The ‘COVID year’ of 2020 has been a tough year – markets were hammered, economies closed and we are still recovering. But for a select few, last year brought success and opened up opportunities. Steve Cohen, the billionaire founder of Point72 Asset Management, took a close look at the difficulties. In 2020, he increased his company’s assets under management to over $19 billion and accumulated personal income of $1.4 billion.
Cohen has used his fortune to fund his philanthropy as well as his purchase of the New York Mets baseball team. Sports fans may want to know what his plans are to improve the team’s roster, but market observers are more interested in how he made that fortune. So following Cohen’s purchases becomes a viable investment strategy for the common people.
With this in mind, we have the TipRanks Database to get the scoop on two of Cohen’s recent new positions. These are Strong Buy stocks – and perhaps more interestingly, both are strong dividend payers. We can turn to Wall Street analysts to find out what else these stocks brought to Cohen’s attention.
Enbridge, Inc. (NLB)
We start with Enbridge, Canada’s largest natural gas distributor – and one of North America’s giants in the energy industry. The company controls 20% of the natural gas in the US consumer market and has a 25% market share in the distribution of crude oil in North America. Across the continent, by total consumer, Enbridge is the third largest natural gas company in North America. Enbridge has more than 3,100 miles of pipeline, the largest of its kind in North America.
In the second quarter of 2021, Enbridge reported financial results with a mix of positive and negative factors, which were generally received as promising for the company over the long term. The company’s earnings per share came in at 55 cents, well above the forecast of 45 cents, but well below the 65 cents reported in last year’s quarter. Cash flow from operating activities also declined, from $2.4 billion to $2.2 billion. At the same time, distributable cash flow — which the company uses to cover its dividend — rose modestly yoy from $2.4 billion to $2.5 billion. Enbridge reiterated its full-year earnings forecast, set at $13.9 billion to $14.3 billion.
In terms of dividends, Enbridge has a 66-year history of reliable payouts. The current payment is 83.5 cents per common share, yielding an impressive 7.1%. Over the past 26 years, the dividend has reached a compound annual growth rate of 10%. This gives the dividend a high and sustainable return, well above the yield on government bonds.
As for Steve Cohen, his company took a new position in Enbridge and bought 484,233 shares of the company. This stake is worth more than $18.9 million at current levels.
analyst Todd Firestone, from Evercore ISI, sided with the bulls and repeats an outperform (ie buy) along with a price target of $55. This target expresses confidence in ENB’s ability to rise ~41% from current levels . (To view Firestone’s track record, click here)
Supporting his stance, Firestone writes: “Halfway through the year and ENB seems to be checking most of the boxes you would expect, running named expansion projects, hitting targets on Mainline, making progress on L3 and basically seeing that there is a lot of demand using their portfolio system-wide, which are certainly seen as positive, and having a fixed growth target that is basically free from raw material or production fluctuations is the investment case at ENB.”
The analyst summarized: “ENB’s offer of lower risk growth, supported by structural demand for Western Canadian heavy products, is likely to support interest in our view.”
Other analysts are also enthusiastic about the stock. Enbridge has a Strong Buy consensus rating that breaks down into 9 Buys and 2 Holds. The average price target is $45.28 with upside potential of 16%. (See ENP stock analysis on TipRanks)
Canadian Natural Resources (CNQ)
Cohen’s second pick that we’ll look at is another Canadian-based energy company, Canadian Natural Resources. This company operates in Alberta and British Columbia, where the tar sands produce heavy crude oil and the mountain areas contain productive natural gas fields. Based in Calgary, in the heart of Canada’s energy production region, CNQ is one of the world’s largest hydrocarbon producers and includes assets in the North Sea and off the coast of West Africa.
In the second quarter of 2020, at the height of the coronavirus pandemic, CNQ posted a net profit loss; in the past year this has turned into a strong net profit. The company’s 2Q21 earnings per share, at $1.30 per share, are a dramatic reversal from a year-ago loss of 26 cents. At the top end, revenue of $5.18 billion was up 127% year-over-year.
However, the big story here was the company’s cash flow. CNQ generated $2.94 billion in cash from operating activities, a huge gain compared to net cash loss of $351 million in the year-ago quarter. This included $1.5 billion in post-dividend free cash flow. CNQ estimates free cash flow for 2021 to be between $7.2 billion and $7.7 billion.
Solid cash flows fund a strong dividend. CNQ declared a payment of 47 cents Canadian (37.5 cents US) payable on October 5. At the current rate, this annualized dividend comes out to $1.50 per common share — yielding 4.8%. This compares favorably with the bond market, where the 10-year Treasure is yielding less than 2%.
This stock has been part of Point72’s portfolio since 2014, but in the last quarter, Cohen’s firm added more than 411,000 new shares to its holding, up 114% in ownership. Point72 now owns a total of 774,398 shares of CNQ, worth $25.15 million.
Wall Street agrees that CNQ is a buy proposal. MET analyst Randy Ollenberger rates the stock as a buy, and its price target of $59 (US$46) indicated confidence in 43% upside potential. (To view Ollenberger’s track record, click here)
Supporting his stance, the analyst wrote, “Canadian Natural’s industry-leading operating performance, cost structure, scale and flexibility coupled with its longevity, low decline and high-quality asset base have translated into one of the lowest WTI breakevens within its peer group. The company has a very high share of insiders and benefits from widespread commodity price diversification that lowers its risk profile.We believe Canadian Natural can further increase shareholder returns thanks to its strong ability to generate meaningful free cash flow and to pay off significant debts.”
Overall, it’s clear that Ollenberger’s bullish stance is mainstream for this stock. There are 15 reviews of The Street, including 12 to buy and 3 to hold, for a strong buying consensus rating. CNQ shares are priced at $32.3 and have an average price target of $43.63, giving the stock an average rate of increase of about 35% per year. (See CNQ stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.