Every investor wants a sure return – that’s the way to make money in the markets, after all. With the main indexes all showing strong gains for the year (19% on the S&P 500, and 18% on the NASDAQ), those returns are clearly on the table. But there are some shorter-term downward moves, and plenty of market experts are counseling both optimism and caution.
RBC chief U.S. equity strategist Lori Calvasina notes that the upward trend has been both substantial and sustained, and she is revising her mid- to long-term forecasts for the S&P accordingly.
“For 2021, we are lifting our S&P 500 price target and EPS forecast by ~4% vs. our prior views. Our 2021 price target moves from 4,325 to 4,500 and our 2021 EPS forecast moves from $192 to $200. For 2022, we are moving our EPS forecast up by 2.7% to $222 from $216 and we are introducing a price target of 4,900, roughly a 9% gain from our 2021 price target,” Calvasina noted.
So far, so good. But in the near-term, Calvasina notes that there is a strong chance of a pullback before the years’ end, one that will see significant dips in share values.
“…we want to be clear about the message we are sending. We continue to think the S&P 500 will experience a bout of volatility/meaningful pullback before the year is up, a call that we’ve been making for the past several months… [We] see economic recession risks as low, reducing the likelihood of a full growth scare, and intend to treat it as a buying opportunity,” the strategist explained.
Short term losses, long term gains, and a buying opportunity in the offing – it sounds like RBC is predicting a stock environment that’s not for the risk-averse. Calvasina’s colleagues among the RBC stock analysts would seem to agree, as they have been pointing out equities with solid dividend returns – we’re talking about at least 9% here. These are classic defensive plays for investors in an uncertain market environment.
We’ve used the TipRanks database to look up the data on two of these picks; here are the details, along with analyst commentary to add some color.
Sibanye Stillwater (SBSW)
We’ll start with Sibanye Stillwater, a South African mining company with substantial operations in Africa and the Americas. The company has precious metal mining ops, including gold and platinum, in both South Africa and the US, along with copper and gold exploration rights in North and South America.
The company reported 983K ounces of total gold production last year, along with 2.783 million ounces of platinum group metals. The company’s reserves include over 66 million ounces of platinum group metals, and over 11 million proven ounces of gold. These reserves make Sibanye Stillwater one of the world’s leaders in gold output, and the dominant player for the platinum group.
Sibanye’s 1H21 report showed a 39-cent EPS, up 141% from the previous year, and a record cash flow of $1.2 billion. The company had over $710 million cash on hand against a net debt of $930 million. This gave the company the confidence to declare a dividend, for payment this month, of 65 cents per share, up from 10 cents one year ago. At the current rate, the dividend gives a yield of 9.5%, far higher than the 2% average dividend found among public companies generally.
RBC’s Tyler Broda likes what he sees here, especially in the company’s ability to keep up returns to shareholders: “We continue to see SBSW attractively priced, generating mining-industry-leading cash returns… With PGM prices stabilizing (especially rhodium), we continue to see the company provide attractive return potential.”
Looking toward the end of the year, the analyst adds, “We estimate the balance sheet to be in a net cash position of $974m by the end of the year, well above the $350m cash buffer suggested by the company’s strategic asset allocation.”
In line with these comments, Broda sets an Outperform (i.e. Buy) rating on the stock, with a $28 price target, suggesting room for a whopping 114% growth in the year ahead. (To watch Broda’s track record, click here)
Overall, while there are only two recent reviews on SBSW, they both agree that this is a Buying proposition, giving the stock its unanimous Moderate Buy consensus rating. The share have a $25 average price target, which gives a 77% upside from the current $13.06 trading price. (See SBSW stock analysis on TipRanks)
New Residential Investment (NRZ)
Next up is a real estate investment trust, a category of company long-known as dividend champs. These companies exist to buy up, own, manage, and lease various types of real properties; they also make investments in mortgages and mortgage-backed securities. Tax regulations require them to return a high portion of profits to shareholders, and dividends are a common vehicle for that. New Residential has wide-ranging portfolio, valued at more than $6 billion, with roughly half of the total being mortgage servicing rights.
In recent weeks, New Residential has reported several developments of interest to investors, including second quarter results, an important acquisition, and a substantial increase in its dividend payment. Regarding the quarterly report, the company showed EPS of 26 cents per share, up from a 2-cent per share loss in the year-ago quarter. The merger was the completion of the previously announced purchase of Caliber Home Loans, bringing the mortgage company’s loan origination and servicing into New Residential’s portfolio.
For our purposes here, the dividend may be the most important. New Residential declared a 25 cent per common share payment, to go out in October. At current levels, this annualizes to $1 per share and gives a yield of 9%. New Residential cut its dividend in April of last year, in response to COVID pressures, and has raised it four times since then.
RBC’s Kenneth Lee, rated 5-stars by TipRanks, came away bullish after hearing New Rez’s management in a call on the company’s status. Lee wrote: “We hosted an investor call with the senior management team of NRZ. We came away thinking the combination of NRZ’s Newrez-Caliber mortgage business and investment portfolio could allow NRZ to perform well under all rate environments, and we gained further insight into potential market share gains, and recent gain-on-sale margin trends. We continue to favor NRZ given the potential benefit from rising rates with its MSR portfolio, potential for dividend increases over time as earnings grow…”
To this end, Lee rates NRZ shares an Outperform (i.e. Buy) and his $12 price target implies an upside of 9.5% this coming year. Based on the current dividend yield and the expected price appreciation, the stock has 18.5% potential total return profile. (To watch Lee’s track record, click here)
With 4 recent reviews on file, and all to Buy, New Residential gets a unanimous Strong Buy consensus rating. The stock is selling for $10.90 and its $12.63 average target suggests room for ~15% growth in the next 12 months. (See NRZ stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
