Oppenheimer: 3 stocks in which investors should gradually position themselves

The market liquidation put strong stocks up for sale, and neither did those in the struggling financial sector. Since the start of the year, the BKX (KBW Nasdaq Bank Index) is down 43% compared to the 24% decline of the S&P 500.

Until recently, Oppenheimer’s Dominique gabriele advised investors to “take the chips off the table,” but the magnitude of the pullback now presents an opportunity.

“Financial stocks are cyclical, and this recent selloff shows us that, as we expected, investors still see them that way and will sell them in panic ahead of the economic worries as they were a big part of the last recession.” , wrote Gabriele. . However, “we believe this market presents a very rare opportunity to buy your favorite names at a discount… The coronavirus will impact the economy, but we believe the impact is temporary and investors focused on what the prices could be in 12 to 18 months should hold their breath and buy, ”added the analyst.

Gabriele picked three of his favorite stocks in the financial sector, which he believes are best positioned to outperform the market. we used TipClassification data to get a better idea of ​​what other Wall Street analysts think of Gabriele’s approvals and the results are interesting. The street is aligned with analyst Oppenheimer, in this case, as the 3 are valued at buy and show a possible rise of 30% or more. Let’s see the truths.

Synchrony Financial (SYF)

Let’s start with Synchrony Financial, the largest private label credit card provider in the United States. The company offers a range of credit services, including private label credit cards, small and medium business credit products, and installment loans. SYF counts brands such as Amazon, Cathay Pacific and OneTravel among its customers.

Like the majority of the industry, fears that consumers will spend less as a result of the outbreak means the Connecticut-based company has been beaten since the outbreak began. SYF shares have lost half of their value since the start of the year. After rebounding from a 52 week low, Gabriele recommends creating a position on Synchrony.

One of the reasons Gabriele loves Synchrony is that 20% of their income is spent on home improvement and further reduction in tariffs should likely result in increased spending in the area. “We have said that the rates could reach 0% in the last two years and many disagreed, but we think it is fair to say that if there is a rate cut of 125 points base before unemployment gets worse, there aren’t many hits left in this weapon, “the analyst said. While the Fed has just announced that it is lowering its benchmark interest rate to zero, it turns out that Gabriele has hit the nail on the head.

In addition, despite losing a contract with Walmart, SYF continues to forge new, solid relationships. In 4Q19, the company announced a partnership with Verizon, which will make Synchrony the exclusive issuer of a Verizon co-branded credit card. In addition to Verizon, SYF will oversee the deployment of PayPal / Venmo products in 2h20. The partnership announcements, said Gabriele, “give us confidence in SYF’s market strategy.”

The analyst added, “Even though SYF sees some pressure on ROA, we believe that as partnerships develop and initial investment declines, SYF will recoup some of its ROA through small gains in ROA. efficiency and growth. We don’t think SYF is “behind the technology”. This investment aims to build partnership platforms / teams. Ultimately, we believe that SYF’s franchise is only getting better, and as investors focus on fiscal 2021, SYF’s fundamental trajectory may be back on track again.

Gabriele maintains an outperformance rating on SYF as well as a price target of $ 37. This reflects analyst confidence in Synchrony’s ability to skyrocket 96% in the coming year. (To see Gabriele’s record, Click here)

With 6 buys and 4 holdbacks, Synchrony currently has a moderate buy consensus rating. Given its average price target of $ 37.90, analysts are forecasting a further rise of 106%. (See the analysis of Synchrony stocks on TipRanks)

American Express (AXP)

Next is a financial services giant, the multinational American Express. The most important blue chip is a household name, but that hasn’t made it immune to the market downturn. American Express, like the rest of the industry, has seen better days and its stock price is down 28% year-to-date.

American Express is dependent on travel and as the travel industry is one of the sectors most affected by the coronavirus, the company has been hit hard. However, Gabriele believes that even if people don’t travel as much or go on vacation, they’re still likely to spend their money in other places. In addition, the analyst specifies that American Express is also a financial name which benefits from the rate cuts. “Oil has fallen dramatically and as AXP is focused on consumer spending / credit, lower oil should help loss rates,” the analyst explained.

It should also be noted that American Express generally caters to a more affluent clientele. The short-term impact of the current public health crisis is less likely to have a lasting effect on this particular type of clientele.

Gabriele added, “AXP’s success in leveraging its existing customers – through higher value propositions / annual fees / higher expenses / loans – is the result of a culture that consistently invests in the business over the long term. term, especially in a favorable income environment. Card fee growth for fiscal 2020 is likely to remain high given the boom and tailwind of refreshed products and the introduction of many new corporate and consumer cards. Since loans remain at 20% of total revenue, we believe investors will place additional value on the company’s less intensive balance sheet model, resulting in a higher P / E multiple. “

As a result, Gabriele reiterated a call for outperformance on AXP and kept his price target at $ 159. The implication for investors? Upside potential in the form of 82%.

Overall, TipRanks analysis of 18 analysts’ notes shows indecision between bulls and opponents on AXP: 9 suggest Buy, 8 say Hold, and only one recommends Sell. Importantly, the 12-month average price target stands at $ 132.75, marking almost 45% of the upside potential from where the stock is currently trading. (See the analysis of AXP shares on TipRanks)

Encore Capital Group (ECPG)

Gabriele’s third choice in the financial sector is Encore Capital Group. The company is the largest buyer of publicly traded debt in the United States by revenue, with operations and investments in 15 countries. Encore’s subsidiaries purchase accounts receivable portfolios from major banks, credit unions, commercial retailers and telecommunications companies.

Considering its market cap of $ 1.1 billion, Encore is significantly smaller than the previous two names on our list. The San Diego-based company also differs from its larger colleagues in terms of performance in the market this year. Despite the turmoil, Encore has only fallen 1% year-to-date.

In addition to the good news, the company posted both higher and lower results in its final quarter. EPS of $ 1.56 exceeded the estimate of $ 0.11, and revenue of $ 347.79 million was slightly above $ 0.13 million. For full year 2019, Encore achieved global deployments of $ 1 billion, including a record $ 682 million in the United States

Gabriele thinks that “investors should slowly build a position in Encore”. He argued, ECPG continues to execute its strategy of reducing costs and improving profitability in its underlying businesses. Recent US vintages at better prices and better mix of channels to call center / digital allow ECPG to post a better cost to collect rates. Not staying idle as it delivers to the EU, the company has set up new investment partnerships to take advantage of improved prices through maintenance while keeping capital requirements low. “

To that end, Gabriele maintained a price target of $ 39 to go along with his outperformance rating. Investors are expected to earn an 11% gain if the target is met in the coming months.

What does the rest of the street think? Turns out they totally agree with Gabriele. With 5 buy notes and no hold or sell, the message is clear: ECPG is a strong buy. If that weren’t enough, the average price target of $ 46.75 puts the upside potential at 33%. (See the analysis of Encore stocks on TipRanks)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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