Credit Suisse refreshed its “top of the crop” stock picks for February, as the market tries to build on its strong start to the year. The S & P 500 is up more than 7% in 2023, as traders bet on easing inflation and the Federal Reserve slowing its pace of rate hikes. On Tuesday, Fed Chair Jerome Powell said inflation is starting to quell but noted that interest rates are still likely to rise . The broader market index rallied following those remarks, but it fell nearly 1% on Wednesday. Despite the uncertain market backdrop, Credit Suisse highlighted several stocks it thinks can outperform going forward. The bank added three new names to its list of highest-conviction top picks: Diamondback Energy , ServiceNow and PowerSchool . According to analyst Bill Janela, oil and gas company Diamondback Energy has an attractive relative valuation. The analyst also said: “While M & A headline risk was the frequent pushback on FANG for much of last year, acquisitions made in 4Q22 were sufficiently accretive and well received by the market such that the M & A concerns have been alleviated.” Diamondback shares have climbed almost 10% in 2023. The stock is coming off back-to-back years of strong gains. It rallied 26.8% last year and more than doubled in 2022. Credit Suisse has a price target of $195 per share, implying upside of 35.8% from Tuesday’s close. PowerSchool, meanwhile, stands to achieve strong growth as the education market shifts more toward digital and flexible learning pathways, according to analyst Rich Hilliker. “We believe the acceptance and implementation of digitally enabled learning present today is only scratching the surface, and we see PowerSchool as poised to address the growing education market with its sophisticated, yet simple and easy-to-use unified platform solutions,” Hilliker said. “We believe PowerSchool is poised to compound double-digit growth for the next decade as it seeks to drive multi-product adoption and expand internationally,” he added. PowerSchool shares have rallied 21.5% in the past 12 months. Credit Suisse has a price target of $27 per share, implying upside of 18.2%. Credit Suisse also sees strong gains for software stock ServiceNow, with the bank’s price target of $575 implying upside of more than 20%. “ServiceNow is a strategic priority for the C-suite during the ‘Great Reprioritization,’ in which investments in Digital Transformation that provide rapid ROI have become a necessity,” analyst Sami Badri said in a note. ServiceNow shares have been on fire this year, rallying nearly 20%. Returning names to the list include TransDigm Group , Discover Financial and Chipotle Mexican Grill. TransDigm Group is experiencing a strong start in 2023, with shares popping 20.1% year to date. Credit Suisse set its target price for shares at $830, implying a 15.2% upside from Tuesday’s close. Analyst Scott Deuschle said the company could exceed this estimate as China continues to reopen. “TDG is our preferred way to participate in the commercial aero cycle as the company looks well positioned to beat/raise its aftermarket numbers—we think the mid-teens aftermarket growth guide could turn into 25-30% given that China was likely contemplated at ~flat in guidance and price realizations are likely in the low-double-digits. The flow-through of this revenue upside to EBITDA should be nicely supportive of positive revisions, particularly as input cost pressure eases and labor productivity improves,” wrote Deuschle. Discover shares, meanwhile, have rallied 19% to start 2023. The company posted better-than-expected earnings last month. However, the bank also boosted its provision for credit losses compared to 2022, potentially forecasting a weaker economy this year. DFS YTD mountain DFS in early 2023. Chipotle is also off to a strong start for the year, gaining 18%. However, the stock fell 5% on Wednesday after the fast casual food chain posted d isappointing quarterly earnings report . Analyst Lauren Silberman wrote that Chipotle is a “rare compounding growth story” for years to come, and anticipates the company’s margins to approach the high 20% range over time. — CNBC’s Michael Bloom contributed to this story.
