U.S. Inv Grade Best Ideas: May 2025

We compiled our quarterly, post-earnings list of best ideas across our U.S. investment grade analyst team and came up with ten Outperforms and three Underperforms and include a spread outlook, upcoming potential catalysts and links to recent reports. There was no yield bogey for either list but these are our favorite longs and shorts where the analysts have a strong view on the credit. We are back to having significantly more longs than shorts after our February list saw shorts outnumber longs for the first time, which worked out well as spreads gapped out 40 bps right after 1Q earnings.

OUTPERFORMS:

Anglo American (AALLN: Baa2/BBB/BBB+)

Metals & Mining, Wen Li, CFA

• We recommend an Outperform rating for Anglo American due to its relative value, strong earnings profile, and a restructuring program that serves as a positive catalyst. Additionally, another bid by BHP should not be ruled out.

• AALLN is a high-quality BBB credit in the metals & mining sector, with robust asset and geographical diversification. The company is currently undergoing a restructuring phase, shedding non-core assets and focusing on iron ore and copper.

• We anticipate that Anglo American will effectively navigate current commodity market conditions while maintaining a healthy credit profile. Furthermore, asset sales linked to management’s plan to streamline its portfolio could catalyze spread tightening in the medium term, although we believe AALLN offers a favorable carry opportunity even without asset sales.

Spread Outlook: AALLN 5.75s due 2034 are trading approximately 10 basis points wider than GLENLN 5.75s due 2034. We expect AALLN to trade inside GLENLN due to AALLN’s stronger earnings prospects. While AALLN’s copper and iron ore businesses are expected to perform well, GLENLN’s coal business faces challenges due to declining coal prices, alongside weaknesses in GLENLN’s marketing operations. Additionally, we anticipate the ongoing restructuring to act as a catalyst for a potential ratings upgrade and spread tightening.

Potential Catalysts: Despite Peabody’s warning that it may exercise the material adverse clause to get out of purchasing AALLN’s coal business, we believe the deal will eventually proceed, serving as a catalyst for spread tightening.

Apache (APA: Baa3/BBB-/BBB-)

Energy, Chas Johnston, CFA

• APA is trading wide to our BB E&P coverage, but a near-term downgrade seems unlikely. Not only did management announce a $608 mmn asset sale for debt reduction, but APA continues to generate material cash flow. Management may continue to be opportunistic and repurchase notes below par to leverage sale proceeds.

• APA’s leverage will remain approximately flat under a $65 price deck, while generating more than ~$1 bn of cash flow to split between debt reduction and buybacks. Even under a $55 price deck, APA will continue reducing debt this year, though leverage will trend upward to ~1.2x.

• Suriname production will ramp in 2028, and is significantly larger than what is being lost from the North Sea, generating ~$500 mn of annual cash flow at $60 Brent for an asset that APA is only spending ~$1.3 bn on. APA’s 40% interest in Suriname is ~88 Mboepd compared to North Sea at 34 Mboepd.

Spread Outlook: APA’s 2035s offer ~90 bp of spread pickup compared to our IG E&P average. This is primarily a carry play where we see leverage being maintained at the low end of IG levels, but cash flow generation and debt paydown will continue.

Potential catalysts: Immediate catalyst are less likely after the asset sale was announced with earnings, but further development plans in Suriname or Alaska would bolster long-term value as an acquisition target.