Professional analysts have more time, more data and better access to companies than most private investors. As such, the wisdom of the City crowd is worth paying attention to, because, at the end of the day, you’re either going with the pros or going against them when you invest.
Right now, BHP Billiton (LSE: BLT) (NYSE: BBL.US), Shire (LSE: SHP) (NASDAQ: SHPG.US) and Tullow Oil (LSE: TLW) are among the darlings of the professional analysts.
Tullow Oil
Tullow Oil is one of Europe’s biggest independent oil and gas explorers and producers. Over the past two years, the company’s shares have fallen from over 1,500p to around 800p after several high-profile dry holes and general reduced risk appetite across the sector from some institutional investors.
However, City analysts remain keen on the company, the latest move coming from UBS, which upgraded the stock from ‘neutral’ to ‘buy’ last week on the basis of the discount to a risked net asset value of 1,057p. The UBS analysts said:
“This is a well-financed company, with a proven development track-record, a strong asset portfolio, material exploration upside, decent downside protection acquirable at an attractive price while the cycle is not currently in its favour”.
Shire
The City has applauded the progress of pharmaceuticals group Shire under chief executive Flemming Ornskov, who took the up the reins just over a year ago. After a storming run, the shares peaked at 3,439p in early March, but have now eased back to around 2,870p.
Three out of every four City experts rate the shares a ‘strong buy’, with none viewing the company negatively. Analysts at Jefferies reckon Shire will increase earnings at a compound annual growth rate of at least 14% over 2014-17, and that the dip in the shares represents a buying opportunity.
A number of US analysts also follow Shire closely, and are equally keen. Cowen & Co, for example, reckon Shire should be a long-term core holding, and has imminent potential to become “one of the most sought-after growth assets in health care”.
BHP Billiton
Analysts have become increasingly bullish on BHP Billiton in recent months. The resources giant is in the process of disposing of non-core assets to focus on its ‘four pillars’ of iron ore, copper, coal and petroleum.
A recent news story that BHP Billiton is considering de-merging its non-core assets in a move that could create a new $20bn resources company was not denied by BHP’s management, who said: “We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximise value for BHP Billiton shareholders”.
The possibility of an accelerated streamlining of the group’s business has been generally welcomed by City experts. Analysts at Citigroup, for example, see BHP’s current business mix delivering 35% cumulative volume growth by the end of the decade, but the core business delivering 45%, adding that “the profit margins of the company also improve, with EBITDA margins moving from 45-50% range to 50-58% range”.