Target, U.S. Bank Are Top 2014 Stock Picks For Major Investors
Target Corporation and U.S. Bancorp are among 20 international companies that seasoned investors picked for top stock ideas in 2014.
The “20 Top Picks from 20 Star Investors” list, compiled by Fortune magazine, includes numerous companies that vary in size and industry.
Senior Portfolio Manager Meggan Walsh, who runs Atlanta-based Invesco, Ltd.’s $8.5 billion diversified dividend fund, expects Target’s same-store sales to improve next year, despite its underperforming introduction into Canada’s market. Walsh told Fortune that the higher average income and discretionary spending tendencies of Target customers will help the Minneapolis-based retailer push its price-earnings ratio from 14 closer to its average of 15.5.
Walsh said that Target will likely reduce its capital expenditures by $1 billion next year and pass the extra money to shareholders.
“The problems have been identified, and we’re at the point where shareholders will begin to benefit from the investments,” she told Fortune.
For the most recent quarter, which ended November 2, Target reported sales of $17.3 billion—an increase of 4 percent from the same quarter last year. The retailer’s net earnings totaled $341 million—an 86.8 percent decrease from the same quarter last year. The company’s adjusted earnings per share were $0.84.
Target’s stock began trading at $63.31 on Thursday—a 2.1 percent increase from the same period last year.
Target is Minnesota’s second-largest public company based on revenue. The retailer reported $73.3 billion for the fiscal year that ended February 2.
Mark Henneman, executive vice president of St. Paul-based Mairs and Power, Inc., who runs the firm’s $3.5 billion growth fund, said size makes U.S. Bancorp a favorable choice for investors. With approximately $354 billion in assets, Henneman said that the bank is large enough “to benefit from efficiencies of scale” while being small enough to avoid “capital requirements imposed on the biggest institutions.”
Henneman told Fortune that U.S. Bancorp’s refusal to pursue fixes such as mortgage-backed securities made it “the best-performing large bank in America” through the crisis.
While Henneman admitted to Fortune that a price-earnings ratio of 12 makes for more expensive stock, he said that the bank’s conservative approach toward underperforming loans means its earnings are understated. He expects U.S. Bancorp’s current performance to justify an 18 percent stock increase.
For the most recent quarter, which ended September 30, U.S. Bancorp reported net interest income of $2.7 billion—a 2.5 percent decrease from the same quarter last year. The bank’s earnings per share were $0.76.
U.S. Bancorp’s stock began trading at $39.00 on Thursday—a 24.1 percent increase from the same period last year.
U.S. Bancorp is among Minnesota’s 10-largest public companies based on revenue. The bank reported $20.3 billion in 2012 revenue.
Other companies on Fortune’s list include Purchase, New York-based PepsiCo, Inc., Bellevue, Washington-based travel company Expedia, Inc., Chicago-based commercial real estate giant Jones Lang LaSalle, German automobile manufacturer Volkswagen, and Swiss financial services company Credit Suisse, among others.
Click here to view Fortune’s full “20 Top Picks from 20 Star Investors” list.