The path of the stock market since 1928: Morning Brief


Wells Fargo: These 3 “Strong Buy” Stocks Have Over 70% Upside Potential

Markets are on a roller coaster lately, up one day and down the next, as Wall Street’s pros and investors alike try to make sense of the constantly shifting news cycle. To wit: In the first week of October, we’ve seen a pretty good September jobs report, President Trump spend three days at Walter Reed Hospital with a case of COVID-19, and on his discharge the President withdrew from negotiations with House Democrats on a new COVID economic stimulus package. It’s enough to make your head spin.It’s also enough to send the S&P up 60 points one day and down 60 points the next day. Investors are nervous; no one wants to see another economic tailspin, no one wants to see the Administration handicapped by coronavirus, and whether there will be a stimulus package or not, of $1.6 trillion, or $2.2 trillion, or just $400 billion, Wall Street would simply like to have some idea of what’s in the cards.Watching everything from Wells Fargo, senior global market strategist Sameer Samana summed it all up when he wrote, “While risks remain, such as election and COVID-19-related uncertainty, we believe investors should continue to remain fully invested and we favor U.S. large- and mid-cap companies, and the Information Technology, Consumer Discretionary, Communication Services, and Healthcare sectors.”With Samana’s outlook in mind, we took a closer look at three stocks backed by Wells Fargo. Running the tickers through TipRanks’ database, we learned that the firm sees at least 70% upside potential in store for each, and all three have earned a “Strong Buy” consensus rating from the rest of the Street.Northern Oil and Gas (NOG)First up is Northern Oil and Gas, a small-cap oil and gas exploration company operating in the Williston Basin of North Dakota and Montana. The company’s active plays include wells in the Bakken formation, the region that helped put fracking into the national consciousness. Northern’s reserves include 7.4 billion barrels of recoverable oil, and production, at 1.5 million barrels per day, has increased 30% over the past three years.Despite the solid production growth, low prices and low demand during the corona crisis have put damper on 1H20 revenues. Earnings, however, are turning around. EPS was just 5 cents in Q1, but jumped to 20 cents in Q2 and is forecast to hit 38 cents in Q3. Unsurprisingly, these gains come as several states are loosening COVID restrictions and overall consumer demand is increasing.Wells Fargo analyst Thomas Hughes sees the company’s sound acquisition plan – and adherence to it – as the key.“As NOG improved its balance sheet and cost structure, the E&P sector moved in the opposite direction, particularly within its primary basin of focus (Williston). After closing a ~$300mm acquisition in 2019, NOG has selectively sought what it describes as “Ground Game” opportunities, or smaller, bite-size parcels offering near-term CF accretion due to: (1) superior acreage productivity analysis and (2) a better understanding of upcoming development plans. Since 2Q19, these have totaled $90mm, and NOG is now on the hunt for more.” Hughes wrote. The analyst concluded: “While a smaller-cap operator, we believe NOG’s limited beta to near-term oil price volatility provides strong FCF assurance, while a strong (and improving) balance sheet brings optionality to capitalize in a buyer-short market.”To this end, Hughes gives NOG shares an Overweight rating (i.e. Buy) along with a $10 price target. This figure suggests a 90% upside potential from current levels. (To watch Hughes’ track record, click here)Wall Street agrees with Hughes on the potential here; the analyst consensus rating of Strong Buy comes from a unanimous 5 positive reviews. Shares are priced at $5.30 and have an average price target of $14, giving an impressive upside potential of 166%. (See NOG stock analysis on TipRanks)Bonanza Creek Energy, Inc. (BCEI)Next up is Bonanza Creek, another small-cap oil and gas explorer in the North American energy sector. This one operating in the Front Range of the Colorado Rockies. Bonanza Creek has active wells in the Wattenberg Field, using fracking and horizontal drilling to extract oil and gas from formations first put into play in the 1970s.During the second quarter, BCEI reported a 40% sequential decline in revenues, to $36 million, and an EPS net loss of $1.87. At the same time, the stock has managed to retain its value; shares are trading now at the same level they were before their ‘corona collapse’ in early March.The second quarter also saw capital expenditures come in at the low end of guidance, and debt fall to $58 million. The company expects to repay that…

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