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All Contents © 2017The Kiplinger Washington Editors
By Ryan Ermey, Staff Writer
| July 2017
As part of our tour of the United States of Stocks, we took at closer look at publicly traded companies based in northeastern states. Our list of nine companies — one from each state in the Northeast — includes a number of pharmaceutical firms as well a toolmaker that has been paying dividends for 140 years.
A word of caution: Since we picked a single stock from each state, and choices in some states are sparse, a few of these stocks are best suited to investors comfortable with a higher degree of risk. This is not a selection of our favorite stocks in the entire region, in other words. Take a look at the best stocks in the Northeast to buy now.
Headquarters: New Britain
Share price: $142.14
Market value: $21.8 billion
Stanley Black & Decker has been reorganizing its toolbox. In February, the manufacturer of industrial and household tools and accessories sold the majority of its commercial door locks business for $725 million. In March, a $900 million deal with Sears gave Stanley the right to make Craftsman Brand tools and sell them through other retailers. In the same month, Stanley acquired Newell Brands’ tool business for $1.95 billion. When the dust settled on those deals, Stanley Black & Decker bumped its 2017 earnings projection from a range of $6.85 to $7.05 per share to a range of $6.98 to $7.18 per share.
Shannon O’Callaghan, an analyst with financial services firm UBS, says that Newell’s tool business enhances and broadens Stanley’s core strength, and she sees the acquisition adding 80 cents a year to Stanley’s earnings per share by 2021. Similarly, she says that Stanley has potential to expand the Craftsman brand, given its scarcity outside of Sears locations, and sees an addition of 35 cents to 45 cents to earnings per share by 2021. She rates the stock a “buy” with a 12-month price target of $147.
Headquarters: South Portland
Share price: $102.09
Market value: $4.4 billion
Wex provides electronic-payment processing and credit card services for the travel and trucking industries, as well as a health care benefits administration platform.
The company posted excellent first-quarter results, with sales growing 41% from the same quarter last year and earnings climbing 27%. So far this year, however, the share price has slid 8.5%. William Blair analyst Robert Napoli says shares are undervalued thanks to a bearish report on Wex’s primary competitor, as well as recent fuel-price declines, which impact the amount truckers charge on the company’s fuel-payment cards. But the company’s growth prospects are bright. Its fleet business in Brazil, for instance, is targeting the 4 million commercial vehicles in the nation that lack the kind of fuel cards Wex sells. Napoli believes the Brazil segment, which accounts for 5% to 10% of Wex’s total revenue, will continue to see sales grow at a 20% clip. Factoring in partnerships with Chevron and Texaco, which are set to begin in 2018, he sees annual earnings growth in the mid-teen percentages through 2019, with the possibility of some strategic mergers and acquisitions bumping growth rates higher. He calls the recent slide in price an “attractive entry point” and says the stock will beat the broad market over the next 12 months.
Share price: $280.57
Market value: $59.5 billion
Biogen is a biopharmaceutical company specializing in treatments for cancer and autoimmune diseases.
Shares are up 5% since the start of the year (compared with a 20% gain in the average biotech stock), with shake-ups in senior management testing investor confidence and competitors launching drugs that could challenge Biogen’s core franchise of multiple-sclerosis drugs. But CFRA analyst Jeffrey Loo believes Biogen is positioned to maintain a leading share in an expanding and diverse market for MS treatments. He projects a slight uptick in revenues from Biogen’s flagship MS drug, Tecfidera, to $4.13 billion this year, up from $3.97 billion in 2016. And Morningstar analyst Karen Andersen has high hopes for Spinraza, a drug aimed at treating spinal muscular atrophy, following recent approvals from the U.S. Food and Drug Administration and the European Union. She sees annual sales of the drug hitting $2 billion by 2020. CFRA’s Loo projects a 23% gain in earnings per share for Biogen in 2017, followed by a 9% increase in 2018. Shares trade at just 13 times Loo’s 2017 earnings estimate, making the stock a good value compared with peers. His 12-month price target of $387 would put Biogen’s shares in line with other biotech firms, says Loo, trading at 18.5 times earnings. That implies a 38% bump from the stock’s current price.
Share price: $50.80
Market value: $1.6 billion
Albany International’s 22 plants in 12 countries operate in two core businesses. Albany is the global leader, with 30% of the worldwide market, in the manufacture of machine clothing – custom-designed fabrics and belts that are used in the production of paper. The company also makes lightweight composite parts, such as landing gear braces and rotor blades, for aircraft.
The stock is hovering near its all-time high, and growth in the company’s business argues for further gains, says Value Line analyst Simon Shoucair. The company’s acquisition of the Harris Corporation’s composite aircraft parts division should deliver more orders from major aircraft manufacturers that Harris already counts as customers, such as Sikorsky, Boeing and Lockheed Martin. That should bode well for sales and earnings growth for this year and beyond, Shoucair says. He forecasts 13% growth in earnings per share on 9% sales growth this year, with a nearly identical performance in 2018.
Share price: $133.68
Market value: $104.4 billion
Celgene is a biopharmaceutical company that develops and markets treatments for cancer and immunological diseases. Its blood-cancer drug Revlimid, at $6.9 billion in annual sales, accounted for 66% of overall revenues last year. The drug’s patents don’t expire until 2027, and the first generic version isn’t expected to hit the market until 2022. Due to increasing demand and little competition, Revlimid sales should hit $8.2 billion this year, says CFRA analyst Jeffrey Loo – a 19% annual gain that will help drive overall sales growth estimated at 18%
But Celgene also has a robust bench, which includes multiple myeloma drug Pomalyst and psoriasis drug Otezla. Also, there are 19 late-stage drug trials in the works over the next two years, and Celgene has more than $8 billion in cash on the balance sheet that analysts expect the firm to use to acquire promising smaller drug companies. Celgene executives say the company can achieve annual earnings and sales growth of 17% to 22% through 2020, targets that Loo believes are achievable. He rates the stock a “strong buy” with a 12-month price target of $156.
Headquarters: New York City
Share price: $130.57
Market value: $3.3 billion
Intercept is a biotech company focused on treatments for liver diseases. The company celebrated its first major victory last year when its key drug, Ocaliva, received FDA approval to treat primary biliary cholangitis, a rare liver disease that affects a person’s bile ducts. The drug is the first commercially successful treatment for the disease in 20 years, and it should drive sales growth henceforth, says Value Line analyst Nira Maharaj. But the biggest opportunity (and risk) for the drug is its potential approval to treat nonalcoholic steatohepatitis (NASH), a common but serious liver condition with limited treatments. NASH represents a potential $30 billion market in annual sales globally, says Morningstar analyst Kelsey Tsai. And though many firms are vying to be the first to address the disease, Intercept’s drug is the leader in the race. There is serious concern that Intercept may lose that race, but Wedbush analyst Liana Moussatos is encouraged by Ocaliva’s success in treating NASH in recent clinical trials, one of which was stopped a year early because of better-than-expected efficacy. Moussatos’s $231 12-month price target is nearly double the current share price.
Share price: $96.37
Market value: $21.0 billion
AmerisourceBergen is one of three major U.S. pharmaceutical distributors, and it is the main supplier to Walgreens and Express Scripts. The company’s partnership with Walgreens includes supplying the retailer’s entire drug inventory, including generics. Given its high profit margins, the generics business is a major driver of the company’s overall profitability, says Morningstar analyst Vishnu Lekraj. Due to the company’s enormous scale and its status as a preferred partner among drug manufacturers and retail pharmacies, he says, Amerisource will play a critical role in the pharmaceutical supply chain for years to come. That means it stands to benefit from an aging population and a raft of new generic drugs hitting the market as pharmaceutical patents expire, says CFRA analyst Joseph Agnese. He rates the stock a “buy” and believes its shares can hit $99 over the next 12 months.
Share price: $110.47
Market value: $13.8 billion
Goldman Sachs analyst Michael Ng began covering Hasbro in February with a “buy” rating. The stock has already exceeded his price expectations for this year, but his long-term thesis – that Hasbro should benefit from its ties to Hollywood blockbusters – remains compelling. Toys tied to films and TV shows accounted for 21% of global toy sales overall from 2008 to 2015, says Ng, but they contributed 41% of the industry’s revenue growth. That bodes well for Hasbro, which owns licensing rights to Star Wars (two films over the next two years), Marvel (seven films slated for release in 2018) and Disney Princesses (live-action remakes include this year’s Beauty and the Beast as well as Mulan, slated for next year). Movies based on popular Hasbro brands Transformers and My Little Pony are in the pipeline as well. Stephanie Wissink, an analyst at stock research firm Jefferies, says the company’s pipeline of high-quality toys, particularly those tied to films, should help the company achieve high-single-digit annual earnings growth through 2019. She rates the stock a “buy” with a 12-month price target of $125.
Share price: $15.70
Market value: $658 million
Casella provides solid-waste management services in the northeastern United States, including collection, transfer, disposal and recycling services.
“Casella has a long history, most of which isn’t particularly good,” says Chip Paquelet, head portfolio manager at Skylands Capital and a major holder of the stock. But a 2015 overhaul of the company’s board of directors has put the company back on track, he says, for investors willing to take a chance on this Green Mountain State native. Casella’s northeastern landfills, including one of two in the Boston metropolitan area, are enviable assets, Paquelet says. The company enjoys tremendous pricing power because new landfill permits in the Northeast are difficult to obtain, and because of the costs and inefficiencies involved in shipping waste to competing landfills in Ohio and West Virginia. But the company’s profit margins could stand improvement. If Casella were 80% as profitable as its peers, says Paquelet, the stock would likely trade in the high teens. DeForest Hinman, assistant portfolio manager at Walthausen Small-Cap Value, which owns the stock, sees the company headed in that direction. In addition to realizing higher prices on tonnage collected, the company has reduced some costs and is investing in improvements in its fleet and collection stations.
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