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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| June 18, 2018
The word on Wall Street – from the mouths of several top analysts – is that the market still has some serious room to run. And quality stock picks should be much better rewarded going forward than they have on average through the first half of 2018.
For instance, Tony Dwyer, chief market strategist at Canaccord Genuity, believes earnings will rise to record levels by the end of the year. He has upped his 2018 operating-earnings forecast for the Standard & Poor’s 500-stock forecast to $160 per share, from $155 previously.
“Throughout this cycle, each intermediate-term correction feels like the fundamental and tactical backdrop is at risk, only to ultimately realize that positive influences that drive our core thesis still exist,” he wrote in a recent report.
We turned to TipRanks’ revamped Stock Screener to see which stocks top analysts are betting on right now. These stock picks tend to feature big growth potential over the coming months. We specifically filtered for stocks with a “Strong Buy” consensus rating from the best-performing analysts. By looking at analyst ratings since 2009, we can pinpoint the outperforming analysts with the highest success rate and average return.
The following 10 stocks stood out as particularly compelling top analyst stock picks. Let’s take a look.
Data is as of June 15, 2018. Consensus price targets and ratings based on “Best Performing” analysts. Click on ticker-symbol links in each slide for current share prices and more.
Market value: $774.0 billion
TipRanks consensus price target: $113.86 (14% upside potential)
TipRanks consensus rating: Strong Buy
Software giant Microsoft (MSFT, $100.13) already has significant backing from Wall Street’s top analysts. And Morgan Stanley’s Keith Weiss (view Weiss’ TipRanks profile) has just pointed out another (potentially major) source of revenue.
“We see Microsoft building out the ‘Netflix of Gaming,’” Weiss told clients on June 8. “We think that gaming has historically been largely ignored, misunderstood, and undervalued by analysts and investors.”
In terms of numbers, Weiss sees Microsoft’s gaming business revenue soaring to $10 billion in fiscal 2018 – a $1 billion improvement from the previous year. He believes software and subscription services will generate 70% of this figure.
“With the gaming ecosystem expanding from the console to the PC and Mobile device, a shift from hardware and one-time video game sales to subscription services, and a future which includes streaming, broadcasting, and mixed-reality, we see Microsoft well positioned for the future of Gaming” Weiss wrote. For example, Microsoft’s Azure cloud service “allows for developers to scale and customize gaming infrastructure on a reliable cloud.”
On a longer-term basis, gaming could just be the driver that tips Microsoft over the $1 trillion market cap milestone. For Weiss, his estimate of a 45% gaming unit gross margin by 2021 is an essential part of the “path to $50 billion in earnings-before-interest-and-tax and a $1 trillion market cap for Microsoft.”
Market value: $46.1 billion
TipRanks consensus price target: $80 (23% upside potential)
If you are looking to diversify your portfolio, the Street’s top analysts are recommending the world’s largest leisure company. Carnival (CCL, $65.18) boasts a combined fleet of more than 100 vessels with a whopping 11.5 million-plus annual guests.
The stock has pulled back from recent highs – it traded at roughly $72 in January – over concerns of too much industry capacity. However, top analysts have moved quickly to reassure investors.
Five-star Tigress Research analyst Ivan Feinseth (view Feinseth’s TipRanks profile) describes the low prices as a “buying opportunity.” He argues that the capacity concerns “are tremendously unwarranted as demand remains strong, as the cruise industry is experiencing its second year of record demand and strongest booking momentum in the industry’s history.” Plus in many cases cruise ships are already operating at more than 100% of capacity.
Carnival itself recently reported another quarter of strong results driven by increasing demand and strong pricing trends. For Feinseth, “CCL continues to benefit from positive global economic growth of consumer spending trends that are favoring the travel industry. CCL is driving revenue and yield growth through its successful revenue management, marketing efforts, and new technology initiatives.”
He writes that Carnival also is boosting shareholder returns through its ongoing dividend increases and share repurchases.
The bottom line: “We believe further upside in the shares exists from current levels and continue to recommend purchase.” Feinseth reiterated his buy rating on June 8 without a price target. If you’re looking for a recent target, however, Steven Wieczynski (view Wieczynski’s TipRanks profile) of Stifel Nicolaus published a bullish $81 price target in late May.
Market value: $5.8 billion
TipRanks consensus price target: $61.67 (13% upside potential)
Multi-user password keeper Okta Inc. (OKTA, $54.48) has made terrific gains since its initial public offering in April 2017. Shares have shot up from an IPO price of $17 to well more than $50.
“We are in a fast-moving market for software and Okta is a fast-moving company in this investor-favored space” writes five-star Canaccord Genuity analyst Richard Davis (view Davis’ TipRanks profile). He still sees 17% upside potential ahead for this buy-rated cloud software company. Bear in mind that his recommendations tend to be right. Our data ranks Davis as No. 2 out of 4,800 tracked analysts for his precise stock-picking ability.
The big question for investors right now is whether Okta has the potential to transition to a much larger firm. In this respect, Davis recommends “focusing on the fact that Okta is doing a good job creating broader “concentric circles” of adjacent functionality that extends the firm’s TAM (total addressable market) without abandoning the core cloud SSO market.” And if we look at the bigger picture, “OKTA is emerging as the category leader in Identity, which means this business should scale to several billion dollars in revenue.”
This came on the back of another strong quarter for OKTA with revenue up 60% year-over-year. Okta increased the high-end of its full year revenue guidance by $9 million, which implies just under 40% growth for the year. Okta also revealed impressive customer growth to a total of 4,700 customers with 350 new net additions.
Market value: $90.9 billion
TipRanks consensus price target: $216.57 (4% upside potential)
Member-only chain store Costco (COST, $207.32) is a top Street pick right now. The company is defying the challenging retail climate and has just released stellar results for the fiscal third quarter ended May 13. EPS improved by more than 20% to $1.70 in the prior-year period, beating the Street estimate of $1.68.
Following the results, top Baird analyst Peter Benedict (view Benedict’s TipRanks profile) ramped up his price target from $215 to $230.
Oppenheimer’s Brian Nagel (view Nagel’s TipRanks profile) explains that the results “go a long way in supporting our positive stance on the shares.” He cites three key takeaways for investors, namely 1) strong sales growth and improved merchandising 2) stringent control of operating costs; and 3) solidifying memberships metrics with the introduction of a new Costco credit card. He is now confident that the store is moving beyond “cannibalistic” new store openings.
All this drives Nagel’s conclusion that “COST represents one of the most powerful business models in global retailing.” “We continue to see an opportunity in the shares for intermediate- to longer term-oriented investors,” he writes.
Indeed, longer-term, a lower domestic corporate tax rate should also allow COST to further step up strategic investments “intended to further strengthen its competitive standing amid a shifting retail landscape.”
Market value: $121.2 billion
TipRanks consensus price target: $200.17 (8% upside potential)
For all those migraine sufferers out there, Amgen (AMGN, $185.01) could have the answer. The company has developed the first preventative migraine drug for adults called Aimovig (Erenumab). The drug has now been approved by the FDA with an annual price per patient of $6,900. Although this may sound expensive, this price point has been described as “fair” by the Street.
Following the approval in May, top-rated Oppenheimer analyst Leah Cann (view Cann’s TipRanks profile) gave this upbeat analysis of the drug’s potential: “In addition to timing and pricing supporting our expectation for Aimovig our Migraine Survey supports our view that Aimovig will be adopted for the treatment of migraine quickly after launch.” She has a bullish $224 price target on Amgen.
“We anticipate Aimovig will launch in 2018 and result in 2022 sales of $555.1 million, or 1.7% of product sales,” she writes. “This sales level is based on conservative market adoption; therefore, there may be upside to this estimate.”
The drug, a monoclonal antibody that works for both chronic and episodic migraines, can be self-administered once monthly via Amgen’s autoinjector. European approval is expected in the coming months.
Courtesy Mike Mozart via Flickr
Market value: $20.2 billion
TipRanks consensus price target: $51.00 (22% upside potential)
Citizens Financial (CFG, $41.70) is the 12th largest retail bank in the U.S. The stock makes an intriguing investing proposition right now with two recent rating upgrades. “Investors seem to underappreciate the company’s excess capital position ... and a potentially more aggressive pace of capital return in this improving regulatory environment,” cheered top Robert W. Baird analyst David George (view George’s TipRanks profile).
He upgraded the stock on May 30 with a $45 price target (7% upside potential). George instructed investors to take advantage of the pullback in prices and stock up on shares. Macro issues like rising Italian sovereign debt yields and declining 10-year U.S. treasury bond yields have weighed on the stock recently. However, George still is optimistic that the bank can deliver solid results over the coming quarters. Plus he envisions that growing commercial loan figures will enable CFG to meet its Q2 loan growth targets.
Top 20 Vining Sparks analyst Marty Mosby (view Mosby’s TipRanks profile) agrees. He sees shares spiking to $37. “We believe that over the next 12 to 18 months CFG should be able to improve its profitability by another 2 full percentage points, as it is able to continue leveraging the current operating environment and increase capital deployment,” he writes.
He concludes that CFG “should be able to generate total shareholder return of over 20% ... topped off with a 2.1% dividend yield.”
Six analysts have recently published buy ratings on CFG, with just one analyst issuing a neutral hold rating. Top Sandler O’Neill analyst R. Scott Siefers (view Siefers’ TipRanks profile) also upgraded CFG (without a price target) two months ago.
Courtesy Raimond Spekking via Wikimedia
Market value: $114.9 billion
TipRanks consensus price target: $313.09 (16% upside potential)
Apple chip supplier Broadcom (AVGO, $270.23) is consistently one of the Street’s top stock picks. The latest update to the AVGO story has further cemented the stock’s bullish investment thesis. Broadcom has just reported the 13-week April quarter sales of $5.01 billion. The result was driven by solid wired and enterprise storage demand, which offset expected wireless weakness.
“Outside of wireless, things seem to be going swimmingly” is how one top analyst (Bernstein’s Stacy Ragson) summed up the results.
“With a bottom in wireless in place and momentum building in data center and parts of storage, the stock won’t stay this cheap,” commented Morgan Stanley’s Craig Hettenbach (view Hettenbach’s TipRanks profile). He has a $320 price target on AVGO. However, Rosenblatt Securities’ Hans Mosesmann (view Mosesmann’s TipRanks profile) is even more bullish. He reiterated his $350 price target on June 8, which translates into upside potential of nearly 30%.
This five-star analyst explains, “Broadcom delivered solid April quarter results with better than expected earnings from improved gross margins. We like the aggressive posture into the second half of the calendar year on the buy-back program on top of the strong FCF (free cash flow) and operating margin growth trends.”
He notes that trends in enterprise, cloud, and networking remain strong, with the start of a seasonal recovery at Apple (AAPL) providing a further boost.
Courtesy Microchip Technology
Market value: $23.8 billion
TipRanks consensus price target: $116.70 (14% upside potential)
Microchip Technology (MCHP, $101.98) is a leading provider of microcontroller and analog semiconductors. According to the company, its chips provide low-risk product development, lower total system cost and faster time to market for a diverse range of products.
However, top Needham analyst Rajvindra Gill (view Gill’s TipRanks profile) is particularly excited about the company’s potential in the automotive market. Following a meeting with the Microchip COO Ganesh Moorthy, he reiterated his MCHP “Buy” rating with a bullish $130 price target (27% upside potential).
“MCHP generates ~25% of sales from the automotive sector,” writes Gill, adding that the company is now “targeting automotive semiconductor growth via embedded systems which are smarter, networked, and secure.”
Indeed, MCHP is a top-10 automotive supplier with over 50 components sold into the vehicle. Microchip plays a valuable role in the production of advanced driver assistance systems (ADAS) which is the backbone of self-driving technology. In this respect, Microchip has even been gaining ground against its key rival NXPI.
“We would argue that MCHP is one of the leading ADAS suppliers through its broad product portfolio,” Gill writes.
Market value: $2.0 billion
TipRanks consensus price target: $43.33 (62% upside potential)
Insmed (INSM, $26.73) is a biotechnology company trying to change the lives of people with rare diseases. The company is buzzing following the acceptance of its New Drug Application for its ALIS (Amikacin Liposome Inhalation Suspension) by the FDA. This drug is designed to treat a potentially chronic and extremely damaging non-tuberculosis mycobacterial (NTM) lung infection.
Momentum for Insmed is now building ahead of the crucial PDUFA date on Sept. 28. This is when the FDA will announce its approval or rejection of the ALIS application. First, however, independent experts known as the Advisory Committee (AdCom) will offer the FDA their non-binding recommendations. This is due to take place in the first week of August.
“We believe the AdCom could serve as an important positive catalyst for Insmed, as should the committee vote overwhelmingly in favor of the approvability of Insmed’s application (as we think they will), we believe the long simmering M&A thesis for the company is likely to shift to the front burner,” writes top H.C. Wainwright analyst Andrew Fein (view Fein’s TipRanks profile).
He continues: “We continue to believe the collective strength of the ALIS data essentially removes the regulatory risks.” Fein says there are high unmet needs in the existing NTM space because no effective treatment is available, so “with the observed efficacy at hand, ALIS is well positioned to fill the void.”
Fein has a price target on INSM of $35 per share. However, he adds that if he assumed a 100% probability of success for ALIS, “we could easily justify a valuation north of $50/share.”
Market value: $61.9 billion
TipRanks consensus price target: $52.33 (19% upside potential)
General Motors (GM, $43.91) is the auto stock stealing the limelight right now. The company has just revealed a massive $2.25 billion investment from Japan’s SoftBank (SFTBF) fund for its self-driving Cruise unit. Once the deal completes, GM will invest a further $1.1 billion in its autonomous vehicle efforts. In return, SoftBank will take a 20% stake in the fast-growing unit.
General Motors shares exploded by 13% on the news.
“GM has a meaningful seat at the (self-driving) table,” writes RBC Capital analyst Joseph Spak (view Spak’s TipRanks profile). He revealed that before the investment, he had estimated the Cruise Automation unit to be worth around $4 billion. Meanwhile, Barclays analyst Brian Johnson (view Johnson’s TipRanks profile) spoke even more bluntly when he described the deal as “a reason to own the stock again.”
At the time, $1 billion seemed like a high price tag for the Cruise startup, but GM is enjoying the last laugh. This is because the self-driving space has the potential to completely revolutionize traditional methods of travel and delivery. Indeed, research by Intel (INTC) and Strategy Analytics estimates that the self-driving market will be worth a whopping $7 trillion by 2050.
“It will drive change across a range of industries, displacing vehicle ownership with Mobility-as-a-Service, and defining a new landscape of concierge and ride-hailing services, as well as pilotless vehicle options for businesses in industries like package delivery and long-haul transportation,” the 2017 Intel report says.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,700 Wall Street analysts as well as hedge funds and insiders. You can find more of TipRanks’ stock insights here.