Looking Back on Credit Suisse's Top 2012 Picks
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How did Credit Suisse's top-rated equities perform during 2012? The Swiss banking giant, which has a strong relationship with my favorite athlete, Roger Federer, made some bold calls during the course of the recent calendar year. Like Federer, Credit Suisse found success in a competitive market environment, but endured several unexpected losses as well.
While the veteran investor knows it’s always possible to find improvement with 20/20 hindsight, sometimes I find it worthwhile to take a moment’s pause and reflect on past experiences. With the above thought in mind, let’s consider a few of Credit Suisse’s standout predictions for 2012, and determine if the bank has stayed on course going into the New Year.
Freeport-McMoRan Copper & Gold (NYSE: FCX)
In a July 2012 report to investors, analysts at Credit Suisse labeled this copper and gold miner “The Cheapest Growth Stock in Our Universe,” reiterating an outperform rating and $50 price target on the shares, representing more than 45% upside from the market price. The analysts stated FCX deserved a premium EBITDA multiple based on its “best in class balance sheet,” 3% dividend yield, and leverage to the upside if metal prices improved. Credit Suisse began the 2012 calendar year with a $55 price target on FCX but ultimately lowered it to $50 by July.
Shares zigged and zagged from January 2012 through early December, managing to return a modest 4% capital gain. On December 5, Freeport-McMoRan announced it would be acquiring two companies in the form of Plains Exploration & Production (NYSE: PXP) and McMoRan Exploration (NYSE: MMR), expanding its presence beyond metals into oil and gas. Shares of FCX fell nearly 20 percent on the news, wiping away $8 billion in market capitalization as the market digested the financial impact of the deal.
Investors continue to view the two acquisitions with mixed feelings. Advocates cite the potential for Freeport-McMoRan to become a leading U.S. natural resources company. Pessimists point to the fact that FCX can no longer be considered a “pure play” investment on copper and gold, and the significant shareholder dilution that took place as a result of the deal. Without question, Wall Street analysts can no longer label FCX’s balance sheet as best in class.
The sell-side research analysts at Credit Suisse are currently restricted from providing a stock rating on FCX, as the firm’s Securities division acted as financial advisor to the FCX board of directors and provided a fairness opinion on both the PXP and MMR acquisitions.
Fusion-io Inc. (NYSE: FIO)
Fusion is a technology up-and-comer which specializes in virtualization software and cloud computing. The company has a market capitalization of $2 billion and went public recently in June 2011.
Credit Suisse began 2012 with an outperform rating and $50 price target on FIO, citing increased traction within the company’s end markets, top-line revenue growth, and product gross margins as high as 50 percent.
Market participants didn’t buy-in with Credit Suisse’s positive judgement, however, as shares of Fusion-io traded in a wide range throughout the calendar year. FIO began 2012 around $27, reaching an $18 low and $30 high, before finally settling 15% lower in December at $23 per share.
Despite the volatility and apparent uncertainty reflected in the behavior of Fusion-io’s stock, Credit Suisse has held steady with its outperform rating and $50 price target. It appears there is a healthy debate within the market on the business prospects for Fusion-io. The company’s revenue growth appears to be slowing, and there have been longstanding concerns regarding FIO’s ability to sustain a high gross margin.
Following fiscal 1Q 2013 results this past fall, analysts at Credit Suisse finally lowered their revenue growth and EPS expectations on October 25. Despite the lower forecast, however, Credit Suisse maintains its $50 price target based on the long-term potential for $1 billion in revenue. In my opinion, it is simply too hard to make a judgement call on Fusion-io, and I would advise readers to invest elsewhere in the market. Even if Fusion-io begins to deliver, it seems unlikely the market will suddenly give it more respect in the new calendar year.
Sprint (NYSE: S)
Credit Suisse hit the nail on the head with its outperform rating on Sprint, as shares rose a massive 142% during calendar 2012. Analysts began the year with a $4.50 price target when shares were exchanging hands for a modest $2.45.
Wall Street recognized the underlying improvement in Sprint’s earnings quality when the telecom operator beat Q4 2011 estimates by a wide margin. Management at Sprint delivered during Q1 2012 when it exceeded expectations once again and raised its EBITDA forecast to the high end of former guidance. Shares rallied to nearly $6 in mid-October when Japanese giant Softbank announced it would be purchasing a controlling interest in Sprint.
Despite 2012’s large return, analysts believe the bull story at Sprint is far from over. On December 17, Credit Suisse reiterated its outperform rating and $8 price target, citing long-term benefits from the Clearwire acquisition. The CLWR deal allows Sprint to buy wireless spectrum at an attractive price.
Foolish Bottom Line
Even if one didn’t maintain an ownership interest in Freeport-McMoRan, Fusion-io, or Sprint during the course of 2012, these illustrations serve as beneficial reminders that it’s impossible to predict the exact course of market events. As my friend Guy Adami states, often times what can happen will happen. Chances are likely that an unexpected event will occur in your portfolio during the New Year, even if you are Credit Suisse or Roger Federer.
Thanks for reading, and consider subscribing to my posts for more Foolish ideas on outperforming the market. Requests for future articles may be submitted to email@example.com.
johnmacris has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold, Inc. and Fusion-io, Inc.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!