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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| January 11, 2019
Despite a rocky 2018, many analysts still are bullish on the investing outlook for 2019. Yes, the final quarter of last year was miserable – but the upshot is that it left investors with numerous higher-quality cheap stocks to buy.
Blackstone’s Joseph Zidle, Managing Director and Investment Strategist in the Private Wealth Solutions group, told CNBC, “This is a buying opportunity. We see the market (the Standard & Poor’s 500-stock index) up 15 percent in 2019. This is just not a recessionary environment.”
Similarly, Goldman Sachs Chief U.S. Equity Strategist David Kostin writes, “The low starting level and valuation of the market suggest positive returns to US equities in the coming year.” He believes that ongoing U.S. economic expansion will lift the S&P 500 to 3,000 by the end of 2019. Several other market analysts see the market heading higher in the year to come.
However, investors still need to be savvy about which stocks to buy and which to avoid. That’s why we turned to TipRanks to pinpoint buy-rated stocks with significant support from the analyst community. Here are seven cheap stocks to buy, according to top-rated Wall Street analysts.
Data is as of Jan. 10, 2019.
Market value: $92.7 billion
TipRanks consensus price target: $242.87 (15% upside potential)
TipRanks consensus rating: Strong Buy
Warehouse retail chain Costco (COST, $210.64) looks plenty attractive to analysts already – but a roughly 5% discount over the past three months helps sweeten the deal a bit more.
Five-star Tigress Financial analyst Ivan Feinseth says this recent pullback represents a top-notch buying opportunity. He writes, “We reiterate our Buy rating on COST as its dominant retail position together with its differentiated and high value-added shopping experience continues to drive accelerating Business Performance.”
Feinseth, who doesn’t offer a price target, concludes, “We believe the recent pullback on near-term weakness is a major buying opportunity and believe significant upside exists from current levels.” That’s thanks to Costco’s value proposition for customers. Meanwhile, new warehouse clubs and e-commerce initiatives should drive future revenue growth and profits.
Argus analyst Chris Graja is modelling for 15% upside for shares from current levels. He writes “execution of the business plan remains excellent, with strong traffic and membership renewals.” If you’re interested in more information on Costco’s shares, get a free COST Research Report from TipRanks.
Market value: $589.3 million
TipRanks consensus price target: $45.33 (19% upside potential)
Family footwear retailer Shoe Carnival (SCVL, $38.05), which boasts 419 stores across the U.S., recently received a bullish upgrade from Susquehanna analyst Sam Poser. With this upgrade, the three analysts covering Shoe Carnival now rate the stock a “Buy.”
So what’s driving this bullish sentiment? Poser explains, “Significant improvements in customer engagement and merchandising are becoming evident.” For example, SCVL’s new loyalty program is beginning to bear fruit; sales to ShoePerks members jumped by double digits during the third quarter.
Poser believes the stock’s recent pullback – shares are off 15% from their late-August highs, even including a rally to start to January – is unwarranted, especially given the strong Q3 beat and improved outlook. “More targeted customer communications as the CRM improves, and the correct levels of more relevant assortments should allow the momentum of the company’s results to continue,” the analyst says.
Also note that Shoe Carnival recently authorized a new share repurchase program for up to $50 million. Learn more about how the Street views this stock via TipRanks’ SCVL Research Report.
Market value: $5.3 billion
TipRanks consensus price target: $147.57 (20% upside potential)
Monolithic Power Systems (MPWR, $122.79) is Needham’s “top focus stock pick” entering 2019, writes analyst Quinn Bolton. California-based Monolithic provides small, highly energy-efficient power management solutions for electronic systems.
“In an environment in which semiconductor industry revenue is decelerating, MPWR is targeting another year of 20%+ revenue growth in 2019,” Bolton writes. “In our view, MPWR’s diversified growth profile, management’s consistent execution, and the pullback in the shares (in the second half of 2018) combine to make MPWR shares our top pick as we enter 2019.” Shares are down 18% since an early September peak.
Given Monolithic’s ability to gain market share and its consistent execution, Bolton calls his 2019 revenue estimate of roughly 14% year-over-year growth “conservative.” He likes the high-growth potential of segments such as Storage and Computing, Automotive and Industrial, which are stealing market share and garnering new greenfield opportunities.
Bolton estimates prices will spike by 22% to $150 per share. He’s not alone in his optimism – MPWR currently enjoys 100% Wall Street support. The company has received seven consecutive buy ratings from analysts over the past three months. Check out other analyst targets in TipRanks’ MPWR Research Report.
Market value: $1.5 billion
TipRanks consensus price target: $33.33 (59% upside potential)
From one top pick to another. Best-performing Oppenheimer analyst Mohan Naidu singles out Evolent Health (EVH, $19.20) as one of his favorite stocks for the new year.
“The recent pullbacks set up some great opportunities in Healthcare IT,” he writes, arguing that EVH stands out from the crowd.
Because of the increased volatility in the market, Naidu expects investors to place an increased focus on fundamentals and valuations in 2019. In particular, he predicts that investors will gravitate toward companies with tangible industry tailwinds and strong fundamentals.
That should be a boon for Evolent Health. The stock is poised to benefit from the new CMS (Centers for Medicare & Medicaid Services) regulations that push hospitals toward a risk-based reimbursement system.
“We believe EVH will be the biggest beneficiary of this push as providers seek external help to navigate these changes and will likely lead to increased pipeline in 2019,” Naidu writes.
Like Monolithic, Evolent currently has only buy ratings from the Street. You can get more analysis in TipRanks’ EVH Research Report.
Market value: $722.4 billion
TipRanks consensus price target: $178.57 (22% upside potential)
TipRanks consensus rating: Moderate Buy
Apple (AAPL, $153.80) has had a rough go of late. CEO Tim Cook shocked investors on Jan. 2 with a severe first-quarter guidance cut. Shares plunged 7% after Apple revealed new revenue guidance of $84 billion, down from a range of $89 billion-$93 billion previously. That helped extend a precipitous plunge since early October that has seen AAPL shed more than a third of its value and fall from its perch as the world’s largest publicly traded company.
The company blamed a slowdown in China, as well as iPhone upgrades that were “not as strong as we thought they would be.”
However, it’s not all doom and gloom. Apple still has plenty of supporters out there, including Loup Ventures founder Gene Munster. With 5G set to prompt a “major hardware upgrade,” Munster told CNBC, “this is not the beginning of the end of Apple.”
Instead he retained his “Strong Buy” rating on the stock, arguing that AAPL could still be one of the FAANGs’ best-performers in 2019.
Similarly, Monness’ Brian White is staying on Apple’s side. “Despite this near-term setback, we continue to believe Apple will benefit in the long run from its shift to a higher percentage of sales from Services, low market share across key product categories, the rise of the global middle class, opportunities for new product areas given the reach of Apple’s digital ecosystem and the growing trust with customers.”
He sees Apple as having an “attractive” valuation and reiterated his “Buy” rating with a $200 price target (30% upside potential). For further stock insights, turn to TipRanks’ AAPL Research Report.
Market value: $147.1 billion
TipRanks consensus price target: $386.26 (23% upside potential)
Netflix (NFLX, $324.66) has recently received a wide swath of upgrades, including from Goldman Sachs analyst Heath Terry. Terry upgraded NFLX from “Buy” to “Conviction Buy” with a $400 price target that signals 23% upside potential.
“With Netflix shares down 36 percent since record highs in July, and the S&P 500 down 10 percent over the same period, we believe Netflix represents one of the best risk/reward propositions in the Internet sector,” Terry wrote in his Jan. 4 investor report. “We continue to believe Netflix’s investment in content, technology and distribution will continue to drive subscriber growth well above consensus expectations both in the U.S. and internationally.”
Looking out longer-term, the analyst sees Netflix doubling its annual content investment by 2022. He is optimistic that by 2022, NFLX will also generate positive cash flow even if it means another round of money-raising on the debt markets.
Netflix gained some ground Friday on the back of more upgrades, including from Raymond James’ Justin Patterson (from “Outperform” to “Strong Buy,” $450 price target) and UBS’ Eric Sheridan (from “Neutral” to “Buy,” $410 price target).
Find out more from TipRanks in its NFLX Research Report.
Market value: $2.1 billion
TipRanks consensus price target: $68.20 (35% upside potential)
We go from well-known to hardly known with our final cheap stock pick: Quidel (QDEL, $52.67). Quidel is a major American manufacturer of diagnostic health-care products that are sold worldwide, and it’s far from a household name.
But lack of name recognition isn’t a worry to Mark Massaro, one of the top-rated health-care analysts tracked by TipRanks. He is betting on Quidel as one of his top picks for 2019.
“The largest medical point-of-care diagnostics pure-play, QDEL has executed well and has multiple irons in the fire in its busy R&D pipeline,” the analyst explains.
Furthermore, the stock is now down 17% over the past three months. “An unexpected initial legal ruling prompted a major pullback in the shares, which we expect to reverse in 2019,” Massaro writes. “We believe that QDEL will win (resulting in no impact) through motion, or in trial August 30, 2019, or reach a favorable settlement.”
He recommends buying the stock on weakness, as Quidel’s sharp December selloff inaccurately prices in the worst-case scenario. Meanwhile, Massaro’s $70 price target suggests shares can rebound 33% from here. Discover more about this lesser-known stock in the TipRanks’ QDEL Research Report.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.