When it comes to finding Wall Street’s favorite stocks, investors would do well to look at analysts’ ratings. Analyst ratings can have a strong influence on the direction of a stock. Analysts work for banks and brokerage houses, and when they give a stock a “Buy” rating, institutional money usually follows. Of course, the opposite is also true. A “Sell” rating usually precedes institutional selling.
However, many analysts are reluctant to give a stock a “Sell” rating, so a “Hold” rating needs to be considered as having a range of meanings. And when investors see a stock with many neutral ratings, they shouldn’t assume that those opinions are always neutral.
With that as a backdrop, here are three stocks that analysts were cool on but have now become three of Wall Street’s favorite stocks.
Disney (DIS)
Early in 2020, analysts felt the magic was coming out of Walt Disney (NYSE:DIS). The “sum of its parts” company was acutely affected by the global pandemic, since its theme parks and cruise lines were out of operation. The hope was that the company’s weakness was just transitory, and the Wonderful World of Disney would come roaring back.
But after a series of missteps that could perhaps be called self-inflicted wounds, DIS stock dropped to its March 2020 lows. Still today, it has yet to recover, despite bringing back former CEO Bob Iger.
However, since August 2020, when analysts were about 50/50 about whether DIS stock was a buy or a hold, they are now indisputably bullish. Out of 30 analysts, 20 give the stock a “Strong Buy” or “Buy” rating. So far, however, most of the bullishness is due to the company’s cost-cutting efforts.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is getting a “Like” from several analysts today. But it was just a year ago that many analysts were looking for the “Block” button. That’s because Meta Platforms was seeing lower ad revenue and lower consumer spending. It didn’t help that Meta was burning through cash as it was building out its Metaverse initiative.
But 2023 has seen a more grown-up version of Meta. A series of cost-cutting measures, reduced funding of the metaverse and the launch of Threads all have made analysts take a closer look. And so far, they like what they see. META stock has erased virtually all of its losses in 2022.
Out of 57 analysts offering ratings on Meta Platforms, 50 have a “Strong Buy” or “Buy” rating on META stock. That compares favorably with heavy institutional buying in the last three quarters.
That being said, at 35x earnings, META stock has gone from being undervalued to objectively overvalued. However, if the company can achieve the forecasted 24% earnings growth, it could earn its reputation as one of Wall Street’s favorite stocks.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) is not a full-throated “Buy” from analysts. Out of 45 analysts that have issued a rating, 20 give NFLX stock a “Hold” rating. However, of the other 25 analysts, 22 give the stock either a “Strong Buy” or “Buy” compared to three “Sell” or “Strong Sell” ratings. But compared to the sentiment a year ago, it’s fair to say Netflix is one of Wall Street’s favorite stocks.
There were reasons why analysts were leery about Netflix. The company was losing subscribers, and there was no guarantee its pivot to an ad-supported tier would be successful. The streaming giant is also launching a campaign against password sharing. That’s a bit off-brand for a company that cut its teeth on the idea that sharing was caring.
But I digress. The company is showing strong subscriber growth. And so far, it’s growing subscribers even as it cracks down on those password thieves.
Netflix is affected by the SAG-AFTRA strike. Several of the company’s most popular shows won’t be filming new episodes until the strike is resolved. A protracted strike would be painful for a company that relies on new content. However, with plenty of syndicated and original content in the company’s library, they may be better positioned to ride out the strike.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
