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Wells Fargo (WFC) and Halliburton (HAL) lead a group of five dividend-paying Club stocks that are expected to post strong earnings growth this year. The bank and oilfield services company jumped off the page in our latest screen of Jim Cramer’s Charitable Trust, the portfolio we use for the club. We wanted to figure out which holdings are expected to boost earnings per share this year well above the roughly 2% earnings growth estimated for the S&P 500 in general. We’ve sought to ensure that it also pays a dividend, which is an important part of capital return strategies along with share buybacks. (We highlighted the club’s buyback property right last week.) Investors should also pay attention to valuation, so we exclude stocks trading above the S&P 500’s 18x forward earnings multiple. (The calculation of the forward price-to-earnings ratio, a common valuation metric used by investors to compare stocks, begins with a company’s stock price or index level and then divides it by the earnings-per-share estimates for the next 12 months.) Full list of stocks that pass this screening test: Wells Fargo, Halliburton, Cisco Systems (CSCO), Caterpillar (CAT) and Morgan Stanley (MS) Before I get into some comments on each, here are the full parameters we used for this analysis as of the close after Tuesday’s Fed-led sell-off. Estimated 2023 EPS growth rate of at least 10%. The current dividend yield is above 1% and the forward price-to-earnings ratio is 18 or less. Note: For this story, we used calendar-based earnings and estimates – meaning we compare what the company earned in calendar 2022 to what Wall Street expects it to earn in calendar 2023. Because companies track different fiscal years – many end in December, but others end In June and others in January or September – this approach offers some standardization. This allowed for a better comparison to Wall Street’s 2023 estimates for S&P 500 earnings. 1. Wells Fargo Estimated 2023 EPS Growth: 50.7% Dividend Yield: 2.7% P/E Forward: 9.4 WFC 1Y Mountain Wells Fargo’s share price during the the past 12 months. Bank stocks came under pressure on Tuesday. Still, we like Wells Fargo for the long haul, believing that the bank’s transformation efforts under CEO Charlie Scharf will continue to create value. And most immediately, the management expense system is poised to boost earnings this year, in addition to the benefits Wells Fargo is getting from higher interest rates. Wells Fargo’s earnings reward investors for their patience, as well as the buyback this quarter. We have a Buy-it-here 1 rating on Wells Fargo. The average price target from analysts covering the stock represents a gain of 20% from Tuesday’s close of $44.45 per share. 2. Estimated 2023 EPS growth for Halliburton: 41.02% Dividend Yield: 1.7% Forward P/E: 12.43 HAL 1Y Halliburton Mountain stock performance over the past 12 months. Demand for Halliburton’s services is strong after years of underinvestment in drilling capacity, which helps give the company massive pricing power to boost profitability. “Our completions calendar is fully booked and pricing continues to improve across all product service lines,” CEO Jeff Miller said on Halliburton’s most recent earnings call, in late January. We’re also fans of Halliburton’s new plan to return at least half of its free annual cash flow to shareholders through dividends and buybacks. While this strategy is similar to that deployed by the club’s three other energy stocks — Pioneer Natural Resources (PXD), Coterra Energy (CTRA) and Devon Energy (DVN) — Halliburton is a different kind of company. This makes its earnings relatively less dependent on the oil price than the three exploration and production (E&P) companies. We have a rating of 2 on HAL shares, which means we will wait for additional weakness before considering whether or not to add to our position. The average price target from analysts covering Halliburton is approximately 31% above Tuesday’s close of $37.85. 3. Cisco Estimated 2023 EPS Growth: 14.88% Dividend Yield: 3.2% P/E Forward: 12.38 CSCO 1Y Mountain Cisco stock performance over the past 12 months. Cisco’s sales and earnings have beat Wall Street expectations for three straight quarters, including its most recent report, in mid-February, which was accompanied by a full-year guidance lift in revenue and earnings. However, questions remain about whether Cisco is just feeding off the large backlog that has accumulated during the Covid pandemic and could face challenges once the situation returns to normal. With such uncertainty about existing new order growth, Cisco shares are up less than 1% since the company’s impressive results on February 15th. We have a rating of 2 on the stock. Meanwhile, the average price target from Cisco Wall Street analysts is about 16% higher than where the stock closed Tuesday at $48.91 a share. 4. Estimated 2023 EPS Growth for Caterpillar: 14.71% Dividend Yield: 2% Forward P/E: 15.5 CAT 1Y Mountain Caterpillar inventory performance over the past 12 months. Like Halliburton, Caterpillar sells in thriving end markets and is well positioned to stay that way for the foreseeable future. Caterpillar, in particular, benefits from Washington’s infrastructure spending bill, which funds projects that need the company’s construction and mining equipment. This demand for Caterpillar products should allow industrial powerhouses to raise prices when necessary, which is a good earnings dynamic and is on display in our fourth quarter results. We have a rating of 1 on stock. The average price target from analysts covering the stock is for a gain of 4% from Tuesday’s close of $246.14 per share. 5. Estimated 2023 EPS Growth at Morgan Stanley: 13.84% Dividend Yield: 3.2% Forward P/E: 13.3 MS 1Y Mountain Morgan Stanley’s stock performance over the past 12 months. The transformation of Morgan Stanley’s business – from the boom-and-bust world of investment banking to the more stable realm of asset management – is fundamental to our rationale for being a shareholder. Work continues according to plan. We see the bank as a stock to hold for the long term. Plus, Morgan Stanley is paying a solid dividend, making over 3% annually at current levels, and it’s buying back healthy amounts of stock. This rewards us for our patience. We have a rating of 2 on Morgan Stanley stock. The average price target from analysts covering Morgan Stanley is about 6% higher than the stock’s closing price of $96.06 Tuesday. (Jim Cramer’s Charitable Trust is WFC, HAL, CSCO, CAT, and MS. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charity fund portfolio. If Jim talks about a stock on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. The above investment club information is subject to our terms and conditions and privacy policy, along with our disclaimer. No fiduciary obligation or duty will be created by the staff, or created, by virtue of your receipt of any information provided in connection with Investment Club. There are no specific results or guaranteed profit.
Workers walk toward Halliburton’s “sandcastles” at Anadarko Petroleum Corp.’s hydraulic fracturing (fracking) site north of Dacono, Colorado, US, on Tuesday, August 12, 2014.
Jimmy Schapiro | bloomberg | Getty Images
Wells Fargo (WFC) and Halliburton (HAL) leads a group of five dividend-paying Club stocks that are expected to post strong earnings growth this year.
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