in 2008 and another $5 billion into Bank of America in 2011, ultimately becoming the latter’s largest shareholder.

But after loading up on lenders in 2018, from universal banks like JPMorgan to regional lenders like PNC Financial and U.S. Bank, he deeply pared his exposure to the sector in 2020 on concerns that the coronavirus pandemic would punish the industry.

Since then, he and his deputies have mostly avoided adding to his finance stakes, besides modest positions in Citigroup and Capital One.

‘Fear is contagious’

Last May, Buffett told shareholders to expect more turbulence in banking. He said Berkshire could deploy more capital in the industry, if needed.

“The situation in banking is very similar to what it’s always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”

Wherever he placed his bet, the move will be seen as a boost to the company, perhaps even the sector, given Buffett’s track record of identifying value.

It’s unclear how long regulators will allow Berkshire to shield its moves.

“I’m hopeful he’ll reveal the name and talk about the strategy behind it,” Shanahan said. “The SEC’s patience can wear out, at some point it’ll look like Berkshire’s getting favorable treatment.”

— CNBC’s Yun Li contributed to this report.

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First Berkshire Hathaway annual meeting without Charlie Munger: What to expect from Warren Buffett

Warren Buffett walks the floor and meets with Berkshire Hathaway shareholders ahead of their annual meeting in Omaha, Nebraska on May 3rd, 2024. 

David A. Grogan

When Warren Buffett kicks off Berkshire Hathaway‘s annual shareholder meeting on Saturday, the absence of Charlie Munger will be on everyone’s mind.

Some 30,000 rapt shareholders are descending on Omaha for what’s been called “Woodstock for Capitalists.” Pandemic lockdown apart, it will be the first without Munger, Buffett’s longtime partner who passed away in November about a month shy of his 100th birthday.

“The meeting will only have one comedian up there” this year, said David Kass, a finance professor at the University of Maryland and a Berkshire shareholder, who has attended more than 20 annual meetings. “There’ll be, let’s say, a more serious, less humorous background.”

The annual meeting will be exclusively broadcast on CNBC and livestreamed on CNBC.com. Our special coverage will begin Saturday at 9:30 a.m. ET. For the first time, Berkshire will broadcast its annual meeting movie that had previously always been reserved only for those in attendance in Omaha. Many speculate this year’s will be a tear-jerker tribute to Munger.

Vice Chairman of Non-Insurance Operations Greg Abel, Buffett’s designated successor, will fill Munger’s seat in the afternoon session, helping answer shareholder questions. Vice Chairman of Insurance Operations Ajit Jain will join Buffett, the CEO, and Abel in the morning session. Buffett has said they expect to field about 40 to 60 questions Saturday.

“The tone of the meeting is certainly going to be a lot different without Charlie,” said Steve Check, CEO of Check Capital Management and a longtime Berkshire shareholder. “He was the one that really made it funny. It’s getting closer and closer to the transition, so it’s good to see Ajit and Greg on the stage.”

Warren Buffett and Charlie Munger at a press conference during the Berkshire Hathaway Shareholders Meeting, April 30, 2022.

CNBC

Munger’s investment philosophy rubbed off on Buffett early on, giving rise to the sprawling conglomerate worth $860 billion that Berkshire is today. Generations of investors also appreciated Munger’s trademark bluntness and humor, rare to come by on Wall Street.

If anything, the sea of Buffett admirers will cherish his folksy wisdom even more as the “Oracle of Omaha” turns 94 in less than four months.

Here are some of the big topics shareholders want Buffett to discuss:

  • Inflation: Price pressures have proved sticky lately. What impact is inflation having on Berkshire’s businesses? Which businesses are being hurt (and helped) the most?
  • Apple: Why did Berkshire trim its Apple stake in the fourth quarter? Investors will look for Buffett’s outlook on the tech stock given its challenges in China and recent news of a giant, $110-billion stock buyback.
  • Secret stock pick: Berkshire has been buying a financial stock for two quarters straight. What is it?
  • Record cash: Does Buffett plan to put his record level of cash to work?
  • A slowdown in buybacks: With Berkshire shares outperforming this year, will Buffett continue to slow down his own buyback program?
  • Life after Buffett: More details on Berkshire’s succession plan.

Macro commentary

The annual meeting comes at a tricky time for markets as a pickup in inflation puts the brakes on the Federal Reserve’s plan to cut interest rates this year. While the Berkshire CEO doesn’t make investment decisions based on daily headlines, investors still are eager to hear any market commentary and guidance from the protege of the father of value investing, Ben Graham.

“They don’t time their investments,” Kass said of Berkshire. “The economy goes through cycles. They totally ignore cycles. They invest for a long run, and they really ignore what pretty much what the Federal Reserve is doing. I believe that will be his answer.”

Apple

Shareholders may seek an explanation as to why Berkshire sold about 10 million Apple shares (1% of its massive stake) in the fourth quarter. At the end of 2023, Berkshire owned 905,560,000 shares of the iPhone maker, worth more than $174 billion and taking up more than 40% of the portfolio.

The move came as a surprise to many because Apple has been Buffett’s favorite stock for years, and he even called the tech giant his second-most important business after Berkshire’s cluster of insurers. What’s more, the last time Buffett trimmed this bet, he admitted it was “probably a mistake.’

Shares of the iPhone maker got a big boost Friday after the firm announced that its board had authorized $110 billion in share repurchases, the largest in company history. However, Apple posted a decline in overall sales and in iPhone sales.

Secret holding

There’s a small chance that Buffett will reveal the identity of the mystery bank stock that Berkshire has been buying for two quarters straight.

In the third and fourth quarters of 2023, Berkshire requested that the Securities and Exchange Commission keep the details of one or more of its stock holdings confidential. Many speculated that the secret purchase could be a bank stock as the conglomerate’s cost basis for “banks, insurance, and finance” equity holdings jumped by around $2.37 billion.

“He will comment as late as possible…. Charlie would be the only one that would let it slip once in a while. It’s not going to happen with Warren,” Check said.

Succession

Berkshire’s succession could be front and center at this meeting after Munger’s passing. Abel, became known as Buffett’s heir apparent in 2021 after Munger inadvertently made the revelation.

Abel has been overseeing a major portion of Berkshire’s sprawling empire, including energy, railroad and retail. Buffett revealed previously that Abel’s taken on most of the responsibilities at Berkshire.

Still, some questions remain as to who will be helping allocate capital at Berkshire, and the roles of Buffett’s investing managers Ted Weschler and Todd Combs, who is also the CEO of Geico.

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Homeownership isn’t for everyone, money coach says: Don’t fall for artificial ‘pressure to buy’

Jannese Torres is the founder of the blog Delish D’Lites and the podcast “Yo Quiero Dinero.”

Photo Jannese Torres

In her upcoming book, “Financially Lit!: The Modern Latina’s Guide to Level Up Your Dinero & Become Financially Poderosa,” author Jannese Torres discusses how she became the first woman in her family to graduate from college, build a career and achieve what she believed were marks of success.

Yet in her pursuit of the American dream, she realized that she didn’t know what to do with her financial success. She also realized certain milestones, such as homeownership, often aren’t so much achievements as a new set of challenges.

“It’s just important for people not to just feel this pressure to buy a home because you’re a certain age or you’ve reached a certain life milestone,” said Torres, a Latina money expert who hosts the podcast “Yo Quiero Dinero” and an entrepreneurship coach who helps clients pursue financial independence.

As part of its National Financial Literacy Month efforts, CNBC will be featuring stories throughout the month dedicated to helping people manage, grow and protect their money so they can truly live ambitiously.

CNBC spoke with Torres in early April about what drove her to write her new book, how she has worked through “financial survivor’s guilt,” and why pursuing the American dream can become a nightmare for some.

(This interview has been edited and condensed for clarity).

‘Nobody talks about the grief that comes with growth’

“I wanted to write the book that I needed when I was graduating from high school and that could have saved me from making a lot of financial mistakes because I didn’t learn anything about money,” said Jannese Torres, author of “Financially Lit!: The Modern Latina’s Guide to Level Up Your Dinero & Become Financially Poderosa.”

Courtesy: Jannese Torres

Ana Teresa Solá: What drove you to write this book? 

Jannese Torres: When I was doing the market research for the book, one of the things that I did was look and see what the competitive market looked like out there, or if there is a reason that this book needs to exist. 

I couldn’t find a single book that was specifically marketed to the Latina community or Latinos in general being the majority minority in this country. 

Our families have told us to go and pursue the American dream, but we haven’t been given instructions for how to manage the emotions that come with it.

I felt like I wanted to write the book that I needed when I was graduating from high school and that could have saved me from making a lot of financial mistakes because I didn’t learn anything about money. The more that I’ve talked to folks through the podcast and through my social media platforms, that’s been a very common sentiment. We’re told to go to school, get a job and make money, but then that’s the end of the conversation. What do we actually do with it? 

ATS: Like many younger generations of Latinos in the U.S., you overcame many hurdles and achieved major goals. But you describe in the book that these milestones also come with a sense of guilt. Why is guilt tied to success? 

JT: I call it “financial survivor’s guilt” because this is one of those things that we have not been prepared for. Our families have told us to go and pursue the American dream, but we haven’t been given instructions for how to manage the emotions that come with it. Nobody talks about the grief that comes with growth. Nobody talks about what it feels like to be on the other side of the struggle when so many people that you love are still there and you feel powerless to help them all. 

Looking back at it now, it’s like I was making all these decisions because of what other people valued versus asking myself what I actually value.

It’s going to require folks to give themselves some compassion, and to be okay to feel those feelings. But don’t let them sabotage you. It’s going to require some boundaries that you learn to exercise and also being okay with feeling like you’re on this island by yourself. When you’re the first to do something, it’s always going to feel uncomfortable. But if we don’t have examples of people who can make it out, I think it’s going to be much harder for folks to believe that they can do it, too. 

‘I was over my head very quickly’

ATS: Walk me through the chapter or that point in time when you bought a house, but it wasn’t all you thought it would be. 

JT: Looking back at it now, I was falling victim to the American dream. As a first-generation kid, my parents didn’t invest. The only thing that we saw as examples of “making it” was when family members would buy homes: The sacrifices were worth it and this is the thing that you have to show for your success.

When you’re the first to do something, it’s always going to feel uncomfortable. But if we don’t have examples of people who can make it out, I think it’s going to be much harder for folks to believe that they can do it, too. 

Jannese Torres

Latina money expert and entrepreneurship coach

I definitely felt the pressure to keep up with the Joneses in that respect. I was turning 30 years old and I saw friends buying homes, getting married, doing all those things that are on the successful adult checklist of life. When I decided to purchase the home, it was coming from a place of, “Well, I need to do this too, because this is just what everybody does.”

I quickly realized that I bought a home in a place that I didn’t even want to live in. 

Looking back at it now, it’s like I was making all these decisions because of what other people valued versus asking myself what I actually value. The freedom to have that flexibility that comes with renting is something that I valued much more.

But I felt like I was falling victim to that narrative that says, “You’re wasting money if you rent, and successful adults purchase homes.” It took a lot of unlearning of those narratives and realizing that just because something works for one person doesn’t mean that it’s universally applicable. 

Homeownership is one of those things where more people need to question if they have the personality, lifestyle, or the value system for this, or are you just wanting to do it because that’s what everybody else is telling you to do. 

Jannese Torres

Courtesy: Jannese Torres

ATS: What would you tell someone who’s financially comfortable or has reached certain benchmarks where they could potentially invest in a property but are still wary about it? 

JT: One of the things that made me realize I was over my head very quickly was the fact that two weeks into moving into the home, I discovered that the basement would flood. The sewer line was blocked, and that was not something that we checked during inspection. I ended up having to spend $4,000 on replacing the pipe in the basement two weeks after moving in. That pretty much depleted the little money that I had left over after closing costs. 

I ended up having to take a 401(k) loan to pay for repairs and putting things on credit cards. It’s important to realize that closing costs, the fees and the down payment are just the beginning.

There’s this narrative where if you get a mortgage, then you’re going to be paying the same amount of money forever and that’s why you should buy a home instead of renting. And I’m like, “Absolutely not.” Your property taxes and insurance will increase. You’re not going to be able to predict when things go wrong in the home and when you need to fix something. 

You have to make sure you can afford the maintenance costs and the things that will inevitably come with homeownership. And from a value perspective, you have to really be honest with yourself: “Does this suit my lifestyle? Do I want to stay in this place for like a decade or more? … Or do I want the flexibility to give my landlord 30 days’ notice and be able to move somewhere else? Are you in a job that feels like it’s something you want to do long term? Or do you want to make a career pivot?”

‘The American dream is more of an illusion’

ATS: Do you think the American dream has changed? 

JT: I definitely do think that the American dream is in the process of being redefined because it has become so inaccessible, especially to the newer generations. I think there was this path to “success” where you could go to school, you could buy a home with a regular job, and previous generations were not saddled with the level of student loan debt and the cost of living was not as high. There’s factors in play that are making the American dream obsolete or at least inaccessible to people. 

We are seeing sort of this questioning of it and this shift. I think that the Great Recession was a big impetus for people starting to wonder. It feels very much like the American dream is more of an illusion for a lot of folks, and I am curious to see where it goes.

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Influencer Tori Dunlap is spurring women to maximize their savings and invest in the stock market

As Tiffany Mane read a personal finance book during her train ride to work, a woman sitting near her acknowledged that she, too, knew of the author. Shortly after, several bystanders began inquiring into its contents.

Mane was reading “Financial Feminist” by Tori Dunlap. The late-2022 release is one piece of the Her First $100K empire, a money-focused education platform targeted at women and other marginalized groups.

That commuting experience highlights the growing community built around Dunlap’s wisdom. And there’s a cyclical effect at play: Women utilize Dunlap’s resources to improve their financial lives, and then share the information with others.

“It really has changed my life,” said Mane, a 35-year-old human rights investigator in the Washington, D.C., area. “I realized there are so many women who don’t know this stuff and who don’t have the resources.”

Finance has historically been viewed as a man’s responsibility, creating a disparity within personal economics. New York Life found the average woman saved less than half a man did in 2022. A 2021 survey from NerdWallet showed women were less likely to be invested in the stock market than their male counterparts.

But Dunlap and her growing fanbase are looking to change that.

Dunlap herself rose to prominence by sharing her journey to save $100,000 by 25 years old. She was inspired to document this goal after finding that many existing resources didn’t adequately take into account the unique experiences of marginalized groups.

In Dunlap’s words, a lot of what was out there felt “bro-y” and out of touch with a young woman’s experience. She said society has largely characterized spending by women as “frivolous,” creating a critical culture for those seeking relatable financial advice.

“People want to feel seen and they want to feel heard,” Dunlap said. “This kind of identity-focused personal finance is 100% necessary, and is the future of personal finance.”

‘Finance is personal’

What began as a side hustle on top of a marketing job has grown to a multi-platform product since Dunlap took the leap to run Her First $100K full time in 2019. Her “Financial Feminist” book sold more than 150,000 copies in its first year in print. Dunlap’s podcast of the same name, which typically has one full and one mini episode out per week, touches on topics such as homeownership and recession planning.

Both the Instagram and TikTok accounts for Her First $100K have amassed at least 2 million followers. A Facebook group named after the book has swelled to more than 100,000 members, where Mane and others converse about issues that impact their money and careers.

In that group, members share financial wins and trade advice on topics like which banks or credit cards to use. Some ask anonymous questions as they venture into sensitive subjects such as debt or the economic reality of divorce. Members have also organized virtual book clubs with others in the group to continue the conversation.

Dunlap said she isn’t surprised that the space has become meaningful to members in a society where women are unfairly criticized for their financial choices. She’s also been proud to see a culture free of judgment or shame as participants offer one another validation and feedback.

Tori Dunlap teaching a money workshop.

Courtesy Karya Schanilec

Fans said they appreciate Dunlap’s two-fold approach to financial education. She offers actionable steps to improve their economic lives, they say, while also being cognizant of systematic barriers that make it harder for women and other marginalized groups to build wealth.

Specialized advice can benefit women, as research shows they have less confidence in topics tied to money than men, according to Annamaria Lusardi, senior fellow at the Stanford Institute for Economic Policy Research.

These niche resources would better resonate because they can touch on topics or examples that are disproportionately relevant to the specific population, said Lusardi, who is also founder of the Global Financial Literacy Excellence Center. For women, she said one area of emphasis could be on the economics of having or raising children.

“Finance is personal,” Lusardi said. “As a woman, I feel like I have different needs, have different circumstances. And so I want things more targeted to me.”

A ‘sisterhood’

For those who have engaged with Dunlap’s work and the virtual community, they’ve seen how the advice has changed their financial lives – and now feel inspired to pay it forward. In the words of Mane, the Facebook group feels like being part of a “sisterhood.”

Through Dunlap’s advice and subsequent research, Mane has implemented a plan for budgeting and opened a high-yield savings account. She also opened a Roth individual retirement account, which grows free of taxes, and she is beginning Dunlap’s educational program focused on investing called Stock Market School.

As a result, Mane, a child of immigrants who grew up below the poverty line, said she’s never felt so economically stable. Her upcoming wedding will be paid for in cash, a financial milestone she never thought would be possible.

Mane has gifted the book to several women in her life. The human rights investigator has a copy in her office for curious colleagues, often explaining what it is and has meant to her. Beyond the Facebook group, she’s started passing down tidbits of wisdom to her nieces.

Thousands of miles away, Tierney Barker is seeing parallel effects. The 32-year-old Canadian first found Her First $100K’s resources on budget tracking and debt consolidation.

One of the travel agent’s first big changes was implementing a savings “bucket” strategy — in which money is earmarked for living expenses, goals and fun. Barker has also been finding time to review her finances on a regular basis. Similar to Mane, she opened the Canadian equivalent of a high-yield savings account.

After seeing the impact on her own life, Barker recommended the book to others and requested its addition to her local library in British Columbia. Barker also found herself better equipped to discuss money with other women, something that once felt like a taboo topic that should be mostly reserved for men.

“It’s been easier to talk about it and to be open about it,” Barker said, adding that having the resources is “empowering.”

While Dunlap has been proud to see individuals benefiting from this advice and sharing it with others, she thinks that the work isn’t done.

She said the systematic barriers that disproportionately hurt women and minorities in the business world remain. After the Supreme Court’s decision to overturn Roe v. Wade, Dunlap said it’s more important than ever to push for social equity — including through economics and finance.

“I don’t believe we have any sort of equality for any marginalized group until we have financial equality,” she said. “A financial education is our best form of protest as women.”

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Banks are in limbo without a crucial lifeline. Here’s where cracks may appear next

The forces that consumed three regional lenders in March 2023 have left hundreds of smaller banks wounded, as merger activity — a key potential lifeline — has slowed to a trickle.

As the memory of last year’s regional banking crisis begins to fade, it’s easy to believe the industry is in the clear. But the high interest rates that caused the collapse of Silicon Valley Bank and its peers in 2023 are still at play.

After hiking rates 11 times through July, the Federal Reserve has yet to start cutting its benchmark. As a result, hundreds of billions of dollars of unrealized losses on low-interest bonds and loans remain buried on banks’ balance sheets. That, combined with potential losses on commercial real estate, leaves swaths of the industry vulnerable.

Of about 4,000 U.S. banks analyzed by consulting firm Klaros Group, 282 institutions have both high levels of commercial real estate exposure and large unrealized losses from the rate surge — a potentially toxic combo that may force these lenders to raise fresh capital or engage in mergers.  

The study, based on regulatory filings known as call reports, screened for two factors: Banks where commercial real estate loans made up over 300% of capital, and firms where unrealized losses on bonds and loans pushed capital levels below 4%.

Klaros declined to name the institutions in its analysis out of fear of inciting deposit runs.

But there’s only one company with more than $100 billion in assets found in this analysis, and, given the factors of the study, it’s not hard to determine: New York Community Bank, the real estate lender that avoided disaster earlier this month with a $1.1 billion capital injection from private equity investors led by ex-Treasury Secretary Steven Mnuchin.

Most of the banks deemed to be potentially challenged are community lenders with less than $10 billion in assets. Just 16 companies are in the next size bracket that includes regional banks — between $10 billion and $100 billion in assets — though they collectively hold more assets than the 265 community banks combined.

Behind the scenes, regulators have been prodding banks with confidential orders to improve capital levels and staffing, according to Klaros co-founder Brian Graham.

“If there were just 10 banks that were in trouble, they would have all been taken down and dealt with,” Graham said. “When you’ve got hundreds of banks facing these challenges, the regulators have to walk a bit of a tightrope.”

These banks need to either raise capital, likely from private equity sources as NYCB did, or merge with stronger banks, Graham said. That’s what PacWest resorted to last year; the California lender was acquired by a smaller rival after it lost deposits in the March tumult.

Banks can also choose to wait as bonds mature and roll off their balance sheets, but doing so means years of underearning rivals, essentially operating as “zombie banks” that don’t support economic growth in their communities, Graham said. That strategy also puts them at risk of being swamped by rising loan losses.

Powell’s warning

Federal Reserve Chair Jerome Powell acknowledged this month that commercial real estate losses are likely to capsize some small and medium-sized banks.

“This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” Powell told lawmakers. “We’re working with them … I think it’s manageable, is the word I would use.”

There are other signs of mounting stress among smaller banks. In 2023, 67 lenders had low levels of liquidity — meaning the cash or securities that can be quickly sold when needed — up from nine institutions in 2021, Fitch analysts said in a recent report. They ranged in size from $90 billion in assets to under $1 billion, according to Fitch.

And regulators have added more companies to their “Problem Bank List” of companies with the worst financial or operational ratings in the past year. There are 52 lenders with a combined $66.3 billion in assets on that list, 13 more than a year earlier, according to the Federal Deposit Insurance Corporation.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 7, 2024.

Brendan Mcdermid | Reuters

“The bad news is, the problems faced by the banking system haven’t magically gone away,” Graham said. “The good news is that, compared to other banking crises I’ve worked through, this isn’t a scenario where hundreds of banks are insolvent.”

‘Pressure cooker’

After the implosion of SVB last March, the second-largest U.S. bank failure at the time, followed by Signature’s failure days later and that of First Republic in May, many in the industry predicted a wave of consolidation that could help banks deal with higher funding and compliance costs.

But deals have been few and far between. There were fewer than 100 bank acquisitions announced last year, according to advisory firm Mercer Capital. The total deal value of $4.6 billion was the lowest since 1990, it found.

One big hang-up: Bank executives are uncertain that their deals will pass regulatory muster. Timelines for approval have lengthened, especially for larger banks, and regulators have killed recent deals, such as the $13.4 billion acquisition of First Horizon by Toronto-Dominion Bank.

A planned merger between Capital One and Discovery, announced in February, was promptly met with calls from some lawmakers to block the transaction.

“Banks are in this pressure cooker,” said Chris Caulfield, senior partner at consulting firm West Monroe. “Regulators are playing a bigger role in what M&A can occur, but at the same time, they’re making it much harder for banks, especially smaller ones, to be able to turn a profit.”

Despite the slow environment for deals, leaders of banks all along the size spectrum recognize the need to consider mergers, according to an investment banker at a top-three global advisory firm.

Discussion levels with bank CEOs are now the highest in his 23-year career, said the banker, who requested anonymity to speak about clients.

“Everyone’s talking, and there’s acknowledgment consolidation has to happen,” said the banker. “The industry has structurally changed from a profitability standpoint, because of regulation and with deposits now being something that won’t ever cost zero again.”

Aging CEOs

One deterrent to mergers is that bond and loan markdowns have been too deep, which would erode capital for the combined entity in a deal because losses on some portfolios have to be realized in a transaction. That has eased since late last year as bond yields dipped from 16-year highs.

That, along with recovering bank stocks, will lead to more activity this year, Sorrentino said. Other bankers said that larger deals are more likely to be announced after the U.S. presidential election, which could usher in a new set of leaders in key regulatory roles.

Easing the path for a wave of U.S. bank mergers would strengthen the system and create challengers to the megabanks, according to Mike Mayo, the veteran bank analyst and former Fed employee.

“It should be game-on for bank mergers, especially the strong buying the weak,” Mayo said. “The merger restrictions on the industry have been the equivalent of the Jamie Dimon Protection Act.”

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Pimco’s Sonali Pier lets her ‘cautious contrarianism’ speak for itself: The bets she’s making now

Sonali Pier is a portfolio manager with Pimco

Pimco’s Sonali Pier strives for outperformance.

The youngest of three and the daughter of Indian immigrants, Pier set her sights on Wall Street after graduating from Princeton University in 2003. She began her career at JPMorgan as a credit trader, a field that doesn’t have a lot of women.

“In the ladies room, I don’t bump into a lot of people,” said Pier, who moved from New York to California in 2013 to join Pimco.

Fortunately, she’s seen a lot of changes over the years. There has not only been some progress for women entering the financial business, but the culture has also changed since the financial crisis to become more inclusive, she said. Plus, it’s an industry where there is clear evidence of performance, she added.

“There’s accountability,” she said, in a recent interview. “Therefore, the gender role starts to break down a little bit. With responsibility and accountability and a number to your name, it’s very clear what your contributions are.”

Pier has risen through the ranks since joining Pimco and is now a portfolio manager within the firm’s multi-sector credit business. The 42-year-old mother of two credits mentors for helping her along the way, as well as her husband for supporting her and moving to California sight unseen. Her father also raised her to value education and hard work, Pier said.

“He was the quintessential example of the American dream,” she said. “Being able to see his hard work and a lot of progress meant that I never thought otherwise, that hard work wouldn’t lead to progress.”

Pier’s work has not gone unnoticed. Morningstar crowned her the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.

“Pier’s cautious contrarianism and rising influence at one of the industry’s premier and most internally competitive fixed-income asset-management firms stands out,” Morningstar said at the time.

Putting her investment strategy to work

Pier is the lead manager on Pimco’s Diversified Income Fund, which was among the top performers in its class — ranking in the 13th percentile on a total return basis in 2023, according to Morningstar. It has a 30-day SEC yield of 5.91%, as of Jan. 31.

“We’re really broadly canvassing the global landscape, and then looking for where there’s the best opportunities,” Pier said. “It’s getting the interest rate sensitivity from investment grade, high-quality parts of EM [emerging markets], and the equity-like sensitivity from high yield and the low-quality parts of EM.”

The fund also invests in securitized assets, with about 23% of the portfolio is allocated to the sector, as of Jan. 31.

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Pimco Income Diversified Fund

While the fund has a benchmark, the Bloomberg Global Credit Hedged USD Index, it is “benchmark aware” and doesn’t “hug it,” Pier said.

Morningstar has called the fund a “standout.”

“Pimco Diversified Income’s still ample staffing, deep analytical resources, and proven approach make it a top choice for higher-yielding credit exposure,” Morningstar senior analyst Mike Mulach wrote in January.

It hasn’t always been smooth sailing. The fund has more international holdings and a more credit-risk-heavy profile than its peers, which has sometimes “knocked the portfolio off course,” like it did in 2022 during the Russia-Ukraine conflict, Mulach said. Still, he likes it over the long term.

So far this year, the fund is relatively flat on a total return basis.

In addition to also leading PDIIX, Pier is also a manager on a number of other funds, including the PIMCO Multisector Bond Active ETF (PYLD), which was launched in June 2023. It currently has a 30-day SEC yield of 5.12%, as of Tuesday, and an adjusted expense ratio of 0.55%.

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Multisector Bond Active Exchange-Traded Fund performance since its June 21, 2023 inception.

“It’s maximizing for yield, while looking for capital appreciation, and obviously, with the same Pimco principles of wanting to keep up on the upside, but manage that downside risk,” she said.

Where Pier is bullish

Right now, Pier prefers developed markets over emerging markets and the U.S. over Europe.

Within investment-grade corporate, she likes financials over non-financials. Credit spreads have widened in financials over the concerns about regional banks, she said.

“Maybe some of it’s warranted for the fact that they need to issue significant supply year after year, but we think that the metrics of, say, the big six … look quite resilient on a relative basis,” Pier said.

Within corporate credit, the team looks at the “full flexibility of the toolkit,” she noted. That could include derivatives and cash bonds, she added.

“Are we looking at the euro bond or the dollar bond in the same structure? The front end or the long end? Cash versus derivatives? However we can most efficiently express our view and trade that will lead to the best total return,” Pier said.

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Top Wall Street analysts favor these five dividend stocks during tumultuous times

A sign bearing the logo for communications and security tech giant Cisco Systems Inc. is seen outside one of its offices in San Jose, California, Aug. 11, 2022.

Paresh Dave | Reuters

The market’s volatility as of late is making dividend-paying stocks seem all the more appealing to investors in search of some stability.

Investors must check the fundamentals of the dividend-paying company and its ability to sustain those payments over the long run before adding the stock to their portfolio.

Bearing that in mind, here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Civitas Resources  

First on this week’s dividend list is Civitas Resources (CIVI), an oil and gas producer focused on assets in the Denver-Julesburg and Permian Basins. The company paid a dividend of $1.74 per share in late September, which included a quarterly base dividend of 50 cents per share and a variable dividend of $1.24.  

Civitas recently announced an agreement with Vencer Energy to acquire oil-producing assets in the Midland Basin of West Texas for $2.1 billion. The acquisition, anticipated to close in January 2024, is expected to boost CIVI’s free cash flow per share by 5% in 2024.  

Jefferies analyst Lloyd Byrne has a constructive view on the acquisition, as it enhances the company’s scale in the Midland at a relatively low price.

“We believe CIVI acquired one of the few Permian privates remaining that is accretive to asset quality,” said Byrne.

In line with his optimism on the deal, Byrne raised his price target for CIVI to $102 from $100 and reiterated a buy rating, saying that the stock remains cheap given an estimated free cash flow yield of about 23% in 2024.

Byrne ranks No. 64 among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, with each delivering an average return of 32.1%. (See Civitas’ Stock Charts on TipRanks)  

Bristol Myers Squibb

Next up is biopharmaceutical company Bristol Myers Squibb (BMY). In September, the company announced a quarterly dividend of 57 cents per share, payable on Nov. 1. This dividend marks a year-over-year increase of 5.6%. BMY’s dividend yield stands at 4%.

On Oct. 8, BMY announced an agreement to acquire biotechnology company Mirati Therapeutics for a total consideration of up to $5.8 billion. The acquisition is expected to bolster the company’s oncology portfolio and help mitigate the loss of sales due to patent expirations in the years ahead. Importantly, BMY will gain access to Krazati, a key lung cancer medicine, which was approved in December 2022.

Given the ongoing commercial launch of Krazati, Goldman Sachs analyst Chris Shibutani views the proposed deal as a strategic positive for BMY, “potentially providing a bridge as its new product portfolio continues to seek its footing while its expansive developmental-stage pipeline incubates with much of its value not to be realized in the near-term.”

Krazati generated sales of over $13 million in the second quarter of 2023 and Goldman Sachs currently estimates the drug will deliver sales of $347 million, $1.8 billion, and $2.1 billion in 2025, 2030, and 2035, respectively. Overall, the analyst expects the Mirati acquisition to provide both commercial and pipeline support to Bristol Myers Squibb.

Shibutani reiterated a buy rating on BMY with a price target of $81. He holds the 288th position among more than 8,500 analysts on TipRanks. Moreover, 42% of his ratings have been profitable, with each generating an average return of 18.9%. (See BMY Blogger Opinions & Sentiment on TipRanks)

Chesapeake Energy

Another Goldman Sachs analyst, Umang Choudhary, is bullish on oil and gas exploration and production company Chesapeake Energy (CHK). The company returned about $515 million to shareholders year-to-date through the second quarter via base and variable dividends and share repurchases. 

It recently hiked its quarterly base dividend per share by 4.5% to $0.575. Considering only the base dividend, CHK offers a dividend yield of about 2.6%.

Following a meeting with Chesapeake’s management, Choudhary reaffirmed a buy rating on the stock with a price target of $91. The analyst noted that given the uncertainty in the natural gas price outlook, the company is focused on maintaining operational flexibility to adjust its capital expenditure based on gas prices.

The analyst added, “Management reiterated its focus on maintaining a strong balance sheet (including moving to investment grade) and capital returns (including growing fixed dividend + variable dividend based on commodity prices and counter-cyclical share repurchases).”

Choudhary ranks No.478 among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 77% of the time, with each delivering a return of 39.4%, on average. (See Chesapeake Insider Trading Activity on TipRanks)

EOG Resources

Let’s look at another energy company: EOG Resources (EOG). Back in August, the company declared a quarterly dividend of $0.825 per share, payable on Oct. 31. Based on this quarterly dividend, the annual dividend rate comes to $3.30 per share, bringing the dividend yield to 2.5%.

Under its cash return framework, EOG is committed to return a minimum of 60% of annual free cash flow to shareholders through regular quarterly dividends, special dividends and share repurchases. EOG generated free cash flow of $2.1 billion in the first six months of 2023. Overall, the company’s robust free cash flow supports its attractive shareholder returns.

Ahead of the company’s third-quarter results, due in early November, Mizuho analyst Nitin Kumar reiterated a buy rating on EOG stock and slightly raised the price target to $158 from $157.

The analyst thinks that investors will likely focus on a potential special dividend and a hike in base dividend, as EOG continues to generate strong free cash flow. They might also pay attention to inventory depth and quality due to the underperformance of Eagle Ford and Permian wells. The analyst expects third-quarter 2023 EBITDA of $3.205 billion compared to the consensus estimate of $3.185 billion.

“We estimate a modest (~0.6%) beat on 3Q23 EBITDA from EOG with volumes in-line and pricing slightly ahead of consensus,” said Kumar.

Kumar ranks No.33 among more than 8,500 analysts on TipRanks. His ratings have been profitable 75% of the time, with each delivering an average return of 20.4%. (See EOG Financial Statements on TipRanks)

Cisco Systems

Computer networking giant Cisco Systems (CSCO) is the final dividend stock in this week’s list. The company returned $10.6 billion to shareholders through cash dividends and stock repurchases in fiscal 2023 (ended July 29). Fiscal 2023 marked the 12th consecutive year in which the company increased its dividend. Cisco offers a dividend yield of 2.9%.

Tigress Financial analyst Ivan Feinseth recently reiterated a buy rating on Cisco stock and increased the price target to $76 from $73. (See Cisco Hedge Fund Trading Activity on TipRanks). 

The analyst is bullish on the company’s long-term prospects and expects it to continue to benefit from higher spending on information technology due to the need for increased speed, network security and artificial intelligence implementation. He also expects the recently announced acquisition of cybersecurity firm Splunk to be an additional growth catalyst.

“CSCO’s industry-leading position and strong brand equity enable it to benefit from key secular IT trends, including cloud migration, AI development, the high-speed 5G network rollout, WiFi 6, and the increasing connectivity needs of the IoT [internet of things],” said Feinseth.

Overall, the analyst thinks that Cisco’s solid balance sheet and strong cash flows could support its growth initiatives, strategic acquisitions and enhance shareholder returns.

Feinseth holds the 349th position among more than 8,500 analysts on TipRanks. His ratings have been successful 57% of the time, with each rating delivering an average return of 9.6%.

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Top Wall Street analysts believe in the long-term potential of these stocks

An Amazon delivery truck at the Amazon facility in Poway, California, Nov. 16, 2022.

Sandy Huffaker | Reuters

Investors are confronting several headwinds, including macro uncertainty, a spike in energy prices and the unanticipated crisis in the Middle East.

Investors seeking a sense of direction can turn to analysts who identify companies that have lucrative long-term prospects and the ability to navigate near-term pressures. 

To that end, here are five stocks favored by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.

Amazon

We begin this week’s list with e-commerce and cloud computing giant Amazon (AMZN). While the stock has outperformed the broader market year to date, it has declined from the highs seen in mid-September.

JPMorgan analyst Doug Anmuth noted the recent sell-off in AMZN stock and highlighted certain investor concerns. These issues include the state of the U.S. consumer and retail market, rising competition, higher fuel costs and the Federal Trade Commission’s lawsuit. Also on investors’ mind is Amazon Web Services’ growth, with multiple third-party data sources indicating a slowdown in September.

Addressing each of these concerns, Anmuth said that Amazon remains his best idea, with the pullback offering a good opportunity to buy the shares. In particular, the analyst is optimistic about AWS due to moderating spending optimizations by clients, new workload deployment and easing year-over-year comparisons into the back half of the third quarter and the fourth quarter. He also expects AWS to gain from generative artificial intelligence.

Speaking about the challenging retail backdrop, Anmuth said, “We believe AMZN’s growth is supported by key company-specific initiatives including same-day/1-day delivery (SD1D), greater Prime member spending, & strong 3P [third-party] selection.”

In terms of competition, the analyst contends that while TikTok, Temu and Shein are expanding their global footprint, they pose a competitive risk to Amazon mostly at the low end, while the company is focused across a broad range of consumers.

Anmuth reiterated a buy rating on AMZN shares with a price target of $180. He ranks No. 84 among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 61% of the time, with each delivering an average return of 16.6%. (See Amazon’s Stock Charts on TipRanks)  

Meta Platforms

Anmuth is also bullish on social media company Meta Platforms (META) and reaffirmed a buy rating on the stock. However, the analyst lowered his price target to $400 from $425, as he revised his model to account for higher expenses and made adjustments to revenue and earnings growth estimates for 2024 and 2025 due to forex headwinds.

The analyst highlighted that Meta is investing in the significant growth prospects in two big tech waves – AI and metaverse, while continuing to remain disciplined. (See META Insider Trading Activity on TipRanks)

“AI is clearly paying off in terms of incremental engagement from AI-generated content and Advantage+, and as discussed at Meta Connect, Llama 2 should drive AI experiences across the Family of Apps and devices, while Quest 3 is the most powerful headset Meta has ever shipped,” said Anmuth. Llama 2 is Meta’s new large language model.

The analyst expects Meta’s advertising business to continue to outperform, with AI investments bearing results and Reels anticipated to turn revenue-accretive soon. Overall, Anmuth is convinced that Meta’s valuation remains compelling, with the stock trading at 15 times his revised 2025 GAAP EPS estimate of $20.29.

Intel

We now move to semiconductor stock Intel (INTC), which recently announced its decision to operate its Programmable Systems Business (PSG) as a standalone business, with the intention of positioning it for an initial public offering in the next two to three years.

Needham analyst Quinn Bolton thinks that a standalone PSG business has several benefits, including autonomy and flexibility that would boost its growth rate. Operating PSG as a separate business would also enable the unit to more aggressively expand into the mid-range and low-end field programmable gate arrays segments with its Agilex 5 and Agilex 3 offerings.

Additionally, Bolton said that this move would help Intel drive a renewed focus on the aerospace and defense sectors, as well as industrial and automotive sectors, which carry high margins and have long product lifecycles. It would also help Intel enhance shareholder value and monetize non-core assets.  

“We believe the separation of PSG will further allow management to focus on its core IDM 2.0 strategy,” the analyst said, while reiterating a buy rating on the stock with a price target of $40.   

Bolton holds the No.1 position among more than 8,500 analysts on TipRanks. His ratings have been successful 69% of the time, with each rating delivering an average return of 38.3%. (See Intel Hedge Fund Trading Activity on TipRanks). 

Micron Technology

Another semiconductor stock in this week’s list is Micron Technology (MU). The company recently reported better-than-feared fiscal fourth-quarter results, even as revenue declined 40% year over year. The company’s revenue outlook for the first quarter of fiscal 2024 exceeded expectations but its quarterly loss estimate was wider than anticipated.  

Following the print, Deutsche Bank analyst Sidney Ho, who holds the 66th position among more than 8,500 analysts on TipRanks, reiterated a buy rating on MU stock with a price target of $85. 

The analyst highlighted that the company’s fiscal fourth quarter revenue exceeded his expectations, fueled by the unanticipated strength in NAND shipments through strategic buys, which helped offset a slightly weaker average selling price.

Micron’s management suggested that the company’s overall gross margin won’t turn positive until the second half of fiscal 2024, even as pricing trends seem to be on an upward trajectory. However, the analyst finds management’s gross margin outlook to be conservative.

The analyst expects upward revisions to gross margin estimates. Ho said, “Given that the industry is in the very early stages of a cyclical upturn driven by supply discipline across the industry, we remain confident that positive pricing trends will be a strong tailwind over the next several quarters.”

Ho’s ratings have been profitable 63% of the time, with each delivering a return of 21.5%, on average. (See Micron Blogger Opinions & Sentiment on TipRanks)  

Costco Wholesale

Membership warehouse chain Costco (COST) recently reported strong fiscal fourth-quarter earnings, despite macro pressures affecting the purchase of big-ticket items.

Baird analyst Peter Benedict explained that the earnings beat was driven by below-the-line items, with higher interest income more than offsetting an increased tax rate.

“Steady traffic gains and an engaged membership base underscore COST’s strong positioning amid a slowing consumer spending environment,” said Benedict.

The analyst highlighted other positives from the report, including higher digital traffic driven by the company’s omnichannel initiatives and encouraging early holiday shopping commentary.

Further, the analyst thinks that the prospects for a membership fee hike and/or a special dividend continue to build. He added that the company’s solid balance sheet provides enough capital deployment flexibility, including the possibility of another special dividend.   

Benedict thinks that COST stock deserves a premium valuation (about 35 times the next 12 months’ EPS) due to its defensive growth profile. The analyst reiterated a buy rating on the stock and a price target of $600.

Benedict ranks No. 123 among more than 8,500 analysts tracked on TipRanks. Moreover, 65% of his ratings have been profitable, with each generating an average return of 12.2%. (See COST’s Technical Analysis on TipRanks)

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Top Wall Street analysts say these stocks have the best growth prospects

CrowdStrike IPO at the Nasdaq exchange June 12, 2019.

Source: Nasdaq

While macro uncertainty continues to distract investors, it is prudent to focus on companies that are well-positioned to navigate challenges with their solid execution and deliver attractive growth over the long term by capitalizing on secular trends. 

Here are five such stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.

Zscaler

First, we will look at cybersecurity solutions provider Zscaler (ZS). Earlier this month, the company reported its fiscal fourth-quarter results and outlook, which topped Wall Street’s expectations. That said, management cautioned that deals are taking longer to close due to a challenging macro backdrop.

Praising Zscaler’s performance, TD Cowen analyst Shaul Eyal said that the rising demand for the company’s Zero Trust solutions and disciplined spending drove the fourth-quarter outperformance.

The analyst noted that over the past seven quarters, Zscaler’s annual recurring revenue (ARR) has doubled to $2 billion from $1 billion. Other interesting points that the analyst focused on included the company’s large deals, a strong pipeline, and growing federal contracts. (Zscaler serves 12 of the 15 U.S. cabinet-level agencies.)  

Further, the company continues to invest in AI and sees huge growth potential for its AI-powered features. It provides data protection capabilities to prevent the leakage of sensitive data through generative AI.  

Overall, the analyst reiterated a buy rating on ZS stock with a price target of $195, saying, “Investments in AI, Cloud and go-to-market are set to accelerate growth.”

Eyal holds the 9th position among more than 8,500 analysts tracked on TipRanks. In all, 70% of his ratings have been profitable, with each generating an average return of 25.5%. (See Zscaler’s Financial Statements on TipRanks)

CrowdStrike Holdings

Another cybersecurity stock in this week’s list is CrowdStrike (CRWD), which recently reported upbeat fiscal second-quarter results and issued solid guidance.

In reaction to the impressive performance, Needham analyst Alex Henderson raised his price target for CRWD stock to $200 from $170 and reiterated a buy rating on the stock. The analyst noted that the company achieved strong growth in new products under its Identity, Cloud, and LogScale Security Information and Event Management (SIEM) offerings.

The analyst also highlighted management’s commentary about the company’s generative AI cybersecurity product called Charlotte AI, which they believe can immensely improve execution for customers by automating workflows. He added that the use of AI helped the company enhance its own adjusted operating margin, which increased by 472 basis points to 21.3% in the fiscal second quarter.

Henderson called CRWD one of his top recommendations in cybersecurity and said, “Crowd is taking market share with relatively stable pricing and strong new product uptake.”

The analyst also said that the company’s managed services, which are core to the Falcon Complete offering, are enjoying high demand and differentiate the platform from others like Microsoft (MSFT).    

Henderson ranks 162nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 58% of the time, with each rating delivering a return of 15.1%, on average. (See CrowdStrike’s Technical Analysis on TipRanks) 

Chipotle Mexican Grill

Next up is Mexican fast food chain Chipotle Mexican Grill (CMG). Baird analyst David Tarantino, who ranks 357 out of more than 8,500 analysts on TipRanks, said that CMG remains his top idea for investors with a 12-month horizon.

The analyst observed that the stock has pulled back since the mixed second-quarter results due to concerns about late Q2 2023 and early Q3 traffic, subdued Q3 restaurant margin outlook, and macro factors. Nevertheless, he feels that this pullback has created an attractive opportunity to buy CMG stock based on multiple positive catalysts that could emerge in the months ahead.

“Specifically, we expect signs of strong same-store traffic momentum and further pricing actions to lead to an upward bias to EPS estimates and support robust valuation metrics on CMG heading into year-end,” said Tarantino.

Additionally, he sees the possibility of CMG accelerating its unit growth to the high end of its target of 8% to 10% annually, supported by the hiring of additional construction managers this year. Tarantino estimates that a combination of about 10% unit growth and mid-single-digit comparable sales could drive low-to-mid teens revenue growth and more than 20% EPS increase, a profile which he believes deserves a premium valuation.

Tarantino reaffirmed a buy rating on CMG stock with a price target of $2,400. His ratings have been successful 62% of the time, with each rating delivering an average return of 10%. (See CMG Hedge Fund Trading Activity on TipRanks).

Lululemon

Athletic apparel retailer Lululemon (LULU) impressed investors with its fiscal second-quarter performance and improved outlook. The company experienced strong momentum in North America and a spike in its international business, mainly due to robust sales in China.

Commenting on the 61% growth in sales from Greater China, Guggenheim analyst Robert Drbul said that he continues to believe that China holds significant growth potential for Lululemon, as the company aims to quadruple international revenues by 2026. He also highlighted that Lulu intends to open a majority of its 35 new international stores, scheduled for this year, in China. 

The analyst raised his Fiscal 2023 and 2024 earnings estimates and believes that demand for the company’s merchandise remains strong, as competitive pressures from upcoming athletic brands seem overestimated.  

Drbul maintained a buy rating on LULU and a price target of $440, justifying that the company “stands to benefit from favorable secular tailwinds (health, wellness, casualization, and fitness, including at-home).”

Drbul ranks No. 958 out of more than 8,500 analysts tracked on TipRanks. Additionally, 57% of his ratings have been profitable with an average return of 5%. (See Lululemon Insider Trading Activity on TipRanks)

Acushnet Holdings

The last stock on this week’s list is Acushnet Holdings (GOLF), a manufacturer of golf products. Tigress Financial analyst Ivan Feinseth believes that the company is well-positioned to benefit from the ongoing growth in golf, driven by product launches and biannual new golf ball design introductions.

The analyst highlighted that GOLF’s strong brand name continues to be a growth catalyst, as its Titleist brand golf balls remain the preferred choice of PGA and LPGA Tour players. He also noted the strong growth in Titleist golf clubs, Titleist gear, and FootJoy golf wear segments, fueled by a wide range of innovative launches, including new TSR models that rapidly emerged as the most-played model on the PGA tour.

Feinseth increased his price target for GOLF to $68 from $62 and reiterated a buy rating, while emphasizing that the company is enhancing shareholder returns through ongoing dividend increases and share repurchases.

“GOLF’s incredible brand equity, driven by its best-in-class and industry-leading product lines, including FootJoy and Titleist, are major assets and the primary drivers of its premium market valuation,” said Feinseth.  

Feinseth holds the 289th position among more than 8,500 analysts tracked on TipRanks. His ratings have been profitable 58% of the time, with each rating delivering an average return of 10.9%. (See Acushnet Stock Chart on TipRanks)

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Top Wall Street analysts select these dividend stocks to enhance returns

Verizon CEO Hans Vestberg on the floor at the New York Stock Exchange (NYSE) in New York, U.S., October 22, 2019.

Brendan McDermid

When markets get choppy, dividends offer investors’ portfolios some cushioning in the form of income.

Dividends provide a great opportunity to enhance investors’ total returns over a long-term horizon. Investors shouldn’t base their stock purchases on dividend yields alone, however: They ought to assess the strength of a company’s fundamentals and analyze the consistency of those payments first. Analysts have insight into those details.

To that effect, here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Verizon Communications

Let us first look at telecommunication giant Verizon (VZ). The stock offers a dividend yield of 8%. Last week, the company declared a quarterly dividend of 66.50 cents per outstanding share, an increase of 1.25 cents from the previous quarter. This marked the 17th consecutive year the company’s board approved a quarterly dividend increase.

Recently, Citi analyst Michael Rollins upgraded Verizon and its rival AT&T (T) to buy from hold. The analyst increased his price target for Verizon stock by $1 to $40, while maintaining AT&T’s price target at $17.

Rollins noted that several headwinds like competition, industry structure, higher rates and concerns about lead-covered cables have affected investor sentiment on telecom companies. That said, he has a more constructive outlook for large cap telecom stocks.

“The wireless competitive environment is showing positive signs of stabilization that should help operating performance,” said Rollins, who ranks No. 298 out of more than 8,500 analysts on TipRanks.

The analyst contended that the recently announced price hikes by Verizon and AT&T indicate a stabilizing competitive backdrop for wireless. He further noted that customers continue to hold onto their phones for longer, which is reducing device upgrade costs and stabilizing churn.

Overall, the analyst sees the possibility of some of the ongoing market concerns fading over the next 12 months. Also, he expects the prospects for improved free cash flow to lower net debt leverage and support the dividend payments. 

Rollins has a success rate of 65% and each of his ratings has returned 13.3%, on average. (See Verizon Hedge Fund Trading Activity on TipRanks)

Medtronic

Medical device company Medtronic (MDT) recently announced a quarterly dividend of $0.69 per share for the second quarter of fiscal 2024, payable on Oct. 13. MDT has increased its annual dividend for 46 consecutive years and has a dividend yield of 3.5%. 

Reacting to MDT’s upbeat fiscal first-quarter results and improved earnings outlook, Stifel analyst Rick Wise explained that continued recovery in elective procedure volumes, supply chain improvements and product launches helped drive revenue outperformance across multiple business units.

The analyst thinks that Medtronic’s guidance indicates that it is now well positioned to more consistently deliver better-than-expected growth and margins. He also expressed optimism about the company’s transformation initiatives under the leadership of CEO Geoff Martha.

“We view Medtronic as a core healthcare holding and total return vehicle in any market environment for investors looking for safety and stability,” said Wise, while raising his price target to $95 from $92 and reaffirming a buy rating.

Wise holds the 729th position among more than 8,500 analysts on TipRanks. Moreover, 58% of his ratings have been profitable, with each generating a return of 6.3%, on average. (See Medtronic Insider Trading Activity on TipRanks)   

Hasbro

Another Stifel analyst, Drew Crum, is bullish on toymaker Hasbro (HAS). He increased the price target for Hasbro to $94 from $79 while maintaining a buy rating, and moved the stock to the Stifel Select List.

Crum acknowledged that HAS stock has been a relative laggard over the past several years due to many fundamental issues that resulted in unhappy investors.

Nevertheless, the analyst is optimistic about the stock and expects higher earnings power and cash flow generation, driven by multiple catalysts like portfolio adjustments, further cost discipline, greater focus on gaming and licensing, as well as a new senior leadership team.

Crum noted that Hasbro grew its dividend for 10 consecutive years (2010-2020) at a compound annual growth rate of over 13%, with the annual payout representing more than 50% of free cash flow, on average. However, any upward adjustments were limited following the Entertainment One acquisition, with only one increase during 2021 to 2023.

The analyst thinks that given the current dividend yield of around 4%, Hasbro’s board might be less inclined to approve an aggressive raise from here. That said, with expectations of higher cash flow generation, Crum said that “the company should have more flexibility around growing its dividend going forward.”

Crum ranks 322nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 59% of the time, with each rating delivering an average return of 12.9%. (See Hasbro Stock Chart on TipRanks)

Dell Technologies

Next up is Dell (DELL), a maker of IT hardware and infrastructure technology, which rallied after its fiscal second-quarter results far exceeded Wall Street’s estimates. The company returned $525 million to shareholders through share repurchases and dividends in that quarter. DELL offers a dividend yield of 2.1%.

Evercore analyst Amit Daryanani maintained a buy rating following the results and raised his price target for DELL stock to $70 from $60. Daryanani ranks No. 249 among more than 8,500 analysts tracked by TipRanks.

The analyst highlighted that Dell delivered impressive upside to July quarter revenue and earnings per share (EPS), driven by broad-based strength across both infrastructure and client segments. Specifically, the notable upside in the infrastructure segment was fueled by GPU-enabled servers.

The analyst also noted that Dell generated $3.2 billion of free cash flow in the quarter and is currently running at over $8 billion free cash flow on a trailing twelve-month basis. This implies that the company has “plenty of dry powder” to significantly enhance its capital allocation program, he added.

“We think the catalysts at DELL are starting to add up in a notable manner ranging from – cap allocation update during their upcoming analyst day, AI centric revenue acceleration and potential S&P 500 inclusion,” said Daryanani.

In all, 60% of his ratings have been profitable, with each generating an average return of 11.5%. (See Dell’s Financial Statements on TipRanks)

Walmart

We finally come to big-box retailer Walmart (WMT), which is a dividend aristocrat. Earlier this year, the company raised its annual dividend for fiscal 2024 by about 2% to $2.28 per share. This marked the 50th consecutive year of dividend increases for the company. WMT’s dividend yield stands at 1.4%.

Following WMT’s upbeat fiscal second-quarter results and upgraded full-year outlook, Baird analyst Peter Benedict highlighted that traffic gains in stores and online channels reflect that consumers are choosing Walmart for a blend of value and convenience.

Benedict also noted that the company’s efforts to drive improved productivity and profitability are gaining traction.

The analyst reiterated a buy rating on WMT and raised the price target to $180 from $165, saying that the new price target “assumes ~23x FY25E EPS, slightly above the stock’s five-year average of ~22x given the company’s defensive sales mix, market share gains, and an improved long-term profit/ROI profile as alternative revenue streams scale.” 

Benedict ranks 94th among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 68% of the time, with each rating delivering an average return of 13.7%. (See Walmart’s Technical Analysis on TipRanks)  

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