Each December analysts at Raymond James pick a list of stocks its analysts predict will likely “produce above-average price appreciation over the next 55 weeks,” accroding to Raymond James CIO David Henwood. This year’s list contains 13 stocks that Raymond James analysts say should somehow outperform despite “expected relative slow recovery of the U.S. economy” in 2010.
This year, two financial companies made the list, Bank of America Corp. (BAC), price targe is $27 per share, and TD Ameritrade Holding Corp. (AMTD), with a price targe of $24 per share, with “strong buy” ratings. If the analyst is correct, BoA shares would rise by about 59 percent (not including dividends) and TD shares would appreciate by 27 percent from today’s trading.
Raymond James, which has a good reputation for stock picking, has created 14 lists over the years, 13 of them did in fact outperform the S&P 500. Last year's list gained an average of 30.7 (through Dec. 7) versus a 33.4 percent return of the S&P. In 2008, the list fell by 34 percent cinoared ti tge S&P's fall of 38.6 percent. Its 5-year average return is 14.5 percent versus 4.6 percent by the S&P (includes last few weeks of 2009). On a 10-year basis, the Best Picks List returned 19.5 percent versus the 2 percent return of the S&P (again, the last three glorious weeks of December 2009 are included in the averages). About 100 Raymond James analysts cover about 750 stocks. The list is static, meaning stocks are not removed for the year.
Since 1996, the company says, a total of 158 stocks have been recommended on the Best Picks List. Of those, 107 stocks advanced (67.7 percent on average) and 51 declined (32.2 percent) within the recommended holding period. The holding period is approximately 55 weeks from the inception date each early December through Dec. 31 the following year.
Anthony Polini says of BoA: “Bank of America ranks among the best in risk-based pricing and is well-positioned to benefit from a slow-growth recovery marked by wider spreads, low competition, less leverage, and the absence of irrational players.”
The analyst forecasts BoA to make $0.19 a share in fiscal 2009 and $1.06 in fiscal 2010. BoA shares trade about 83 times Polini’s 2009 forecasts but just 14.9 times 2010 estimates. “We estimate the company can get to $4.00 in EPS power within four years with only single-digit growth in loans and revenue.” Polini also says, “Trading at only 69 percent of book value and 131 percent of tangible book value compared to the recent industry averages of 114 percent and 164 percent respectively, shares of BAC offer attractive risk/reward pricing and compare favorably to large-cap peers.
TD Ameritrade is described by analyst Patrick O’Shaughnessy as “the top-quality pick within the brokerage and exchange space.” He expects trading volumes to increase while other do-it-yourself platforms and RIA service providers will see lower volumes. He doesn’t name names, alas.
“Although record-low interest rates have put a damper on TD Ameritrade’s net interest income, the Federal Reserve will eventually raise rates at which point TD Ameritrade will be poised for above-average growth,” O’Shaughnessy says. “TD Ameritrade has $0.28 in EPS upside from a 100-basis point increase in the fed funds rate and approximately $0.16 per share for each 100 basis point thereafter.” He says TD has a “strong balance sheet and cash flow.” He does acknowledge that based on 2010 earnings estimates of $1.17 per share, the p/e multiple of 16.3 against that forecast makes his price target a “bit rich.” The analyst says, “However, once invetstors begin to look more closely at the firm’s 2011 and 2012 earnings potential, we believe there is further substantial upside for TD Ameritrade’s shares.”