Three Stocks to Watch for the Week of October 25th, 2021

The week ahead could be a real test for the market, with stocks at record highs and 30% of the S&P 500 companies slated to report earnings.  Among the giants reporting this week are Microsoft (MSFT), Facebook (FB), Amazon.com (AMZN), and Apple (AAPL), to name a few.  

Investors will be keeping their eyes on key economic reports, including durable goods Wednesday, third-quarter GDP Thursday and personal consumption expenditures Friday.  Friday’s data includes the PCE deflator, an inflation gauge closely watched by the Federal Reserve.   

Considering all of the influencing factors scheduled in the coming week, a pickup in volatility would not be surprising.  Let’s see if big tech earnings can lift stocks to new highs.

In the meantime, check out our list of stocks to watch this week.  Our team has spotted some interesting action in financials and found one stock that’s bringing the one-two growth and value punch.  

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Cabot Oil & Gas Corp. and Cimarex Energy Co. completed their merger earlier this month to form Coterra Energy Inc. (CTRA).  The diversified energy company says it is now positioned to facilitate significant capital returns, deliver substantial and sustained cash generation across cycles, leverage a top-tier asset base across over 700,000 net acres, ensure a strong financial profile, and strengthen its commitment to socially conscience investing.

 The merger has created a buzz in the analyst community, with 3 firms giving upgrades last week. On Monday, Mizuho analyst Vincent Lovaglio upgraded Coterra Energy to Buy from, raising the price target to $31, up from $21. The analyst forecasts the company delivering 17% unlevered free cash yield over the next two years with “enhanced capacity” for payouts relative to peers given its balance sheet is “quickly approaching zero net debt,” pointing out that Coterra is the only gas-weighted producer with no volumes hedged for 2022, which should position it to capture all incremental upside from natural gas. 

Goldman’s Neil Mehta upgraded CTRA on Friday to Buy from Neutral, citing its recent merger with Cimarex Energy as a significant win against concerns about Appalachia Basin risk, adding that it provides exposure to liquids production.  The analyst also says CTRA is on track to generate free cash flows, which it plans to return to shareholders.

Coterra’s dedication to its investors was evident earlier this month when the Board of Directors declared a special cash dividend of $0.50 per share.  Thomas E. Jorden, Chief Executive Officer, President, and Director of Coterra, said, “This special cash dividend reflects Coterra’s commitment to delivering peer-leading capital returns to shareholders.  Building on our strong balance sheet, our flexibility to allocate capital across premier oil and natural gas assets, and our proven ability to operate efficiently, Coterra is poised to continue meeting our capital return commitments across commodity price cycles and creating enhanced shareholder value.”   While new investors in CTRA won’t benefit from the most recent payout, it’s good to know that the Board has investors in mind.  

Analysts are becoming more bullish on the firm’s short and long-term potential ahead of the November 3rd earnings call.  Over the past 30 days, current quarter EPS estimates have risen from $0.44 per share to $0.50 per share, while 2021 estimates have risen from $1.78 per share to $2.22 per share.  Moreover, analysts forecast an impressive EPS growth rate of nearly 33% next year and average annual growth of more than 71% for the next five years.

Coterra shares trade at a lucrative forward P/E ratio of about 7.18, making it a compelling choice for value investors.  Considering the growth potential for both earnings and dividends, CTRA deserves a spot on every bargain hunter’s watch list.  

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Focus Financial Partners (FOCS) is a compelling choice from the financial sector right now.  The company invests in Registered Investment Advisors (RIAs). There’s a bevy of acquisitions in the wings that are expected to be lucrative for Focus, such as two upcoming partner firm mergers, which will provide about $7 million in organic growth. 

Raymond James analyst Patrick O’Shaughnessy recently broke down his bullish standpoint on the financial stock. “Market appreciation and updated margin guidance drive our estimates higher in 2021 and beyond, and with Focus’s leverage trending towards the low end of its targeted range … we could see an acceleration in acquisition activity,” he says.  

Of the 7 analysts offering recommendations for the stock, all 4 rate the stock a Buy, and 3 call it a Hold.  There are no Sell ratings for the stock. A median 12-month price target of $65.00 represents an 11.24% increase from the current price.  

Focus will be looking to display strength during its November 4th earnings call.  The company has beat EPS estimates for the trailing four quarters.  For the third quarter, analysts expect the company to have generated $0.96 per share.

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Summit Hotel Properties, Inc (INN) is a leading publicly traded REIT focused on owning premium-branded, select-service hotels in the upscale and upper-midscale segments of the lodging industry.  As hotel demand continues to recover broadly, Summit’s revenue per available room has increased to near pre-pandemic levels, resulting in  $71 million of additional annualized revenue.

In the wake of the recent market slump, INN is outperforming compared to its REIT peers.  The stock is up more than 10% for the past month compared to the S&P Real Estate Sector Fund (XLRE), which is null for that same period.  The trust is also outperforming the broader market over the past year.  Summit shares have increased 97%.  In comparison, the S&P 500 has only moved 31%.

One factor contributing to the ongoing strength of INN’s share price is the level of attention trust management gives to portfolio diversification.  INN’s portfolio currently boasts 73 properties, 61 of which are wholly owned.  The REIT owns properties in 23 U.S. states spread across all regions, and no single region in the portfolio comprises more than 8% of the portfolio.  This safeguards the trust, to some degree, against unpredictable threats that can arise.  

INN has been exhibiting strong momentum ahead of its November 3rd Q3 earnings call. Analysts forecast that Summit will report $101.16 million in sales for the third quarter, representing a 93% growth rate over the same quarter last year when the company reported $52.41 million in sales. 

The Wall Street analyst rating is bullish for INN with 5 Buy ratings and 1 Sell rating.  A median 12-month price target of $11.50 represents a 14% increase from the current price.  

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