It’s cliché in the West that the Chinese written pictogram for ‘crisis’ can also be read as ‘opportunity’ or ‘danger,’ but like many clichés, it comes from a seed of truth. Any crisis, be it political or medical or economic – or some combination of them all, as in the COVID-19 epidemic – brings with it heightened risks and rewards. British hedge fund manager Crispin Odey gave us a lesson that just recently, when his fund posted a 5% gain in the wake of coronavirus’s hit on the world’s stock exchanges.
Odey saw those gains, in his European fund, after making moves against electric car maker Tesla and against US shale oil stocks. Both have dropped on fears of coronavirus impact, but while Tesla shares are likely to stabilize and move back up, oil companies will continue to feel the hurt. Crude prices are down sharply, as the viral impact is disrupting travel plans and trade patterns – and demand for fuel.
Speaking of his quick move to short what had seemed to be strong positions, Odey said, “We went into coronavirus with the market incredibly bullish, everyone was long. I’m more cautious than most people.”
Odey’s caution has served him well in his career. In 2016, he was a well-known supporter of the ‘Leave’ vote in the initial Brexit debates – but when it came time to put up, he made a profit of 220 million pounds predicting that markets would collapse in the event that ‘Leave’ won the vote. Odey has long been known as a bearish investor, a reputation that peaked, perhaps, in 2008, when his short position on major banking institutions saw him profit handsomely despite that year’s financial crisis.
So, when a hedge fund manager as famously cautious as Odey started snapping up shares, it’s time to take notice. His fund, Odey Asset Management, listed three notable moves in the fourth-quarter. We’ve used the TipRanks Stock Screener tool to sort out some commonalities among them: all three are mid- to large-cap stocks, with ‘Buy’ ratings from Wall Street and at least 10% upside potential – in one case, nearly 120%! Of the three, only one pays a dividend, but that one yields a strong 6.6%. Let’s investigate the details, and find out what else drew Odey to these calls.
Euronav NV (EURN)
The first company on our list is a shipping company. Antwerp-based Euronav is the world’s largest crude oil tanker platform, whose operations include both ocean-going tanker transport and FSO (floating, storage and offloading) services.
Odey's firm has increased its holding of Euronav by 305% in the past quarter, picking up over 2.6 million shares. Odey Management holds 3.552 million shares in the company, worth more than $30 million.
Euronav’s Q4 2019 earnings report showed clear gains, both for the quarter and the full year. For the quarter, revenue reached $355 million, with a profit of $160 million. This was a 50% revenue gain year-over-year, and nearly unchartable gain from Q4 2018’s profit of just $279,000. The Q4 numbers changed a full-year net loss into a net gain, and Euronav posted FY19 revenues of $932.3 million with a net profit of $118.8 million. The full-year profit is complete turnaround from FY18’s net loss of $110 million.
Evercore analyst Jonathan Chappell writes of Euronav’s current position, “…although fear is at a fever pitch presently, as it relates to slumping oil demand associated with the onset of coronavirus, the tanker supply and demand outlook remains robust, and as the owner of an industry-leading fleet and a fortress balance sheet, EURN is poised to continue to provide enhanced EPS … growth over the coming quarters…”
Chappell puts a $21 price target on the stock to support his Buy rating, indicating his confidence with a 130% upside potential. (To watch Chappell’s track record, click here)
Randy Giveans, with Jefferies, is also bullish, and gives this stock a Buy rating with a $14 price target. Supporting his stance, Giveans writes, “Following the short-term oil demand shock due to coronavirus, we believe the tanker market will strengthen during 2020, while fleet growth continues to slow in the coming quarters.” His price target implies an upside of 67%. (To watch Giveans’ track record, click here)
Euronav holds a unanimous Strong Buy analyst consensus rating, based on 4 Buy and 1 Hold ratings. The stock is selling for a discounted $9.12, and the average price target of $16.82 suggests a whopping 84% upside growth potential over the coming year. (See Euronav stock analysis on TipRanks)
UBS Group AG (UBS)
Next up is a staple of the international banking scene, Swiss-based UBS. This multi-billion dollar banking firm is the largest of the famous Swiss banks, and holds an important position in the global financial scene. UBS has over 3.34 trillion Swiss franc (CHF) in assets under management, equivalent to $3.61 trillion in US currency.
UBS is a new position for Odey, whose firm bought 1.447 million shares. The holding is worth $15.145 million at current share prices – or 14.056 million CHF.
Of the stocks in this list, USB is the only one that pays out a high dividend – and at 6.6%, it is well over 6x the average of S&P-listed companies. The payout, 69 cents per share, is distributed annually and has been raised modestly over the last four years.
Last month, UBS announced that, as of November 1 this year, ING head Ralph Hamers will take over as CEO. The move is seen as bold – Hamers oversaw ING’s strong shift to digital innovation, and banking sector analysts are keen to see what he will bring to UBS.
Kian Abouhossein, 4-star analyst with JPMorgan, is upbeat about UBS’ current situation, writing, “Ralph Hamers is amongst the more highly regarded CEOs in European Banking... In our view, UBS has an excellent franchise and mix of businesses with 60% of Net Profit coming from Wealth Management; it is all about creating positive operating leverage in the group which has been lacking in the last few years and a fresh pair of eyes would help in this regard.”
Abouhossein gives this stock a CHF$15.00 price target ($16.14), implying a robust 62% upside, to support his Buy rating. (To watch Abouhossein’s track record, click here)
Berenberg analyst Eoin Mullany is also bullish on UBS, as indicated by his CHF$15.00 price target ($16.14) and Buy rating.
Commenting on UBS, Mullany says, “Having reset its profitability and capital return targets, it is time for UBS to deliver. With consensus already at the bottom end of its new profitability targets, expectations are low, but with 2020 having started well, we are confident that UBS can beat consensus expectations.” His target indicates that he expects a 54% upside here. (To watch Mullany’s track record, click here)
All in all, UBS holds a Moderate Buy analyst consensus rating, based on a mix of reviews: 4 Buys, 2 Holds, and 2 Sells. The stock is selling for $9.27 (8.61 CHF), and the average price target of $13.56 (12.60 CHF) suggests an upside potential of 46%. (See UBS stock analysis on TipRanks)
Charter Communications (CHTR)
Last up is Charter Communications, a $100 billion player in the US telecom sector. Using the brand name Spectrum, Charter offers cable services to more than 26 million customers in 41 states. After industry leader Comcast, Charter is the second-largest cable provider in the US. Charter also offers telephone services, and is the fifth-largest landline provider.
Clearly, Odey is impressed by Charter’s sustained upward path; he bought 26,706 shares of the company in the past quarter. This brought his full holding of CHTR to 51,008 shares, which are currently worth an impressive $25.336 million. Odey Management has held a position in CHTR since the third quarter of 2016.
The company’s Q4 2019 numbers tell the story, as far as numbers can. Quarterly earnings came in at $3.37 per share, beating the forecast by 34% and growing an impressive 161% year-over-year. Quarterly revenues, at $11.76 billion, showed smaller gains.
Evercore ISI’s 4-star analyst Vijay Jayant puts a bullish $600 price target on CHTR shares. This implies an upside of 16%, and supports his Buy rating.
In his recent research note, Jayant wrote, “Charter’s 4Q19 results and management’s 2020 commentary support our bullish thesis as we move into 2020. With tailwinds from continued strong broadband subscriber performance, the full year impact of the 4Q19 price increase, political advertising, and continued operating leverage, we expect 8-9% EBITDA growth in 2020E. Flattish capex and improved working capital translates this into 15% OpFCF growth, and the company’s aggressive capital returns turn that into 21% expected FCF/share growth..” (To watch Jayant’s track record, click here)
Overall, Charter Communications gets a Moderate Buy rating from the analyst consensus, based on a near-even split of 9 Buys, 8 Holds, and a single Sell. The stock sells for $470.28, while the average price target of $549.06 indicates a general confidence in 10% upside growth in the next 12 months. (See Charter stock analysis at TipRanks)