An Amazon delivery truck at the Amazon facility in Poway, California, Nov. 16, 2022.
Sandy Huffaker | Reuters
Investors are confronting several headwinds, including macro uncertainty, a spike in energy prices and the unanticipated crisis in the Middle East.
Investors seeking a sense of direction can turn to analysts who identify companies that have lucrative long-term prospects and the ability to navigate near-term pressures.
To that end, here are five stocks favored by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.
We begin this week’s list with e-commerce and cloud computing giant Amazon (AMZN). While the stock has outperformed the broader market year to date, it has declined from the highs seen in mid-September.
JPMorgan analyst Doug Anmuth noted the recent sell-off in AMZN stock and highlighted certain investor concerns. These issues include the state of the U.S. consumer and retail market, rising competition, higher fuel costs and the Federal Trade Commission’s lawsuit. Also on investors’ mind is Amazon Web Services’ growth, with multiple third-party data sources indicating a slowdown in September.
Addressing each of these concerns, Anmuth said that Amazon remains his best idea, with the pullback offering a good opportunity to buy the shares. In particular, the analyst is optimistic about AWS due to moderating spending optimizations by clients, new workload deployment and easing year-over-year comparisons into the back half of the third quarter and the fourth quarter. He also expects AWS to gain from generative artificial intelligence.
Speaking about the challenging retail backdrop, Anmuth said, “We believe AMZN’s growth is supported by key company-specific initiatives including same-day/1-day delivery (SD1D), greater Prime member spending, & strong 3P [third-party] selection.”
In terms of competition, the analyst contends that while TikTok, Temu and Shein are expanding their global footprint, they pose a competitive risk to Amazon mostly at the low end, while the company is focused across a broad range of consumers.
Anmuth reiterated a buy rating on AMZN shares with a price target of $180. He ranks No. 84 among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 61% of the time, with each delivering an average return of 16.6%. (See Amazon’s Stock Charts on TipRanks)
Anmuth is also bullish on social media company Meta Platforms (META) and reaffirmed a buy rating on the stock. However, the analyst lowered his price target to $400 from $425, as he revised his model to account for higher expenses and made adjustments to revenue and earnings growth estimates for 2024 and 2025 due to forex headwinds.
The analyst highlighted that Meta is investing in the significant growth prospects in two big tech waves – AI and metaverse, while continuing to remain disciplined. (See META Insider Trading Activity on TipRanks)
“AI is clearly paying off in terms of incremental engagement from AI-generated content and Advantage+, and as discussed at Meta Connect, Llama 2 should drive AI experiences across the Family of Apps and devices, while Quest 3 is the most powerful headset Meta has ever shipped,” said Anmuth. Llama 2 is Meta’s new large language model.
The analyst expects Meta’s advertising business to continue to outperform, with AI investments bearing results and Reels anticipated to turn revenue-accretive soon. Overall, Anmuth is convinced that Meta’s valuation remains compelling, with the stock trading at 15 times his revised 2025 GAAP EPS estimate of $20.29.
We now move to semiconductor stock Intel (INTC), which recently announced its decision to operate its Programmable Systems Business (PSG) as a standalone business, with the intention of positioning it for an initial public offering in the next two to three years.
Needham analyst Quinn Bolton thinks that a standalone PSG business has several benefits, including autonomy and flexibility that would boost its growth rate. Operating PSG as a separate business would also enable the unit to more aggressively expand into the mid-range and low-end field programmable gate arrays segments with its Agilex 5 and Agilex 3 offerings.
Additionally, Bolton said that this move would help Intel drive a renewed focus on the aerospace and defense sectors, as well as industrial and automotive sectors, which carry high margins and have long product lifecycles. It would also help Intel enhance shareholder value and monetize non-core assets.
“We believe the separation of PSG will further allow management to focus on its core IDM 2.0 strategy,” the analyst said, while reiterating a buy rating on the stock with a price target of $40.
Bolton holds the No.1 position among more than 8,500 analysts on TipRanks. His ratings have been successful 69% of the time, with each rating delivering an average return of 38.3%. (See Intel Hedge Fund Trading Activity on TipRanks).
Another semiconductor stock in this week’s list is Micron Technology (MU). The company recently reported better-than-feared fiscal fourth-quarter results, even as revenue declined 40% year over year. The company’s revenue outlook for the first quarter of fiscal 2024 exceeded expectations but its quarterly loss estimate was wider than anticipated.
Following the print, Deutsche Bank analyst Sidney Ho, who holds the 66th position among more than 8,500 analysts on TipRanks, reiterated a buy rating on MU stock with a price target of $85.
The analyst highlighted that the company’s fiscal fourth quarter revenue exceeded his expectations, fueled by the unanticipated strength in NAND shipments through strategic buys, which helped offset a slightly weaker average selling price.
Micron’s management suggested that the company’s overall gross margin won’t turn positive until the second half of fiscal 2024, even as pricing trends seem to be on an upward trajectory. However, the analyst finds management’s gross margin outlook to be conservative.
The analyst expects upward revisions to gross margin estimates. Ho said, “Given that the industry is in the very early stages of a cyclical upturn driven by supply discipline across the industry, we remain confident that positive pricing trends will be a strong tailwind over the next several quarters.”
Ho’s ratings have been profitable 63% of the time, with each delivering a return of 21.5%, on average. (See Micron Blogger Opinions & Sentiment on TipRanks)
Baird analyst Peter Benedict explained that the earnings beat was driven by below-the-line items, with higher interest income more than offsetting an increased tax rate.
“Steady traffic gains and an engaged membership base underscore COST’s strong positioning amid a slowing consumer spending environment,” said Benedict.
The analyst highlighted other positives from the report, including higher digital traffic driven by the company’s omnichannel initiatives and encouraging early holiday shopping commentary.
Further, the analyst thinks that the prospects for a membership fee hike and/or a special dividend continue to build. He added that the company’s solid balance sheet provides enough capital deployment flexibility, including the possibility of another special dividend.
Benedict thinks that COST stock deserves a premium valuation (about 35 times the next 12 months’ EPS) due to its defensive growth profile. The analyst reiterated a buy rating on the stock and a price target of $600.
Benedict ranks No. 123 among more than 8,500 analysts tracked on TipRanks. Moreover, 65% of his ratings have been profitable, with each generating an average return of 12.2%. (See COST’s Technical Analysis on TipRanks)