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All Contents © 2020The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| May 13, 2020
It has been noted ad nauseam that the stock market doesn't appear to reflect the worst economic slowdown since the Great Depression. The Dow Jones Industrial Average is down "only" 17% for the year to date, while the S&P 500 is off "just" 11%.
If that bothers you, don't even look at the Nasdaq Composite. This tech-heavy index of Nasdaq-listed stocks is actually positive, albeit barely, for 2020.
Whether share prices adequately discount the potential damage caused by the global lockdown and a prolonged recession is a discussion for another time. Besides, investors usually find it more profitable not to fight the tape.
With that in mind, we went searching for the Nasdaq stocks that analysts say have the best prospects for outperformance going forward.
We screened the Nasdaq Composite for stocks followed by a minimum of 10 analysts. We further whittled the list down to stocks with an average broker recommendation of Buy or better. S&P Capital IQ surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.0 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call. Lastly, we dug into research, analysts' estimates and other data on the top-scoring names.
The process gave us a host of stocks, from small biotechnology plays to some of the biggest, best-known companies in the world. Have a look at 15 of the best Nasdaq stocks, according to the pros.
Data and analysts’ ratings are of May 12 unless otherwise noted. Stocks are listed by average recommendation, from lowest to highest. Ratings and data are provided by S&P Capital IQ.
Market value: $37.9 billion
Analysts' average recommendation: 1.62
It's counterintuitive at first, but a few parts of the health care sector are actually taking a beating from COVID-19. Fear is prompting patients with non-coronavirus conditions and illnesses to stay away from medical practitioners and hospitals in droves.
That's a challenge for Dexcom (DXCM, $410.80), a company that makes glucose monitoring systems for patients with diabetes. Nonetheless, analysts remain optimistic about the firm's growth prospects.
"We remain bullish on the near- and long-term product pipeline, growing (total addressable market), and opportunity for DXCM to deliver significant upside in 2020 despite COVID-19," writes Canaccord Genuity, which rates the stock at Buy.
Indeed, a rapidly aging and increasingly overweight population should help underpin outsized growth over the longer term. Analysts expect Dexcom to deliver average annual earnings growth of almost 32% over the next three to five years, according to S&P Capital IQ.
Of the 21 analysts tracked by S&P Capital IQ who are covering DXCM stock, 13 rate shares at Strong Buy, three say Buy, four have it at Hold and one calls it a Strong Sell. That's after Dexcom's already impressive 88% run year-to-date that puts most Nasdaq stocks to shame.
Market value: $10.4 billion
Analysts' average recommendation: 1.6
Sarepta Therapeutics (SRPT, $132.89), a biotechnology company that engineers genetic medicine to treat rare diseases, is another health care stock that has to overcome some COVID-19 hurdles.
And analysts are largely confident that it can.
"Though the COVID-19 operating environment is challenging, we believe Sarepta is well positioned to weather the pandemic with modest impacts to the company's commercial or clinical programs," William Blair Equity Research analysts say. "We continue to view Sarepta as a core midcap holding in the sector and maintain our Outperform rating given its position as a leader in neuromuscular diseases."
Nomura/Instinet analysts, who have a Buy rating on Sarepta's shares, believe Duchenne muscular dystrophy treatments Vyondys and casimersen will help SRPT double its fiscal 2019 revenues over the next few years. They say shares "will nearly double" over the next 12 months, calling any near-term weakness a buying opportunity.
The pros broadly have Sarepta among their best Nasdaq stocks right now. Twelve analysts surveyed by S&P Capital IQ rate SRPT stock at Strong Buy, 11 say Buy and two call it a Hold. Their average price target of $188.43 gives shares implied upside of about 42% in the next 12 months or so.
Market value: $165.6 billion
Analysts' average recommendation: 1.59
Folks locked down at home, ordering goods online (and not necessarily wanting to touch dirty cash), have been a boon to PayPal (PYPL, $141.03).
Indeed, business is so good at the digital payments processor that it was able to raise billions in the debt market amid the worst economic contraction since the Great Depression. On May 10, PayPal sold $4 billion in 10-year corporate bonds yielding about 2.3%.
PYPL shares are up 30% year-to-date versus a loss of 11% for the S&P 500, and analysts think there's more outperformance to come. Canaccord, which rates the stock at Buy, says the company is "perhaps more relevant now than it has ever been" and is "benefiting from (the) full-on e-commerce spigot."
Of the analysts covering PYPL stock, 24 have it at Strong Buy, 11 say Buy, five call it a Hold and one says Sell. They collectively forecast PayPal will generate average annual earnings growth of 20% over the next three to five years, according to S&P Capital IQ.
Market value: $598.6 billion
Analysts' average recommendation: 1.58
No surprises here. Facebook (FB, $210.10) is another darling technology stock that's doing the heavy lifting when it comes to propping up the market. Shares in FB are up a little more than 2% so far in 2020, versus a fractional gain for the Nasdaq Composite and an 11% loss for the S&P 500. It's really shining out of the March 20 bottom, however, up 40% versus 31% for the broader index of Nasdaq stocks.
Facebook is one of the world's most widely covered stocks. S&P Capital IQ tracks 51 analysts who follow FB. The breakdown of their recommendations stands at 33 Strong Buys, eight Buys, seven Holds, one Sell and one Strong Sell – a strongly bullish consensus.
The pandemic has taken a toll on Facebook's advertising revenue, but the pros say the social network is still charging ahead.
"Although widespread shelter-in-place measures have led to record levels of usage across a number of Facebook's services, advertiser demand has dropped off precipitously," says Stifel, which rates FB at Buy. "We continue to believe Facebook is among the best-positioned digital media companies to navigate this crisis and come out stronger (more market share of a bigger digital market) when the economy returns to normal."
Analysts foresee average annual earnings growth of 20% for the next three to five years. Their average price target of $238.56 implies that FB stock could have another 14% to run over the next year or so.
Market value: $67.1 billion
Analysts' average recommendation: 1.56
Uncertainty surrounding the coronavirus crisis led Fiserv (FISV, $100.27) to withdraw its 2020 guidance, but that didn't faze Wall Street in the least.
Fiserv is what's known as a core processor. Its technology allows financial services firms to operate debit networks, transfer funds electronically and process credit card transactions, among a host of other critical functions.
That centrality to the global economy leaves FISV highly exposed to the ongoing crisis.
"The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets," Moody's writes. "The outbreak is having a significant adverse impact on Fiserv's financial performance."
Equity analysts, however, see an opportunity to get a long-term winner at a good price today. Of the analysts covering the stock, 21 rate it at Strong Buy, five have it at Buy, five call it a Hold and one says Sell. Their average price target on FISV stock, which is off about 13% this year, is $120.73, implying a 20% rebound from current prices.
Canaccord Genuity, which rates shares at Buy, says accelerating cost savings stemming from 2019's acquisition of First Data will allow FISV to deliver double-digit earnings growth this year.
Market value: $3.4 billion
Analysts' average recommendation: 1.53
Blueprint Medicines (BPMC, $63.33) is among a group of Nasdaq stocks that have flatly not done so well this year. BPMC shares are off about 21% year-to-date, widely lagging the Nasdaq Composite.
BPMC is a biotechnology company perhaps best known for Ayvakit, a therapy option for certain people with a gastrointestinal stromal tumor (GIST). The U.S. Food and Drug Administration green-lit the drug in January, making it the first therapy approved for patients with a GIST harboring a PDGFRA exon 18 mutation.
Although the coronavirus outbreak is playing havoc with pharma companies' clinical trials and sales, analysts remain bullish on Blueprint's longer-term prospects.
"The company has cash into (the second half of 2022), which should not only get the company through nearterm COVID-19 market weakness, but well into the Ayvakit launch, allowing for more financial flexibility," says Wedbush, which rates the stock at Outperform (equivalent of Buy) and has it on its Best Ideas List.
Out of 17 analysts covering BPMC tracked by S&P Capital IQ, 10 have it at Strong Buy, five say Buy and two call it a Hold.
Market value: $438.5 billion
If it isn't yet apparent, biotech companies are well-represented among the pros' best Nasdaq stocks. And Voyager Therapeutics (VYGR, $11.79), a gene therapy company focused on treatments for severe neurological diseases, is especially popular. Of the 15 analysts covering the stock, 10 call it a Strong Buy, two say Buy and three rate it at Hold.
VYGR and partner Neurocrine Biosciences (NBIX) have teamed up on a Parkinson's disease gene therapy study. The partnership, upcoming data releases on current clinical trials and cheap shares make the bull case for the stock.
"Amidst the recent sector pullback, we see VYGR shares offering attractive risk/reward at current levels with cash ($7/share) and collaboration revenue providing downside protection," says Wedbush, which rates the stock at Outperform.
Analysts' average price target of $22.64 suggests that VYGR stock can shoot 92% higher over the next year or so.
Market value: $1.38 trillion
Analysts' average recommendation: 1.51
Shares in Microsoft (MSFT, $182.51) are up almost 16% in 2020. Given that it's the largest among all Nasdaq stocks, that has gone a long way toward lifting the Nasdaq Composite into the green.
The software and cloud computing giant has been one of the rare beneficiaries of the coronavirus crisis. Workers and students sheltering at home have lifted demand for everything from Office 365 to Xbox games.
"Microsoft's unique mix of cloud-based productivity tools (Office 365), its tightly integrated set of hybrid cloud infrastructure solutions (Server + Azure) and broad-based portfolio of Work/Play From Home products (Windows, Surface & Xbox Live) enabled the company to effectively support its customers during this difficult time and continue to gain share," says Stifel, which rates the stock at Buy.
At the same time, MSFT is a port in a storm for income investors. The trillion-dollar-plus market value, massive amounts of cash on the balance sheet and gushers of free cash flow make Microsoft one of the safest dividend stocks around.
Twenty-one analysts rate MSFT stock at Strong Buy, 10 say Buy and four call it a Hold.
Market value: $938.7 billion
Analysts' average recommendation: 1.46
Google parent Alphabet (GOOGL, $1,375.18) is taking a hit to revenue from the precipitous drop in spending on advertising. Even so, analysts see the damage as manageable and expect GOOGL to become even more formidable.
"Given Google's sprawling global footprint for its advertising franchise, trying to pin down headwinds against 2Q20 growth on an absolute basis on limited visibility was always going to be a difficult exercise," says Credit Suisse, which rates the stock at Outperform. For example, YouTube is benefitting from increased hours of viewership during the lockdown, but search is down 15%.
Regardless, "Google should emerge from this crisis in a stronger position," Credit Suisse's analysts say.
Stifel seconds that view. "While the timing of a broader recovery remains unknown, advertising revenue on the platform has historically recovered quickly following periods of economic volatility," write Stifel's analysts, who call Alphabet's shares a Buy. "We are confident in Alphabet's ability to continue capturing advertising market share once conditions normalize."
GOOGL stock is up nearly 3% year-to-date, helping to prop up the wider market. It also remains one of the best Nasdaq stocks in the analysts' eyes. Of the 46 pros covering Alphabet's share, 30 say they're a Strong Buy, 11 say Buy and five call them a Hold.
Market value: $2.5 billion
Analysts' average recommendation: 1.44
LivePerson (LPSN, $36.24) is another company getting a lift from the pandemic, thanks to so many call center employees working from home.
"Many voice-based call centers have had challenges adapting to the remote work environment," William Blair Equity Research says. "This dynamic, along with a general increase in customer inquiries, has accelerated the use of messaging as a communication channel between businesses and consumers, resulting in a 20% spike in conversation volumes for LivePerson from February to March."
LPSN helped pioneer live chat in the 1990s and eventually became the dominant player with about 35% market share. But several years ago, the company saw a much larger opportunity in customer service. LivePerson's LiveEngage software platform allows consumers to message with brands through WhatsApp, iOS Messages, Facebook Messenger, websites or smartphone apps.
"The inflexibility and inefficiency of the voice-based call center is even more apparent now than it was pre-coronavirus," William Blair adds. "We believe this environment is likely to result in businesses embracing the messaging channel more and moving it up on the priority list if they have not yet implemented it."
The breakdown of analysts covering LPSN stock comes to 11 Strong Buys, three Buys and two Holds. Just note that, thanks to a recent earnings-sparked surge in shares, the pros' target price of $38.36 gives LivePerson's shares implied upside of only about 6% over the next year. It's vital to closely watch situations like these, as analysts might move up their price targets to reflect growing optimism … or lower their ratings now that their targets have been achieved.
Market value: $2.4 billion
Rapid7 (RPD, $47.31), a cybersecurity firm, is down a painful 16% so far in 2020. But it has cutting-edge services that should help it stand out in the longer term, analysts say.
"We see Rapid7 as an emerging leader within the Security Operations (SecOps) market," writes Stifel, which calls the stock a Buy. "The company's suite of products address many of the key themes currently impacting the cybersecurity market, including the growing awareness around IT hygiene."
Post COVID-19, Stifel believes "interest in agile, cloud-delivered solutions will accelerate while growth in security solutions for new cloud workloads will also rise in more dramatic fashion."
William Blair analysts, who rate the Nasdaq stock at Outperform, acknowledge shorter-term issues. But they add, "We believe Rapid7's business, which is more than 90% recurring revenue and targeted toward high growth areas of spending, remains well positioned to benefit from a post-COVID-19 world."
Ten of the analysts covering RPD have it at Strong Buy, five say Buy and one rates it at Hold. Their average price target of $58.80 gives the stock implied upside of about 24% over the next year or so.
Market value: $13.1 billion
Peloton Interactive (PTON, $46.17), the at-home exercise and equipment company, hasn't been able to keep up with a surge in demand as much of the globe shelters in place. Still, it's capitalizing somewhat on the trend, and better still, analysts believe Peloton is hooking new customers for the long term.
Canaccord Genuity, which rates PTON stock at Buy, writes about the company's most recent quarterly report: "Peloton's March quarter results were strong across the board, as COVID-19 has led to what will likely prove to be a permanent boost to connected fitness."
Supply constraints were a blemish on the quarter; Peloton simply couldn't keep up with increased demand. But PTON is running hard to expand supply capacity by the holiday selling season, Canaccord notes, building a new factory and pushing its own suppliers to add capacity.
Something critical that separates Peloton from other exercise equipment manufacturers: It has a recurring revenue stream. Users subscribe to the company's live, online fitness classes.
Peloton's shares have climbed a whopping 63% so far in 2020, and analysts still have it among the best Nasdaq stocks for new money. Currently, 17 pros call it a Strong Buy, six say Buy, one calls it a Hold and one rates it at Sell.
Market value: $20.2 billion
Analysts' average recommendation: 1.42
The coronavirus crisis is painting a mixed picture for IAC/InterActiveCorp (IAC, $237.66). Some of the company's sprawling portfolio of websites are holding up well. Others, not so much.
"While the subscription based businesses like Vimeo and Match are doing relatively well, its ad centric businesses like ANGI and Dotdash are more impacted with advertisers more generally pulling back," says Deutsche Bank, which calls the stock a Buy. IAC is expected to spin off Match by the end of the second quarter, Wedbush analysts note.
Nomura rates the stock at Buy, citing better-than-expect first-quarter results and encouraging initial trends.
The breakdown of analysts' recommendations comes to 13 Strong Buys, four Buys and two Holds, according to S&P Capital IQ. Their average annual earnings forecast comes to 46% over the next three to five years.
Market value: $1.2 trillion
Analysts' average recommendation: 1.35
Amazon.com's (AMZN, $2,356.95) has been busier than ever because of the pandemic.
"(Amazon has seen a) surge in demand for household essentials following the implementation of shelter-in-place restrictions related to COVID-19," says Canaccord Genuity, which rates shares at Buy.
It doesn't stop with e-commerce, however. AMZN's bricks-and-mortar retail operations also got a workout in the first quarter. "Physical stores revenue grew 8% (vs. a ~1% decline in Q4) as the company saw increased demand at Whole Foods."
Lastly, Amazon is experiencing a surge in usage for video conferences, gaming, remote learning and entertainment, Canaccord notes.
With projected average annual growth of 39% over the next three to five years, no wonder the Street is wild for AMZN stock. Of the 48 analysts covering the stock tracked by S&P Capital IQ, 35 call it a Strong Buy, nine say Buy and four have it at Hold – one of the best clusters of ratings among Nasdaq stocks.
Shares are up an enviable 28% year-to-date. Analysts' average price target of $2,678.60 gives AMZN implied upside of about 14% over the next 12 months or so.
Market value: $1.7 billion
Analysts' average recommendation: 1.09
Dicerna Pharmaceuticals (DRNA, $23.67) develops treatments for diseases involving the liver, including primary hyperoxaluria, and a drug for chronic hepatitis B virus infection.
Its score of 1.09 not only gives it the pole position among the best Nasdaq stocks – it makes it one of the top small-cap stocks in Wall Street's eyes, too. S&P Capital IQ tracks 10 pros who cover DRNA; nine call the stock a Strong Buy, while the 10th calls it a Buy.
Shares in the biotech firm have gained more than 7.5% year-to-date, and analysts think the stock is just getting started. An average price target of $33 per share implies nearly 40% upside over the coming year or so. That potential makes DRNA one of the tastiest options in the Nasdaq Composite – if you can stomach the risk of a small biotech play.
Stifel, which rates the stock at Buy, points to the "company's continued pursuit of wholly-owned rare disease assets" and its "broad strategic partnerships with partners Roche, Novo Nordisk, Alexion, Lilly and Boehringer Ingelheim" as part of the bull case.