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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| November 26, 2018
This shaky stock market has lost almost all of its momentum. But if you’re looking for lucrative returns in growthy stocks, you’re still in luck. The market still offers plenty of high-upside stocks to buy – they’re just not all in plain view.
While you can pick up some fundamentally strong stocks at discount levels right now, this approach isn’t entirely without risk. A stock that’s falling won’t necessarily rebound, even if we get a broad-based lift such as a Santa Claus rally; some will just keep on selling off. The question is, then, how can you sort the studs from the duds?
Here, we will look at seven stocks to buy that have significant Wall Street support right now. Each of these companies’ shares have “Strong Buy” analyst consensus ratings, which shows that Wall Street’s top minds broadly agree that these are quality stock picks. Moreover, they boast upside potential of 30% or more, calculated from the current share price to the average analyst price target.
Data is as of Nov. 25, 2018.
Market value: $401.4 billion
TipRanks consensus price target: $205.41 (37% upside potential)
TipRanks consensus rating: Strong Buy
E-commerce giant Alibaba (BABA, $150.33) – typically referred to as China’s Amazon.com (AMZN) – is buzzing following yet another jaw-dropping Singles Day performance. The company recorded an incredible $30.8 billion in gross merchandise value (GMV) for the country’s massive holiday-turned-shopping-phenomenon.
The figure was up only 27% year-over-year, versus 39% growth in 2017, but it still was largely viewed as a success. Other key figures to note include a 40% increase in consumers buying goods from international companies and a 23% rise in delivery orders from Cainiao, Alibaba’s logistics network. The post-‘90s generation accounted for 46% of total buyers.
For SunTrust Robinson Humphrey analyst Youssef Squali, the results reflected the “continued healthy consumption and rising middle class in and around China” and the way Alibaba’s ecosystem has “pervaded” Chinese shopping habits. Most notably, Squali was impressed with Alibaba’s 27% GMV increase in the face of macro headwinds that forced the company to reduce fiscal 2019 guidance during its recent earnings report.
Nonetheless, analysts are staying firmly bullish. KeyBanc’s Hans Chung writes: “We still view BABA as more immune to macro risk than others given share gains in the offline space and business diversification. BABA remains one of our top picks.”
Alibaba remains in the red for 2018, but the current average analyst price target indicates lucrative upside potential for the next 12 to 18 months. It’s a high-confidence call, too, with 24 “Buy” ratings filtering in over the past three months. If you’re interested in more information on Alibaba’s stock, get a free BABA Research Report from TipRanks.
Market value: $44.3 billion
TipRanks consensus price target: $107.86 (75% upside potential)
Oil and gas giant Marathon Petroleum (MPC, $61.73) boasts a crude oil refining capacity of more than 3 million barrels per calendar day. It also owns Speedway, the nation’s second-largest company-owned and operated convenience store chain.
“We like Marathon Petroleum for its diversified refining footprint across the Midwest, Rocky Mountains, Gulf Coast and West Coast, which gives the company access to both inland and waterborne crude supplies,” writes top RBC Capital analyst Brad Heffern. He gives the thumbs-up to the company’s recent acquisition of Andeavor for a whopping $23.3 billion, noting that integration work has now begun after the deal closed on Oct. 1.
The company is targeting an ambitious $1 billion synergy target. Heffern says achieving this goal would be a major catalyst for shares.
That’s encouraging news, given that MPC has promised to “put to rest” any doubt about reaching the synergy target at its analyst day on Dec. 4. In fact, management commentary has even suggested that there could be additional synergy upside.
Meanwhile, the extension of the Speedway model to the acquired Andeavor stores could provide meaningful upside Heffern adds. He has a $92 price target on the stock, which represents almost 50% upside potential. Get the MPC Research Report from TipRanks.
Market value: $25.6 billion
TipRanks consensus price target: $114.28 (44% upside potential)
Top-25 Cantor Fitzgerald analyst Joseph Foresi says payment processor Worldpay (WP, $79.49) deserves a premium valuation to its peer group. “We are attracted to the company’s above-industry growth rate and opportunity to continue to take market share through its high-growth channels,” he writes.
That’s truer than ever following the massive merger between Worldpay and Vantiv. The merger closed in January, creating a payments giant capable of processing more than 40 billion transactions annually.
Foresi thinks the Worldpay/Vantiv merger provides a solid opportunity for Worldpay to drive future growth through everything from international expansion and M&A to e-commerce and integrated payments.
Add in the fact that WorldPay expects $200 million of synergies by the end of 2020, and you can see why the consensus opinion on WP shares is “Strong Buy.” You can learn more from TipRanks’ WP Research Report.
Market value: $17.1 billion
TipRanks consensus price target: $123.00 (31% upside potential)
BioMarin (BMRN, $93.78) is getting Wall Street’s attention for its development of vosoritide for the treatment of patients with achondroplasia, a bone growth disorder that causes dwarfism. This includes treating children up to age 5.
“We come away from BMRN’s annual R&D Day with incrementally higher conviction that this is a name to own into 2019 and beyond,” JPMorgan’s Cory Kasimov writes.
Cowen & Co analyst Phil Nadeau also attended the event and echoes this bullish sentiment, writing, “We continue to consider BMRN a core mid cap biotech holding.” As a result, he reiterated his Street-high price target of $150 (57% upside potential).
While there were no ground-shaking disclosures, Nadeau did speak to an endocrinologist who was very supportive of vosoritide’s demonstrated efficacy and potential.
“He believes essentially 100% of his patients would be appropriate for therapy and would be interested in the drug,” the analyst noted, adding that “He also did not see daily injections as a roadblock, as parents are desperate for a therapy that can help their child’s disease.” In fact, if used during the ages of 4 to 14, treated patients could generate an additional 10 cm to 20 cm of height compared to untreated patients.
As long as these results can be reproduced in a Phase III study, then Nadeau believes regulatory approval is likely given strong results and high unmet need. He is now modelling for 2025 sales of $1.2 billion for vosoritide in achondroplasia. Get the BMRN Research Report from TipRanks.
Market value: $390.1 billion
TipRanks consensus price target: $189.00 (43% upside potential)
Social media giant Facebook (FB, $131.73) is currently trading at extremely compelling levels. Shares are down 25% year-to-date, but upside potential has spiked to more than 35%.
The question is: Is Facebook a stock worth buying?
Top RBC Capital analyst Mark Mahaney says yes. He has a “Buy” rating on FB with a $190 price target (44% upside potential) and calls FB “arguably the best risk-reward in Large Cap Internet.”
Yes, Facebook reported third-quarter revenues and user numbers that fell a tad below Wall Street expectations. Still, the company owns two of the largest media assets in the world (Facebook and Instagram) as well as the two largest messaging assets in the world (Messenger and WhatsApp).
“Monetization of core FB & Instagram assets still has material upside potential and Messenger & WhatsApp are beginning early stages of monetization,” Mahaney writes.
He believes Facebook still has many growth levers left to pull, while his checks suggest no material change in Marketer views of the attractiveness of FB platforms. In other words, Facebook is poised to keep selling ads for a long time to come. Find out more from TipRanks in its FB Research Report.
Market value: $14.2 billion
TipRanks consensus price target: $71.80 (30% upside potential)
Canadian-American fast food stock Restaurant Brands International (QSR, $55.33) has three key brands under its belt: Tim Hortons, Popeyes and Burger King.
Top Oppenheimer analyst Brian Bittner says, “We are attracted to QSR’s risk/reward.” Indeed, his $75 price target indicates shares can surge 36% from current levels. He believes Restaurant Brands is trading at discount levels, too. “When the market begins to appreciate QSR’s above-average system-wide sales growth we believe the shares will be identified as under-valued,” he writes.
Bittner pointed out in his report that QSR’s roughly 20.5 price-to-earnings ratio and 5.5% free-cash-flow yield are both discounts to peers such as Yum Brands (YUM), which trades at 23 to 24 times earnings and at a roughly 4% FCF yield. “This is despite potential for double-digit sales growth, which sits well above peers and trails only (Domino’s Pizza),” Bittner writes.
Near-term catalysts to look out for include healthier same-store sales at Burger King and Tim Hortons. Meanwhile, use of a growing cash balance (which could be roughly $2 billion in 2020) “represents a powerful under-appreciated angle within the investment case” for Bittner. Get the QSR Research Report from TipRanks.
Market value: $11.1 billion
TipRanks consensus price target: $84.75 (36% upside potential)
CarMax (KMX, $62.24) is the United States’ largest used-car retailer. The company has just announced a new $2 billion share repurchase authorization, bringing its total buyback capacity to more than $2.6 billion.
“We interpret the decision of KMX to up its buyback target now as a significant vote of confidence from the company’s board and senior management” cheers Oppenheimer’s Brian Nagel. He highlights KMX as a top-pick into year-end with a bullish $88 price target (41% upside potential).
Shares of KMX have languished lately due to weaker used-car sales trends earlier in the year and the threat of heightened competition. However, Nagel sees these worries as largely overblown and misplaced.
He points out that KMX has historically repurchased shares aggressively and timed its buyback announcements to coincide with share lulls. In coming quarters, the analyst is optimistic that the combination of easing used-car supply constraints and much easier comparisons could underpin a meaningful rebound in unit comp growth.
As far as share price is concerned, KMX is currently tracking at one of its lowest market relative P/E multiples in more than a decade. Get the KMX Research Report from TipRanks to learn more.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,800 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.