JPMorgan analysts have put out their monthly list of top-idea stocks.
The roster includes some familiar names, such as:
· Honeywell (HON), the industrial conglomerate;
· McDonald’s (MCD), the fast-food restaurant titan;
· Entergy (ETR), a utility;
· Bank of America (BAC), the banking giant;
· Eli Lilly (LLY), the pharmaceutical stalwart;
· AbbVie (ABBV), another pharmaceutical stalwart;
· Danaher (DHR) a medical device company;
· Amazon (AMZN), the retail/technology behemoth;
· Microsoft (MSFT), the software sultan;
· T-Mobile US (TMUS), the telecommunications company.
JPMorgan added two names to the list from June and subtracted two. The additions:
Cintas and Ovintiv
1. Cintas (CTAS). “Cintas is a best-in-class operator that is winning share in the growing uniform services market,” JPMorgan analyst Andrew Steinerman wrote in a commentary.
It’s doing that with “above average growth and margin potential versus peers and its own historical performance, despite the valuation screening as more expensive.”
Further, “CTAS projects to be the acquirer of choice in the next wave of uniform services industry consolidation,” Steinerman said.
“We expect ongoing efficiencies to be generated through operating leverage, augmented by a best-in-class management team, and by smaller peers in the industry facing heightened cost pressures.”
2. Ovintiv (OVV) is an oil producer. “While the stock has been trading at a discounted multiple throughout 2022, … some of the first-half challenges that OVV experienced in the field … should be in the rear-view mirror near term,” JPMorgan analyst Arun Jayaram wrote in a commentary.
Those challenges included “weaker crude and condensate output, 2022 capex risk, and the Montney permit moratorium,” Jayaram said.
Further, “OVV shares are trading at a 33% free-cash-flow yield on 2023 earnings estimates, the fourth highest yield in our coverage,” the analyst said.
And it has the third highest return-of-capital yield in the space, 17% versus the peer-group average of 8%.
The subtractions:
Dominion Energy and Sterling Check
1. Dominion Energy (D), a utility. “We continue to look favorably upon Dominion’s leading green rate of change and view the story as undervalued here,” wrote JPMorgan analyst Jeremy Tonet. “However, we see less of a near-term catalyst at this juncture.”
2. Sterling Check (STER) , a background-check company. “We are removing STER … due to its exposure to the rising risk of slower hiring prospectively,” Steinerman said.
But, “we continue to view STER as a compelling growth story, given its demonstrated outperformance in a growing end-market and inexpensive valuation.”
The author of this story owns shares of Honeywell, McDonald’s, Eli Lilly, AbbVie, Amazon, Microsoft and Cintas.
