Is Kosmos Energy Ltd. (KOS) the Most Promising Stock to Buy According to Wall Street Analysts?
In this article, we will look at the 8 Most Promising Stocks to Buy According to Wall Street Analysts. Let’s look at where Kosmos Energy Ltd. (KOS) stands against other promising stocks according to Wall Street analysts.
With only a few days left until the 2024 presidential election, investors are preparing for potential volatility to shake the stock market. Uncertainty surrounds the winner of the November elections, whether Vice President Kamala Harris or former President Donald Trump will take. With around 62% of US adults invested in the stock markets, there are potentially particular ways for investors to manage and position their portfolios to reach profitability based on the election outcome, as there are differences in the Democratic and Republican economic policies.
However, despite this uncertainty, geopolitical tensions are already influencing market reactions. Tiffany McGhee, CEO and CIO at Pivotal Advisors, highlighted the potential macro events that could spark market volatility at the start of October. She was of the opinion that the ongoing conflict in the Middle East and the vice presidential debate are critical factors influencing market reactions. Bond prices experienced a decline earlier in the week but stabilized with investors looking for safety amidst the worsening geopolitical tensions. McGhee expects further short-term volatility as the elections approach due to these developments.
So, what should investors do to combat this volatility and ensure their profitability? McGhee prompted investors to reassess their portfolios, especially those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like consumer discretionary and technology performing on the better end of the spectrum, she suggests that this might be the time to take some profits off the table and think about reallocating these funds into different areas of the market to follow trends.
High Growth Sectors: Where Does Expert Opinion Point?
Market volatility and geopolitical trends are pushing investors to speculate about the most promising and high-growth sectors. On October 7, Keith Buchanan, GLOBALT Investments senior portfolio manager, appeared in an interview on Yahoo Finance to talk about what his expectations from the market are. With earning expectations revised from mid-single digits to mid-double digits, solid growth is expected as 2024 draws to a close. According to Buchanan, much of this growth is expected to come from artificial intelligence. In addition, expanding earnings growth beyond traditional growth in certain other sectors, like technology, is also anticipated to drive growth.
The energy and industrial sectors have experienced greater returns in 2024, capturing a significant portion of the market. Apart from value stocks and AI plays, Buchanan also adds that names in industrials, consumer discretionary, and financials are on the path to growth ahead for 2024. However, his advice to investors is prudent: to consider geopolitical events before diving head-first into investment decisions.
The stock market is thus exhibiting signs of its changing trends. Some of these are paving a profitable path for small caps. We discussed the potential of small-caps to rally in our article 7 Penny Stocks with Low PE Ratios. Here is an excerpt from it:
Larry Adam, chief investment officer at Raymond James, recently appeared in a CNBC interview and is of the opinion that the current market is precisely what a soft landing looks like. Talking about how lower interest rates are expected to benefit small caps, particularly the Russell 2000, Adam said that he believes the bull market will continue with the economy inching closer to a soft landing.
Small cap stocks get around 56% of their financing from the short end of the yield curve, which refers to the short-term interest rate on the yield curve. This typically represents the yields on bonds with shorter maturities, such as 2-year or 5-year Treasury notes. Large-cap companies, in contrast, get only 26% of their financing from these short ends of the curve. Therefore, Adam concludes that as the Fed continues to lower interest rates, small-cap companies will be better positioned to meet their financing needs.
He pointed out that the Fed is expected to cut rates twice in 2024 and another four times in 2025, painting a favorable picture for small caps. He iterated that the impact of the rate cuts has been positive for small caps, which have outperformed large caps. Taking this into a historical context, whenever the economy goes towards a soft landing, the circumstances help the small caps more significantly than the rest of the market.
Our Methodology
We used the Finviz screener to make a list of 25 mid cap stocks with a market cap of over $2 billion and selected the 30% above price column in the target price section. We picked the top 8 stocks with the highest analyst upside potential as of October 9, 2024. We have also added the hedge fund sentiment around the stocks, as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Promising Stocks to Buy According to Wall Street Analysts
Kosmos Energy Ltd. (NYSE:KOS)
Analyst Upside Potential: 70.45%
Number of Hedge Funds: 25
Kosmos Energy (NYSE:KOS) is a deepwater, full-cycle, independent oil and gas exploration and production company focused on the offshore Atlantic Margins. Its primary assets encompass production offshore Equatorial Guinea, Ghana, and the United States Gulf of Mexico, along with gas projects offshore Senegal and Mauritania. The company operates in four geographical reporting segments: Equatorial Guinea, Ghana, the US Gulf of Mexico, and Senegal/Mauritania.
Kosmos Energy (NYSE:KOS) is seeing strong operational momentum and solid progress across all its business units. It announced a target to grow production by around 50% two years ago, primarily driven by the delivery of three significant projects; Winterfell in the Gulf of Mexico, Junilee Southeast in Ghana, and GTA in Senegal and Mauritania. It is on the path to achieving this target by successfully starting the Winterfell and Jubilee Southeast along with production enhancement projects in the Gulf of Mexico.
It expects the startup of the final phase of the GTA project through the end of 2024. It also expects the infill drilling campaign in Equatorial Guinea to contribute towards its year-end production goal of around 90,000 barrels of oil equivalent per day. However, this production growth is not merely for growth’s sake, as it is coming from high-quality material projects with long reserve lives across both oil and gas. This rising production is working on a multiyear investment cycle.
The increased production and lower capital are expected to drive a meaningful cash flow inflection for the business, with a free cash flow of around $100 million to $150 million per quarter once it is up and running. The company will use this cash flow to initially pay down debt and strengthen its financial resilience. It is also planning to invest in future growth selectively, prioritizing high-graded projects that fit within its targeted capital budget.
Once its debt level reaches its near-term leverage target of sub 1.5 times, Kosmos Energy (NYSE:KOS) will focus on shareholder returns and further debt paydown to achieve its long-term goals.
Overall, KOS ranks 6th among the 8 most promising stocks to buy according to Wall Street analysts. While we acknowledge the potential of KOS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KOS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.