There's plenty for investors to contend with right now including stock market volatility and uncertainty about the direction of interest rates. That's why those seeking out attractive investment opportunities might want to home in on Strong Buy stocks, or those names that analysts believe can outperform the broader market in the near term.
Current market conditions are ideal for what's called a stock picker's market. This is where folks choose individual stocks based on their singular merits, rather than put additional money into passive, broad-based equity index funds.
"We may be exiting the best S&P earnings per share era, but we are likely entering the best stock picker's market in our careers," says Savita Subramanian, equity and quant strategist at BofA Securities. "We recommend being invested in equities but selectively."
That is not to say investors should ditch their index funds; rather, see this as an opportunity to add strong, individual stocks to their portfolio. Here, the bottom-up approach to stock picking is preferred to the top-down, to find good companies worth adding to one's portfolio.
One group to consider is consumer discretionary stocks, which Subramanian recently double upgraded to Overweight from Underweight, the equivalents of Buy and Sell, respectively. The strategist cited several reasons, including expectations of a soft landing and no recession, as well as exaggerated headline risk – including potential student loan headwinds.
But the best stocks to buy are not found solely in the consumer discretionary sector. Here, we feature five Strong Buy stocks across a variety of sectors that analysts are bullish toward.
To narrow the list, we screened the S&P 1500 Composite Index to find some of the highest-rated stocks on Wall Street. We used data from S&P Global Market Intelligence, which surveys analyst ratings and scores them on a five-point scale. Those with ratings of 1.5 or below are considered Strong Buy stocks. Here are five that are worth consideration.
Data is as of Aug. 15. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts' ratings are courtesy of S&P Global Market Intelligence.
- Market value: $40.4 billion
- Dividend yield: N/A
- Analyst ratings: 14 Strong Buy, 6 Buy, 2 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.45 (Strong Buy)
IQVIA Holdings (IQV, $217.66) is a major contract research organization (CRO) that runs clinical trials for pharmaceutical companies as they seek regulatory approval for their drugs. It was formed from the 2016 merger of Quintiles, a leading CRO, with IMS Health, a life sciences data and analytics company.
Today, IQVIA leverages its extensive patient database to do such things as run virtual clinical trials with up to 90,000 patients globally without them having to leave home. It also uses data to model out what would have happened with placebos in a clinical trial, such that all patients enrolled get active treatment.
IQVIA compiles data from more than 150,000 suppliers that include pharmacies, medical claims and electronic health records, and the company has access to more than 1 billion patient records, according to Morningstar analyst Rachel Elfman.
"This unmatched database, layered with proprietary methodology, enables clients to set informed strategies to most effectively commercialize their drugs," Elfman said.
"[W]hile a competitor could theoretically replicate what IQV does with the data by purchasing the patient data, the real value is in IQV's ability to bring it all together and have a global breadth and depth of data," Truist Securities analyst Jailendra Singh writes in a recent note.
One of the biggest obstacles in clinical trials is recruiting volunteers. IQVIA overcomes this by leveraging artificial intelligence (AI) to build heat maps to find patients and sites. "We believe the generative AI can help CROs further significantly accelerate the process of drug discovery and development by identifying potential drug candidates, predicting their efficacy, optimizing their properties, and potentially bringing new treatments to market faster and at a lower cost," Singh said.
This data also is useful for post-market research and marketing, Singh said. By analyzing large datasets, companies can "gain a better understanding of the monetary value of their drugs, where they are being adopted and how to make them more valuable."
Singh has a Buy rating on IQV. The analyst also has a 12-month price target of $260, representing expected upside of nearly 20% for one of Wall Street's best Strong Buy stocks.
- Market value: $30.2 billion
- Dividend yield: 5.1%
- Analyst ratings: 13 Strong Buy, 5 Buy, 2 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.45 (Strong Buy)
VICI Properties (VICI, $30.04) is a real estate investment trust (REIT) that owns and acquires gaming, hospitality and entertainment properties. In Las Vegas, it owns Caesars Palace, MGM Grand and The Venetian Resort – three of the most recognizable names on the strip.
It also owns Hard Rock Casino Cincinnati, Borgata in Atlantic City, New Jersey, and many others. Overall, the trust's portfolio comprises 50 gaming facilities in the U.S. and Canada, with roughly 60,300 hotel rooms and more than 450 restaurants, bars, nightclubs and sportsbooks.
The REIT was formed in 2017 out of the Chapter 11 bankruptcy of Caesars Entertainment Operating Company, the largest division of Caesars Entertainment. VICI is a triple-net lease company in which its tenants are responsible for operating costs of the properties. Half of its tenants' leases go up with inflation in 2023, and 96% have this arrangement over the long term. VICI has around $2.9 billion in annualized cash rent.
VICI, which came from Julius Caesar's famous 'veni, vidi, vici' quote, was added to the S&P 500 in June 2022. With around $51 billion in enterprise value, it is the largest experiential net lease REIT.
In 2017, VICI reported $690 million in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), and it's grown steadily over the years. VICI ending 2022 with $2.2 billion in adjusted EBITDA. Moreover, the company has raised its cash divided every year since its inception, and targets a 75% AFFO (adjusted funds from operations, a key REIT earnings metric) payout ratio.
In the second quarter of 2023, VICI's AFFO per share rose 11.9% year-over-year to 54 cents, while total revenue was up 35.5% to $898.2 million.
As for why VICI is on this list of Strong Buy stocks, the company "continues to offer greater visibility through its business model coupled with growth through its disciplined investment strategies," says Jefferies analyst David Katz. Additionally, the company's focus on acquisitions and partnerships – like its investment in wellness resort Canyon Ranch – "could add meaningfully to shareholder value over the long term," the analyst says.
Katz has a Buy rating on VICI Properties and a $43 price target, representing implied upside of 43% to current levels.
- Market value: $66.5 billion
- Dividend yield: N/A
- Analyst ratings: 10 Strong Buy, 2 Buy, 2 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.43 (Strong Buy)
As companies move toward adopting advanced technologies such as AI, there will be greater demand for more powerful and complex semiconductors or chips.
Enter Synopsys (SNPS, $436.74) – one of Wall Street's top Strong Buy stocks.
The company provides software tools and services for semiconductor companies, system-on-a-chip designers and electronics products manufacturers. Its software is used for various stages of the design process, including circuit simulation, logic synthesis and physical design. Synopsys is the largest player in the electronic design automation (EDA) market.
The company recently announced an expanded intellectual property (IP) and EDA partnership with Intel (INTC). Needham analyst Charles Shi believes this deal could have a "significant" impact to Synopsys' "revenue and backlog due to the likely breadth and duration of the contract."
Without a readily available foundational and interface IP, many fabless customers would find it difficult to adopt Intel and Samsung's foundry processes, Shi says. "Given Intel's ambition to grow its foundry business under the IDM 2.0 model, we think this agreement may be worth billions of dollars and add handsomely to SNPS' backlog.
Shi has a Buy rating and a $500 price target on Synopsys, reflecting implied upside of 14.5% over the next 12 months or so.
Delta Air Lines
- Market value: $27.7 billion
- Dividend yield: 0.9%
- Analyst ratings: 14 Strong Buy, 5 Buy, 0 Hold, 1 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.40 (Strong Buy)
Among major airline carriers, Delta Air Lines (DAL, $43.02) is uniquely positioned.
According to Raymond James analyst Savanthi Syth, Delta is the "best around" when it comes to airline stocks amid steady demand for travel and the company's efforts to deleverage and restore its balance sheet.
"We continue to believe Delta's balanced capital deployment strategy, structural advantages and opportunity to grow higher-margin businesses should enable it to retain its relative operational and financial leadership vs legacy peers," Syth writes in a note to clients. The analyst has a Strong Buy rating on DAL with a $58 price target, representing implied upside of nearly 35%.
Meanwhile, Morningstar analyst Nicolas Owens expects "continued growth" in the near term thanks to "strong domestic leisure travel, a strengthening business travel recovery, and increasing international travel due to fewer travel restrictions compared with 2022." And over the longer term, Owens believes Delta "can return to 2019 levels of capacity in 2024, and we expect revenue passenger miles will be approximately 19% higher in 2027, our midcycle year, than in 2019."
But even Strong Buy stocks carry risk, with Delta in particular susceptible to geopolitical uncertainty, volatility in the oil markets and stiff competition, Owens says.
- Market value: $1.41 trillion
- Dividend yield: N/A
- Analyst ratings: 37 Strong Buy, 13 Buy, 4 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus recommendation: 1.39 (Strong Buy)
Like many companies, Amazon.com (AMZN, $137.67) tightened its belt as the economy decelerated. And while revenue grew at a slower pace in 2022 than previous years, the tide appears to be turning for Amazon.
In the second quarter of 2023, for instance, revenue jumped 11% year-over-year, while earnings arrived at 65 cents per share vs a loss of 20 cents per share in the year-ago period. What's more, the company saw record sales for its July Amazon Prime Day shopping event, with another one scheduled for October.
"Management has replaced caution on sales growth and margins with a more positive outlook for both retail operations and Amazon Web Services (AWS)," says Argus Research analyst Jim Kelleher. "Other non-retail businesses such as subscriptions and advertising saw resurgent growth [in Q2] after slowing in the prior two quarters."
Those making the bull case for Amazon say it remains the leader in e-commerce with around a 40% market share as its Amazon Prime membership helps attract and retain customers. Plus, its Amazon Web Services division is number one in the cloud computing market, which it invented, with around a 32% share, according to Synergy Research Group.
Meanwhile, Amazon CEO Andy Jassy said the company will continue to manage expenses to be in line with revenues. It already shut some of its physical stores such as Bookstores and 4 Star and cut development of devices "where we didn't see a path to meaningful returns," Jassy wrote in his annual letter to shareholders. Amazon has reorganized its fulfillment centers geographically as well and made internal operational changes in such areas as processes and physical operations, to lower costs and increase speed of delivery.
AMZN is the highest rated of the Strong Buy stocks featured here. Plus, the mean target price of $167.92 indicates implied upside of nearly 22% over the next 12 months or so. What's more, Kelleher, who has a Buy rating on AMZN, says the stock "warrants long-term accumulation in most equity accounts."
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