Heating, ventilation, and air conditioning (HVAC) company Carrier Global (CARR 1.50%), building materials company Owens Corning (OC 0.48%), and copper miner Freeport-McMoRan (FCX 0.62%) have all received Wall Street analyst upgrades recently, and justifiably so. These three stocks present a promising opportunity for investors to capitalize on positive trends, potentially leading to significant profit. Here's why.
1. Carrier Global positions itself for growth
Analysts from financial firms Citi and Barclays recently raised their price targets on Carrier Global's stock, with Citi now at $74 and Barclays at $81. These reputable firms are optimistic about the stock, with City upgrading to buy from neutral and Barclays maintaining an overweight rating, further solidifying the credibility of these upgrades.
Both analysts like the company's decision to focus on its core HVAC competency by selling off non-core fire, security, and commercial refrigeration businesses while acquiring European heat pump and HVAC company Viessmann Climate Solutions for $13.2 billion.
The deal emphasizes Carrier's intent to exploit a regulatory environment favoring sustainable climate technologies. Buildings and HVAC systems are significant contributors to greenhouse gas emissions, so increasing their efficiency is a vital part of the pathway to net zero emissions.
At the same time, the growth of adoption of smart building technology, offered by Carrier and others, is producing tangible benefits to building owners, and there's a huge long-term demand coming from the need to retrofit buildings to meet net-zero emissions targets.
Moreover, with Wall Street expecting a free cash flow of $3.1 billion in 2025 (when Viessmann will be integrated), the stock currently trades at less than 19 times estimated FCF in 2025. This is an attractive valuation for a company set for long-term growth driven by the regulation and adoption of net zero emissions targets.
2. Owens Corning: a housing stock to buy
A lot of companies talk the talk when it comes to believing in the long-term growth potential of their end markets. However, roofing products, insulation, and composites company Owens Corning also walks the walk. When faced with challenging residential housing markets due to a relatively high-interest-rate environment, management decided to double down on its exposure to the U.S. housing market by acquiring residential door company Masonite for $3.9 billion.
It's a move that finds favor with a Loop Capital analyst who likes the deal. Owens Corning and Masonite sell to many of the same types of customers in the building industry (contractors, builders, distributors, home centers, homeowners, etc). It makes sense to offer them a range of solutions in one shop. Moreover, management believes it can generate $125 million in synergies from sharing sales, general, and administrative expenses (SG&A), as well as sourcing and supply chain synergies.
However, from an investor perspective, the real attraction of the deal is the company increasing its exposure to the housing market in a year when it could be about to receive the benefit of a cut in interest rates.
If you believe the Federal Reserve will tame inflation and cut rates and that the housing market will recover as it traditionally does when the rate cycle turns, then the Masonite acquisition is perfect timing. Trading on less than 12 times estimated 2024 earnings, Owens Corning is an excellent value.
3. Freeport-McMoran and the New Economy
In common with Carrier, copper miner Freeport-McMoRan benefits from the economy's trend toward decarbonization. Copper is essential for electric vehicles, energy storage, solar power, and the transmission and distribution networks necessary to connect renewable energy to the grid.
At the same time, the trends toward electrification of the economy continue apace. Data centers, industrial automation, the Internet of Things (IoT), smart buildings/infrastructure, etc. All of these exciting growth areas require electrification, and that means more copper demand.
Analysts at Morgan Stanley favor this argument. One of its analysts recently increased its price target for the stock to $62 from $49.50 and upgraded its rating to "overweight" from equal weight. In addition, the analyst believes challenging supply conditions (geopolitical tensions, mining permit restrictions, etc.) will continue to create upward pressure on the price of copper.
Freeport-McMoRan is well placed to benefit, given its combination of existing assets, notably in Indonesia and the U.S., its pipeline of potential expansion projects to invest in, and a leaching initiative that can lead to a significant increase in copper recovered from Freeport-McMoRan's existing stockpiles.
If you believe in the megatrends identified above and the potential for copper price appreciation, then Freeport-McMoRan is a great stock to invest in.
