5 of our stocks are in the headlines Thursday. Here's our reaction to the latest research

Published Thu, Jul 14 20223:18 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

We're taking a closer look Thursday at five of our portfolio companies that were the subject of four new Wall Street research notes. Deutsche Bank upgrades Costco BMO upgrades Advanced Micro Devices JPMorgan downgrades Cisco, likes Qualcomm Jefferies and Truist raise price targets on Humana 1. Deutsche Bank upgrades Costco The news: Deutsche Bank upgraded Costco (COST) to buy from hold Thursday, citing high membership renewal rates and increased foot traffic "as key differentiators in an increasingly uncertain backdrop." Along with the rating change, analysts hiked their price target on Costco shares to $579 from $525, representing nearly 18% upside from Wednesday's close at $492.22. If we were to summarize the Deutsche Bank analysts' thesis in one sentence, it would probably be this: Costco's membership-based wholesale model makes it the ideal retail stock to own during concerns about inflation squeezing the consumer. "We see meaningful share gains ahead for COST as consumers increasingly flock to warehouse clubs to consolidate trips, purchase in bulk for better pricing, and fill up their cars with lower priced gas," the analysts wrote. Deutsche Bank also highlighted two potential upside catalysts that we at the CNBC Investing Club have mentioned for months: the possibility Costco could soon raise its annual membership fees, which in turn would help boost earnings, and the prospect of a special dividend issuance. The Club's take: We believe Costco is the best-run retailer in the world, and our investment in the company is predicated on its long-term story. That said, we agree with Deutsche Bank that Costco's value-driven message will resonate even more with consumers right now with inflation running at its hottest clip since the early 1980s. On the membership fee point, it's important to note Costco CEO Craig Jelinek told CNBC in a rare interview this week that an increase is "not on the table right at the moment." However, we are in the range of when Costco, historically, raises membership fees: roughly every five to six years. Jelinek told CNBC to "stay tuned" on a special dividend, which we and Deutsche Bank believe could be issued due to Costco's growing cash balance. 2. BMO upgrades Advanced Micro Devices The news: BMO Capital Markets on Thursday put the equivalent of a buy rating on Advanced Micro Devices (AMD), upgrading the stock from market perform as analysts tout the chip designer's market share gains against Intel (INTC). It's no secret some parts of the semiconductor industry are facing challenges right now, specifically a slowdown to consumer electronics purchases of things like PCs that soared during the first two years of the Covid pandemic. For that reason, BMO lowered its earnings-per-share estimates for AMD in both 2022 and 2023. However, the analysts said their focus is on the "longer-term earnings power for AMD," while also highlighting an "attractive risk/reward profile" and reasonable valuation for the stock after a steep sell-off this year. AMD's ability to capture a larger piece of the semiconductor pie is a major reason why BMO is bullish on the Lisa Su-led company and so are we. "Our sense is that with the several key architectural innovations the company has made, along with rolling out a lineup of products that has enabled the company to not only close the gap but get ahead in many cases, AMD's credibility with customers has continued to climb," the analysts wrote. "This should enable AMD to gain a larger share of the wallet, especially on the faster growing cloud data center [total addressable market]." The Club's take: We have, of course, been longtime believers in the turnaround CEO Lisu Su has spearheaded at AMD, so we always are encouraged when analysts arrive at similar long-term outlooks. The note's emphasis on market share gains is particularly interesting. Club members who have been with us for a few months may recall our story from May , when Su herself was on CNBC talking up AMD's share gains in key end markets such as data center and PCs. We wrote at the time — and still believe today — that given concerns about a chip slowdown, it's smart to own companies that are expanding their share. The overall pie may not be growing at the same pace in the near term, so semiconductor companies that are increasing their slice of it faster than competitors have an advantage. 3. JPMorgan downgrades Cisco, likes Qualcomm The news: JPMorgan's networking and hardware analysts made a number of defensive-oriented tweaks to their coverage universe Thursday, and two of our stocks were impacted. We're discussing both here. Up first is the downgrade of Cisco (CSCO) to neutral from overweight, as analysts expressed concerns about a softening to enterprise spending over the next year to 18 months tied to economic uncertainty. "Enterprise suppliers can drive revenue upside from backlog drawdown enabled by supply improvement, but we believe the bigger dynamic for Enterprise suppliers will be material order moderation from both tough compares and reevaluation of spending, which in the case of certain companies can drive orders to even decline [year over year]," the analysts wrote. However, the JPMorgan analysts like Qualcomm (QCOM) here and added the chipmaker back to its "analyst focus list," after removing it from there in April. Qualcomm is now one of the analysts "value" ideas, they wrote, noting shares are trading right around 10 times forward earnings. While Qualcomm's large exposure to the smartphone end market has weighed heavily on the stock this year, JPM believes "we might be close to trough sentiment on TVs and smartphones." In addition, the analysts think Qualcomm's diversification strategy, which we have been pointing out for ages, could support the stock, along with market share gains in smartphones more generally. The Club's take: As we wrote Monday after our Club "Monthly Meeting," Cisco has been a bit of a disappointing investment. Supply-chain issues in China have hurt the company lately, and macroeconomic worries haven't helped, either, even though Cisco CEO Chuck Robbins told CNBC a month ago his outlook was "fairly optimistic." However, at its current levels, the stock carries a roughly 3.6% dividend yield — solidly above the 10-year Treasury note. If we had to choose between selling and buying the stock down here, we'd rather be buyers. It's also been tough sledding lately on Qualcomm, but like JPMorgan's note Thursday, we've recently been calling attention to the stock's low multiple. We think shares have fallen to the point where soon enough investors deem them attractive. Remember, stocks are forward-looking assets. A lot of bad news has already been priced into Qualcomm shares as they tumbled from nearly 17 times forward earnings in January to today's levels around 10. It's also worth highlighting JPMorgan's point on market share gains. This is something CEO Cristiano Amon has talked about before, specifically in Samsung's flagship smartphone, the Galaxy S22. Just like with AMD, it's helpful to be expanding share in a market that's temporarily not growing like it used to be growing. 4. Jefferies and Truist raise price targets on Humana The news: Two Wall Street research shops raised their price targets Thursday on Humana (HUM) shares, but their ratings on the stock differ. Jefferies now sees HUM at $560 in 12 months, up from its old price target of $528, and rates the stock a buy. Truist Securities, on the other hand, maintained its hold rating on Humana, even as analysts lifted their price target to $550 per share from $490. For Jefferies, its optimism on Humana is based on a number of factors including the company's business as a managed care provider is recession-resilient. The analysts also are projecting roughly 3% to 4% growth in enrollment in Humana's Medicare Advantage (MA) plans in 2022 and high-single digit percentage growth next year. With Humana's margins on individual MA plans below the company's long-term target between 3% to 4%, Jefferies sees the potential for expansion on the horizon. Over at Truist, health-care analysts are very bullish on diversified managed care, calling it their "favorite fundamental sector by a wide margin." They have buy ratings on a number of names in the group including UnitedHealth Group (UNH), but a hold on HUM. One area of Humana's business Truist likes, in particular, is the company's initiative around value-based home health arrangements. That's industry jargon for saying Humana wants to deliver more patient care at home. The company has sharpened its focus there recently, aided by its acquisition last year of Kindred at Home, which is now being rebranded as CenterWell Home Health. This is a multiyear plan for Humana. The Club's take: We took a position in Humana earlier this year as we shifted our portfolio to a more defensive posture. All of the company's revenue comes from inside the U.S., insulating it from geopolitical headwinds, and the company's business — as a Medicare Advantage insurer — tends to up better than others during a recession. It also lacks interest-rate sensitivity. Our investment in Humana has done well, and we recently trimmed 75 shares across two different sales because we wanted to lock in profits with the stock near all-time highs instead of letting ourselves get greedy in a bear market. We currently have a 2 rating on the stock, meaning we'd be buyers on a pullback . After a rough final few months of 2021, Humana seems to have gotten the ship back on track when it reported Q1 results in April and raised its guidance. We'll get our next update in about two weeks, when its Q2 numbers are out. (Jim Cramer's Charitable Trust is long COST, CSCO, AMD, QCOM and HUM. See here for a full list of the stocks.) 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Customers wearing face masks leaving a Costco Wholesale store on July 16, 2020 in Pembroke Pines, Florida.

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