Four Club holdings — including Meta Platforms (META) and Pioneer Natural Resources (PXD) — are among the 12 best-positioned stocks right now, investment bank Bernstein told clients Wednesday. We share the favorable outlook on Meta and Pioneer, but aren’t as high on the two other Club names Bernstein highlighted: Qualcomm (QCOM) and Devon Energy (DVN). Understanding Bernstein’s note: The list of 12 stocks were screened for rosy six-month outlooks, using both quantitative modeling and fundamental forecasts from the firm’s research analysts. Bernstein says that since 2004, stocks that are both rated outperform (buy) by its analysts and in the top quintile (or top 20%) of its proprietary quant model beat the S & P 500 by 6.1% on annualized basis. Those stocks are held in high regard because they also did better than those simply rated buy or in the top quintile of the quant model, according to Bernstein. A third characteristic shared by all 12 stock is not being a so-called “crowded trade,” as measured by Bernstein’s Crowding Model. Meta Platforms Bernstein’s take: Meta’s aggressive cost-cutting efforts are likely factored into the social media giant’s stock price in full, according to the firm. But investors may adopt an even more positive attitude toward Meta if the company is able to return to topline revenue growth in the coming months. Analysts expect that to happen due to general improvements in the advertising market and internal changes at Meta to overcome Apple ‘s (AAPL) 2021 privacy changes. META 1Y mountain Meta Platform’s 12-month stock performance. The Club’s take: Meta CEO Mark Zuckerberg has delivered on the expense-reduction strategy that investors including the Club sought, and that’s a big reason why the stock has soared nearly 70% already in 2023. We’re careful about chasing the stock after such a monster move. But big picture, shares should have more room to run and any pullbacks are buying opportunities. Meta rose 2% on Wednesday to just under $205 per share. Pioneer Natural Resources Bernstein’s take: Pioneer has “the simplest and most reliable” operating model within the energy sector, analysts wrote. The firm also championed Pioneer’s variable dividend policy, saying they expect the pure-play Midland Basin producer to continue returning a ton of free cash flow to shareholders over the next five years. Bernstein expects that capital return to equal roughly 40% of its current $47 billion market cap. PXD 1Y mountain Pioneer Natural Resources’ 12-month stock performance. The Club’s take: As we look to consolidate our energy holdings to three stocks from four, Pioneer isn’t going anywhere. A key reason is CEO Scott Sheffield and the operational excellence he’s demonstrated, which aligns with Bernstein’s fundamental outlook on the company. We added to our Pioneer position twice this month — most recently last week at roughly $185 per share, believing that the sell-off in oil stocks grew largely overdone. Pioneer shares rose 1% on Wednesday to roughly $200 each. Qualcomm Bernstein’s take: Wall Street has revised lower its Qualcomm estimates to capture continued inventory challenges in the smartphone market, and now the chipmaker’s shares present investors “with a compelling risk-reward” relative to industry peers, according to the firm. Analysts believe Qualcomm’s inventory glut is starting to improve, and note the stock trades at a sizable discount to the broader semiconductor industry: roughly 12 times forward earnings compared with 23 times for the PHLX Semiconductor Sector index. QCOM 1Y mountain Qualcomm’s stock performance over the past 12 months. The Club’s take: As of now, we’re looking to exit our position in Qualcomm if the stock trades up into the $130s range, which would be a solid move from the $117 level we upgraded the stock at earlier this month. In general, Nvidia (NVDA) and Advanced Micro Devices (AMD) provide us with higher-quality exposure to the chip industry. Seeing strength along with the rest of the chipmakers, Qualcomm rose more than 3.5% to roughly $126 per shre. Devon Energy Bernstein’s take: The firm sees Devon as the best “turnaround story” in the U.S. shale sector, noting that past performance has sometimes been “marred by shaky strategic decisions.” Analysts believe that such issues have been straightened out with a corporate ethos focused on returning capital to shareholders, similar to Pioneer. Devon, like PXD, rose Wednesday, adding roughly 2.5% to nearly $50 per share. DVN 1Y mountain Devon Energy’s 12-month stock performance. The Club’s take: We expect to strategically sell out of Devon into strength, refocusing our energy holdings into what we think are better opportunities. Simply put, we’ve determined we no longer need to own three different exploration and production (E & P) firms: Devon, the aforementioned Pioneer and natural-gas heavy Coterra Energy (CTRA). Devon’s most-recent quarterly results were disappointing and informed this conclusion. When we decide to exit Devon, we will free up some much needed space in the portfolio for other opportunities. (Jim Cramer’s Charitable Trust is long META, QCOM, NVDA, AMD, PXD, DVN, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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The logo of Meta Platforms is seen in Davos, Switzerland, May 22, 2022.
Arnd Wiegmann | Reuters
Four Club holdings — including Meta Platforms (META) and Pioneer Natural Resources (PXD) — are among the 12 best-positioned stocks right now, investment bank Bernstein told clients Wednesday.