Wells Fargo (WFC) and Halliburton (HAL) lead a group of five dividend-paying Club stocks that are expected to show strong earnings growth this year. The banking and oilfield service company jumped off the page in our final screen of Jim Cramer’s Charitable Trust, the portfolio we use for the Club. We wanted to see which positions are expected to drive earnings per share this year well above the estimated earnings growth of about 2% for the overall S&P 500. We tried to make sure they also pay dividends, an important part of capital return strategies along with share buybacks. (We pointed out the Club’s buyback royalty last week.) Investors should also pay attention to valuation, so we excluded stocks trading above the S&P 500 multiple of 18 times future earnings. (Calculating a future price-to-earnings ratio, a common valuation metric used by investors to compare stocks, starts with a company’s share price or an index level and then divides it by earnings-per-share estimates for the next 12 months. .) full list of stocks that passed this screening test: Wells Fargo, Halliburton, Cisco Systems (CSCO), Caterpillar (CAT), and Morgan Stanley (MS) Before we dive into each comment, here are the full parameters we used for this analysis have used from the close following Tuesday’s Federal Reserve-led selloff. Calendared earnings per share growth in 2023 of at least 10%. Current dividend yield of more than 1% Future price-to-earnings ratio of 18 or lower. Note: For this story, we used calendared earnings and estimates – meaning we compared what a company earned in Calendar 2022 to what Wall Street expects it to earn in Calendar 2023. Because companies track different fiscal years, many end in December , but some end in June and others in January or September – this approach offers some standardization. This allowed for better comparison with Wall Street’s 2023 estimates for S&P 500 earnings. 1. Wells Fargo Estimated earnings per share growth in 2023: 50.7% Dividend yield: 2.7% Future P/E: 9.4 WFC 1Y mountain Wells Fargo’s stock price over the past 12 months. Bank shares were under pressure on Tuesday. However, we like Wells Fargo long term as we believe the bank’s efforts to turn around the company under CEO Charlie Scharf will continue to create value. More directly, management’s cost discipline will support earnings this year, in addition to the benefit Wells Fargo receives from higher interest rates. Wells Fargo’s dividend rewards investors for their patience, and buybacks resumed this quarter. We have a buy-it-here 1 rating on Wells Fargo. The average price target from analysts covering the stock represents a 20% gain from Tuesday’s close of $44.45 per share. 2. Halliburton Estimated 2023 earnings per share growth: 41.02% Dividend yield: 1.7% Future P/E: 12.43 HAL 1Y mountain Halliburton’s stock performance over the past 12 months. Demand for Halliburton’s services is robust after years of underinvestment in drilling capacity, giving the company tremendous pricing power to drive profitability. “Our completion calendar is fully booked and pricing continues to improve across all product service lines,” CEO Jeff Miller said during Halliburton’s most recent earnings call in late January. We also like Halliburton’s new plan to return at least half of its annual free cash flow to shareholders through dividends and buybacks. While that strategy is similar to that of the Club’s three other energy stocks — Pioneer Natural Resources (PXD), Coterra Energy (CTRA) and Devon Energy (DVN) — Halliburton is a different kind of company. As a result, revenues are relatively less dependent on the price of oil than those three exploration and production (E&P) companies. We have a rating of 2 on HAL stocks, which means we’re waiting for further weakness before considering increasing our position. The average price target of analysts tracking Halliburton is about 31% above Tuesday’s closing price of $37.85. 3. Cisco Systems 2023 Estimated Earnings Per Share Growth: 14.88% Dividend Yield: 3.2% Future P/E: 12.38 CSCO 1Y mountain Cisco’s stock performance over the past 12 months. Cisco’s revenue and earnings have beaten Wall Street expectations for three consecutive quarters, including the most recent report, in mid-February, which accompanied a full-year guidance for revenue and earnings. However, questions remain as to whether Cisco is merely catering to the significant backlog built up during the Covid pandemic and could face challenges once it normalizes. With that skepticism about new order growth, shares of Cisco are up less than 1% since the company’s impressive results on Feb. 15. We have a 2 rating for the stock. Meanwhile, Cisco analysts’ average price target on Wall Street is about 16% higher than where the stock closed Tuesday at $48.91 per share. 4. Caterpillar Estimated 2023 earnings per share growth: 14.71% Dividend yield: 2% Future P/E: 15.5 CAT 1Y mountain Caterpillar share performance over the past 12 months. Like Halliburton, Caterpillar sells to end markets that are prosperous and well positioned to remain so for the foreseeable future. Caterpillar, in particular, benefits from Washington’s infrastructure spending, which funds projects that require the company’s construction and mining equipment. This demand for Caterpillar’s products should enable the industrial powerhouse to raise prices when necessary, a dynamic that is good for earnings and is reflected in fourth-quarter results. We have a 1 rating on the stock. The average price target from analysts tracking the stock implies a 4% gain from Tuesday’s close of $246.14 per share. 5. Morgan Stanley Estimated earnings per share growth in 2023: 13.84% Dividend yield: 3.2% Future P/E: 13.3 MS 1Y mountain Morgan Stanley’s stock performance over the past 12 months. Morgan Stanley’s business transformation – from the thriving world of investment banking to the more stable world of wealth management – is at the heart of our rationale for being a shareholder. And it continues to go according to plan. We see the bank as a stock to hold for the long term. In addition, Morgan Stanley pays a solid dividend, yielding more than 3% per annum at current levels, and buys back healthy stocks. That rewards us for our patience. We have a rating of 2 on Morgan Stanley stocks. The average price target of analysts following Morgan Stanley is about 6% above the stock’s closing price of $96.06 on Tuesday. (Jim Cramer’s Charitable Trust is long WFC, HAL, CSCO, CAT, and MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll 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 charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIAL OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Workers walk to Halliburton Co.’s “sandcastles” on Tuesday, August 12, 2014. at an Anadarko Petroleum Corp. hydraulic fracturing site. north of Dacono, Colorado, USA.
Jamie Schwaberow | Bloomberg | Getty Images
Wells Fargo (WFC) and Halliburton (HAL) headlines a group of five dividend-paying Club stocks that are expected to show strong earnings growth this year.
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