3 'Strong Buy' Cyclical Stocks to Scoop Up Now

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Among President-elect Donald Trump's proposed policy changes, a significant cut in corporate tax rates is expected. As Trump looks to reduce the federal corporate tax rate from 21% to 15%, increased profitability could result from the lighter tax burden. Although this policy, should it go into effect, would be a positive development for companies across sectors, the proposed tax cuts will significantly benefit cyclical stocks.

With this in mind, Morgan Stanley has prepared a list of “quality” cyclical stocks that it expects to benefit amid a lighter regulatory environment and a rebound of “animal spirits.” Among the firm's picks, the three stocks highlighted here have all garnered consensus “Strong Buy” ratings from the broader analyst community, are dividend-paying stocks, and also offer decent upside potential from current levels, based on Wall Street's forecasts. Let's have a closer look.

#1. Mastercard Stock

Founded in 1966 and based out of New York, Mastercard is a global payment technology company that facilitates electronic payment transactions. It provides services for credit, debit, and prepaid cards in more than 210 countries and territories. Mastercard’s extensive network enables transactions across various platforms, including physical stores, and online, and mobile payment systems.

Valued at a sizeable market cap of $472.7 billion, MA stock is up 22% on a YTD basis. Notably, the stock also offers a dividend yield of 0.51%. Moreover, the company has been raising dividends consecutively over the past 13 years, and with a modest payout ratio of 18.9%, there's scope for further growth.

Due to its dominant position in the global payments market, Mastercard has seen its revenues and earnings clocking impressive CAGRs of 11.51% and 13.61% over the past decade, respectively. Moreover, analysts are predicting forward revenue and earnings growth rates of 12.32% and 17.01%, respectively, for Mastercard, well above the corresponding sector medians of 5.48% and 3.42%.

This strong showing continued in the most recent quarter, as well, with both revenue and earnings surpassing estimates. In Q3, Mastercard reported revenues of $7.4 billion, up 14% from the previous year, aided by growth in the payment network and value-added services and solutions. Additionally, EPS moved higher by 15% to $3.89, above the consensus estimate of $3.74. Overall, this marked the 16th consecutive quarter that MA beat Wall Street's earnings estimates.

Net cash from operating activities increased to $9.9 billion from $7.9 billion in the year-ago period for the nine months ended Sept. 30. Overall, the company closed the quarter with a healthy cash balance of $11.1 billion, which was considerably higher than its short-term debt levels of $750 million.

Mastercard is focusing on emerging markets as its next major growth driver, and is strategically directing investments toward stronger emerging markets with higher cash generation potential and expanding its Value-Added Services (VAS) portfolio. The VAS portfolio represents a significant opportunity for Mastercard, offering a diverse range of products that complement its core payment systems. These solutions cater to the increasing global shift toward e-commerce and digital payments, providing an edge in a competitive marketplace.

VAS is also a key driver of margin expansion and revenue diversification. By introducing new service verticals, enhancing customer engagement, and supporting global reach, Mastercard has positioned itself to capture growth in emerging markets and adapt to new financial trends such as open banking and digital identity. Premium offerings in areas like cybersecurity, data analytics, and marketing further reduce the company's reliance on traditional payment processing, creating a more balanced and resilient revenue model.

Analysts have an average rating of “Strong Buy” for the stock, with a mean target price of $560.28. This denotes an upside potential of about 7.7% from current levels. Out of 38 analysts covering the stock, 31 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 5 have a “Hold” rating.

#2. Zoetis Stock

We continue our list of preferred cyclical stocks with Zoetis . The company develops, manufactures, and markets veterinary vaccines, medicines, diagnostic products, and other animal health-related services. Its portfolio addresses the needs of both livestock and companion animals. Zoetis operates across more than 100 countries, offering over 300 product lines for diseases, immunization, and productivity enhancement in animals. Its market cap currently stands at $79.7 billion.

ZTS stock is down 10% on a YTD basis. The stock offers a dividend yield of 0.98%, backed by a conservative payout ratio of 29.01%.

Zoetis has displayed a consistent track record of increasing its revenues and earnings over the years. In the last 10 years, the company compounded its revenues by 6.85% annually, while the earnings CAGR was 15.74% over the same period.

For its latest results for the third quarter, Zoetis beat estimates on both revenue and earnings. Revenues for the quarter came in at $2.4 billion, up 11% from the previous year, with EPS of $1.58 representing an increase of 16.2%.

ZTS reported net cash from operating activities of $2 billion for the nine months ended Sept. 30, up from $1.5 billion in the prior year. Overall, the company exited the quarter with a cash balance of $1.7 billion, with no short-term debt on its books.

Zoetis enjoys a robust competitive moat built on its diverse product portfolio, strong patent protection, and steadfast R&D investment. The company capitalizes on rising global pet ownership and increased spending on pet care, which shields its revenue streams from broader economic volatility. Remarkably, despite its exclusive focus on animals, Zoetis ranks among the world’s top 20 pharmaceutical companies by market capitalization, underscoring its dominance in the pet-care sector.

To maintain its market leadership, Zoetis holds an impressive portfolio of over 5,000 patents, with more than 60% currently active. The company offers over 300 product lines spanning eight animal species and has driven innovation by advancing more than 2,000 products and lifecycle improvements in the past decade.

Analysts have an overall rating of “Strong Buy” for ZTS stock, with a mean target price of $220.54, which indicates an upside potential of about 24% from current levels. Out of 15 analysts covering the stock, 14 have a “Strong Buy” rating and 1 has a “Moderate Buy” rating.

#3. SLB Stock

We conclude our list with SLB , formerly Schlumberger, the world's largest oilfield services company. It provides technology, project management, and information solutions to the global energy industry. The company operates across four key segments, namely, Reservoir Characterization, Drilling, Production and the Cameron Group. The company currently commands a market cap of $62.2 billion.

SLB has experienced a 15% YTD correction in its stock price. The company's dividend yield of 2.50%, at a payout ratio of 32.09%, offers substantial flexibility for future dividend growth.

SLB's results for the latest quarter were impressive, as both revenue and earnings outpaced Street estimates. Revenues for the quarter were at $9.2 billion, growing 10% on a YoY basis, driven by a 12% rise in revenues from its core International markets to $7.4 billion. In the same period, EPS rose by 14% to $0.89. This marked the 16th consecutive quarterly earnings beat from SLB.

For the nine months ended Sept. 30, cash flow from operations and free cash flow increased to $4.2 billion and $2.4 billion from $3.6 billion and $1.8 billion, respectively, in the previous year. Overall, the company exited the quarter with a cash balance of $4.5 billion, and short-term debt levels of about $1 billion.

SLB is well-positioned for long-term revenue growth and margin improvement, fueled by tailwinds from offshore projects, geographic expansion, and operational enhancements. Its international division is poised to maintain strong momentum, driven by robust demand and ongoing capacity expansion, alongside continued investments in new gas and oilfield projects, especially in the Middle East and Asia. Offshore developments, particularly deepwater projects, are expected to generate significant activity, further contributing to consolidated revenue growth in 2024.

The company also stands to benefit from high-value contracts and partnerships, particularly through its OneSubsea joint venture. SLB's focus on production and recovery solutions, which help customers offset natural declines and maximize asset value, should continue to drive revenue growth in the coming years.

Overall, analysts are expecting the company to report forward revenue and earnings growth rates of 10.76% and 15.03%, compared to the energy sector medians of 1.44% and -6.09%, respectively.

Analysts rate SLB stock a “Strong Buy,” with a mean target price of $58.90, which denotes an upside potential of about 33.2% from current levels.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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Why Is Core Laboratories (CLB) Up 11.5% Since Last Earnings Report?

Zacks

A month has gone by since the last earnings report for Core Laboratories (CLB). Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Core Laboratories due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Core Laboratories’ Q3 Earnings and Sales Beat Estimates

Core Laboratories reported third-quarter 2024 adjusted earnings of 25 cents per share, which beat the Zacks Consensus Estimate of 21 cents. The bottom line also increased from the year-ago quarter’s reported figure of 22 cents. This can be attributed to better-than-expected performance from the Reservoir Description and Production Enhancement segments.

This oilfield service provider’s operating revenues of $134.4 million beat the Zacks Consensus Estimate of $133 million by 1.1%. The top line increased 7.5% from the year-ago quarter’s $125 million.

As of Sept. 30, 2024, Core Laboratories' net debt (defined as long-term debt minus cash and cash equivalents) was $120.5 million, reflecting a decrease of $11.8 million during the quarter. The company’s leverage ratio (calculated as total net debt divided by adjusted EBITDA) for the past four quarters improved to 1.47, down from the previous quarter's 1.66.

Core Labs’ adjusted revenues of $128.4 million beat the Zacks Consensus Estimate of $126 million by 1.9%. The top line also rose from the year-ago quarter’s recorded figure of $115.3 million. This can be attributed to the Reservoir Description segment’s impressive performance.

Segmental Performance

Reservoir Description: Revenues in this segment increased about 3.5% to $88.8 million from $85.1 million in the third quarter of 2023. Additionally, the top line beat our projection of $88 million. Operating income increased from $13 million in the year-ago period to $16.5 million and beat our estimate of $10.4 million.This was due to increased demand for reservoir rock and fluid analysis in international and U.S. markets.

Production Enhancement: This segment’s revenues increased 13.4% to $45.6 million from $40.2 million in the prior year quarter. Moreover, the top line marginally beat our estimate of $45.2 million. Operating income of $3.2 million missed our projection of $4.4 million. However, the metric increased from the year-ago quarter’s reported profit of $1.5 million.

Financials and Dividends

As of Sept. 30, 2024, this company had cash and cash equivalents of $21.5 million and long-term debt of $139.9 million. CLB’s debt-to-capitalization was 35.3%. Operating cash totaled $13 million, while capital expenditure amounted to $3 million. This led to a positive free cash flow of $10 million.

CLB’s board of directors approved a cash dividend of a cent per share on the company's common stock, payable on Nov. 25, 2024, to its shareholders of record as of Nov 4.

Outlook

For the fourth quarter of 2024, CLB expects revenues to range from $128.5 million to $135.5 million. Operating income is projected to be between $14.8 million and $17.7 million, with earnings per share expected to be between 20 cents and 25 cents.

Revenues for the Reservoir Description segment are anticipated to be between $87.5 million and $90.5 million, with operating income ranging from $13.4 million to $14.9 million.

Revenues for the Production Enhancement segment are expected to be between $41 million and $45 million, with operating income projected between $1.3 million and $2.7 million.

The company anticipates an effective tax rate of 20% for the fourth quarter. This guidance is based on projections for underlying operations and excludes any gains or losses from foreign exchange. Core Lab anticipates maintaining positive free cash flow in the upcoming quarters.

CLB expects a multi-year recovery in the international market, driven by underinvestment, increased focus on energy security and rising demand for crude oil , which should support growth in 2025. To align with this outlook, management remains focused on investing in technology and pursuing growth opportunities while staying involved in long-term international projects.

The company expects crude oil demand to rise 1-1.6 million barrels per day in 2025, according to estimates from the IEA, EIA and OPEC+. This increase is in addition to the natural decline in production from existing fields, making continued investment in onshore and offshore oil fields necessary.

In the short term, CLB anticipates that crude oil markets will be volatile due to global economic and geopolitical uncertainties. However, as international project activity grows, long-term projects in the Middle East, South Atlantic Margin, certain parts of Asia Pacific and West Africa should boost demand for Core Lab's services and products.

While Core Lab expects the U.S. land activity to decline in the fourth quarter of 2024, it should return to similar levels year over year in 2025. Current challenges include recent Exploration and Production consolidations and low natural gas prices.

For the fourth quarter of 2024, guidance for both segments accounts for delays caused by weather events in the Gulf of Mexico. Core Lab projects that Reservoir Description's revenues will remain flat or increase slightly, while Production Enhancement is projected to continue the drop in U.S. frac spread counts, along with the usual year-end slowdown in onshore completion activity.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Core Laboratories has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Core Laboratories has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Core Laboratories is part of the Zacks Oil and Gas - Field Services industry. Over the past month, Schlumberger (SLB), a stock from the same industry, has gained 6.8%. The company reported its results for the quarter ended September 2024 more than a month ago.

Schlumberger reported revenues of $9.16 billion in the last reported quarter, representing a year-over-year change of +10.2%. EPS of $0.89 for the same period compares with $0.78 a year ago.

For the current quarter, Schlumberger is expected to post earnings of $0.91 per share, indicating a change of +5.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Schlumberger. Also, the stock has a VGM Score of B.

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Is Trending Stock Mastercard Incorporated (MA) a Buy Now?

Zacks

MasterCard

+1.12%

MasterCard (MA) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Shares of this processor of debit and credit card payments have returned +0.9% over the past month versus the Zacks S&P 500 composite's +1.7% change. The Zacks Financial Transaction Services industry, to which MasterCard belongs, has gained 7.5% over this period. Now the key question is: Where could the stock be headed in the near term?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, MasterCard is expected to post earnings of $3.70 per share, indicating a change of +16.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.6% over the last 30 days.

The consensus earnings estimate of $14.47 for the current fiscal year indicates a year-over-year change of +18%. This estimate has changed +1% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $16.35 indicates a change of +13% from what MasterCard is expected to report a year ago. Over the past month, the estimate has changed -1.7%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, MasterCard is rated Zacks Rank #3 (Hold).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Projected Revenue Growth

While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth.

For MasterCard, the consensus sales estimate for the current quarter of $7.41 billion indicates a year-over-year change of +13.1%. For the current and next fiscal years, $28.08 billion and $31.5 billion estimates indicate +11.9% and +12.2% changes, respectively.

Last Reported Results and Surprise History

MasterCard reported revenues of $7.37 billion in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $3.89 for the same period compares with $3.39 a year ago.

Compared to the Zacks Consensus Estimate of $7.25 billion, the reported revenues represent a surprise of +1.6%. The EPS surprise was +4.29%.

The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

MasterCard is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about MasterCard. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

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