Argus Research Analysts Highlight 5 Of Their Top Stock Picks For 2021

Argus Research is as independent research firm. It does not advise companies or manage money, and as a result, its analysts offer completely unbiased research. Several leading experts from Argus reveal their favorite investment ideas for the year ahead — included as part of our annual MoneyShow 2021 Top Picks report.

Coca-Cola (KO), based in Atlanta, is a leading producer of soda, juices and juice drinks, and ready-to-drink teas and coffees. Sales in 2019 were $37 billion. The company distributes its products in more than 200 countries. Core brands include Coca-Cola, Diet Coke KO , Sprite, Fanta, Coca-Cola Zero, Vitaminwater, PowerAde, and Minute Maid.

Management has recognized that it needs to diversify revenue away from sugary soda and we expect it to make progress toward this goal. The company eliminated more than 600 “zombie,” or unproductive, products. Its innovation has also improved and we expect additional progress in making the portfolio of brands less bloated and more profitable.

To be sure, even high quality consumer companies are not immune to disruption from COVID-19. Coke has seen a significant decline in sales of beverages through restaurants, amusement parks, sporting events and schools.

Volumes at grocery stores have risen, but not enough to make up the difference with so many “away-from-home” locations closed or operating with limited take-out service.


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We expect Coke to be a stronger company when the pandemic fades. We expect the combination of more focused marketing and a more profitable brand portfolio to boost earnings and the share price as the away-from-home business rebounds.

KO has now increased its dividend for 58 consecutive years with a quarterly dividend increase to $0.41. Dividends totaled $1.60 in 2019 and $1.64 in 2020. The dividend yield is about 3.15%. We are maintaining our “buy” rating on Coca-Cola Co. with a price target of $58 per share.

David Coleman, Quantitative Portfolio Strategist

Ecolab ECL (ECL) is a leader in water, hygiene, and energy technology and services. The company delivers comprehensive solutions to promote safe food, maintain clean environments, optimize water and energy use, and improve operational efficiency for customers in the food, healthcare, energy, hospitality, and industrial sectors.

In our view, the company has prospects for above-average revenue and earnings growth over the long term, though current estimates have been revised lower due to economic uncertainty. On the other side of the pandemic, we expect Ecolab’s water treatment, sanitation and healthcare cleaning services to be in strong demand.

 The company continues to tweak its portfolio of businesses to optimize growth, and management has divested a lower-margin segment, which should boost profitability in 2021-2022. Ecolab has a clean balance sheet and an impressive history of dividend payments and growth.

We think that ECL shares are attractively value. Non-fundamental selloffs often represent good buying opportunities for this diversified company.

From a technical standpoint, prior to the pandemic, the shares had been in a bullish pattern of higher highs and higher lows that dated from February 2016. Since the pandemic, the positive pattern has re-emerged.

On the fundamentals, the shares are trading at 42-times our 2021 EPS forecast, compared to a five-year annual average range of 20-45. They are also trading at a trailing price/book multiple of 6.8, above the midpoint of the historical range of 3.0-7.5; and at a price/sales multiple of 4.4, at the high end of the historical range of 1.6-4.4.

Our dividend discount model, factoring in the latest dividend hike, renders a fair value near $275 per share. Blending our approaches, and discounting multiples to reflect the current market uncertainty, we maintain our “buy” rating and arrive at a revised price target of $250.

Jim Kelleher, CFA, Director of Research

Applied Materials (AMAT) produces semiconductor fabrication equipment, including products used in deposition, etching, ion implantation, metrology, wafer inspection and mask-makings. The global pandemic is acting as an accelerator for key technology inflections that were already underway.

Work- and learn-at-home, e-commerce, and explosive growth in streaming and social media are driving investments in cloud data centers and communications infrastructure. Companies are hardening their business-continuity capacity, further driving technology demand.

The emerging workloads supporting these trends require domain-specific approaches, new system architectures, and new types of semiconductor devices. Leading-edge node transitions are driving demand. These include 3D for memory, logic and other areas; the 5G revolution; and ongoing die shrinks that enable customers to pack more power into tinier and more power thrifty devices.

The company has increased its offer price and extended the time to deal close for Kokusai Electric Corp. AMAT has now agreed to pay $3.5 billion for Kokusai, compared with the original mutually agreed-upon price of $2.2 billion. The higher bid price, according to Applied, reflects higher valuations for participants in the semiconductor capital equipment industry.

The two parties have also agreed to a new closing deadline of 3/19/21. At the time of the original announcement in July 2019, deal terms allowed for three extensions, and this would be the third. We see the third extension as a final effort to receive a regulatory sign-off from China.

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The addition of Kokusai would provide AMAT with high-productivity batch-processing systems and other technology, would add key customers, and would expand AMAT’s regional reach. Even at the higher bid, the deal price is reasonable. At this point, geopolitics alone stands in the way of deal close.

On a stand-alone basis, AMAT is the revenue and market share leader in the semiconductor capital equipment space. As the global economy begins to recover from the pandemic during calendar 2021, digital transformation of companies, industries, and global economies should continue to drive demand.

AMAT trades at a discount to peers on absolute and relative P/E, price/sales, and EV/EBITDA; peer indicated value is in the low $100’s range, on the rise and above current prices. Our discounted free cash flow analysis suggests a value in the $150s, in a rising trend and well above current prices.

Our blended valuation estimate is now in the $130 area, in a now steadily rising trend. Including the current dividend yield of about 1.1%, appreciation to our 12-month target price of $110 (raised from $90) implies a risk-adjusted total return greater than our forecast return for the broad market and is thus consistent with a “buy” rating.

Joseph Bonner, CFA, Communications & Technology

Alphabet (GOOGL), formerly called Google GOOG , maintains the largest online index of websites accessible through automated search technology and generates revenue through online advertising, cloud services, and hardware.

We see Alphabet as one of the tech industry’s leaders, along with Facebook FB (FB), Apple AAPL (AAPL), Amazon AMZN (AMZN), and Microsoft MSFT (MSFT); these companies have come to dominate new developments in mobile, public cloud, and big data analytics, as well as emerging areas such as artificial intelligence and virtual/augmented reality.

Alphabet also owns YouTube, the web-based video site, and has expanded into mobile telephony with its Android smartphone operating system. About 54% of Alphabet’s revenue is generated outside the United States.

The Department of Justice antitrust complaint against the company, filed on October 20, had been hanging over GOOGL shares for many months, so the actual filing was not much of a surprise. State attorneys general piled on with their own federal anti-trust suits in December.

We think these anti-trust cases are serious, though it will probably take years for them to play out and they may be difficult to prove in court. The company faces headline risks over the lawsuits in the near term and possible sanctions if the litigation goes against it.

The company has the financial resources to weather the storm and may come out even stronger after the crisis recedes. Alphabet has been cutting costs in the crisis, though the company will continue to invest in core drivers like Search, Machine Learning, and Google Cloud. GOOGL shares appear attractively valued given the company’s rapidly expanding businesses.

Although COVID-19 is impacting Alphabet’s advertising business in the near term, and the depth and duration of the pandemic are unclear, there are very few businesses with the resources and reach of Alphabet. We believe that the shares remain attractively valued given the company’s rapidly expanding businesses.

Palo Alto Networks PANW (PANW) provides integrated internet security solutions; its unique value proposition rests on its enterprise-grade integrated security platform. This platform features a next-generation firewall with attached and unattached add-on subscription services that provide highly automated prevention of known and unknown cyber threats.

We see Palo Alto’s ability to protect itself and its own customers against the “SolarStorm” attack through its advanced cyber-security platform as a powerful differentiator and rapid response to the crisis as responsible management. “SolarStorm” should, one more time, put advanced cyber-security protection at the top of the CIO priority list for both enterprises and government entities.

Palo Alto sees opportunities in helping customers secure and protect endpoints in the new distributed work-from-home environment. Management will continue to invest in its rapidly growing next-generation security solutions and its sales force to drive adoption.

The company has enhanced its strategic position though both a robust R&D cycle and a series of tuck-in acquisitions, and has created an enterprise cybersecurity platform that addresses cloud protected and distributed security, automation, artificial intelligence, and IoT.

Palo Alto is working with all four of the largest enterprise cloud service providers, Amazon Web Services, Microsoft Azure, Alibaba Cloud, and Google Cloud Platform, to provide client data security in a shared security model.

As more IT workloads shift to the cloud over time, cloud security is likely to remain a critical growth vector. We view Palo Alto as a leader in a very competitive and fragmented enterprise network security industry, and believe that management has recognized and taken advantage of emerging industry trends.

Despite pandemic-related uncertainty, Palo Alto has raised its FY21 guidance as clients continue to invest in IT security. We note that PANW often exceeds its guidance and consensus. Our estimates imply average EPS growth of 19% over the next two years, equal to our long-term earnings growth rate forecast. We are maintaining our “buy” rating on PANW and raising our target price to $410.

MoneyShow’s Top 100 Stocks for 2021: The top performing newsletter advisors and analyst are back, and they just released their best stock ideas for 2021. Get your FREE copy of MoneyShow’s 2021 Top Picks report here and see why the nation’s leading investment experts believe these stocks will significantly outperform the market in 2021.

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