An Amazon delivery truck at the Amazon facility in Poway, California, November 16, 2022.
Sandy Huffaker | Reuters
Investors are facing several headwinds, including macroeconomic uncertainty, a rise in energy prices and the unexpected crisis in the Middle East.
Investors seeking a sense of direction can turn to analysts who identify companies that have long-term lucrative prospects and the ability to weather short-term stress.
To that end, here are five stocks that are favored by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on past performance.
We start this week’s list with the e-commerce and cloud computing giant Amazon (AMZN). While the stock has outperformed the overall market so far this year, it has declined from its mid-September highs.
JPMorgan analyst Doug Anmuth noted the recent selloff in AMZN stock and highlighted certain investor concerns. These issues include the state of the U.S. consumer and retail markets, increasing competition, higher fuel costs and the Federal Trade Commission lawsuit. Investors are also concerned with Amazon Web Services’ growth, with multiple third-party data sources pointing to a slowdown in September.
Addressing these concerns, Anmuth said Amazon remains his best idea and the pullback provides a good opportunity to buy the shares. The analyst is bullish on AWS in particular as customer spend optimizations, new workload deployments and year-over-year comparison relief ease in the second half of the third and fourth quarters. He also expects AWS to benefit from generative artificial intelligence.
Commenting on the challenging retail environment, Anmuth said: “We believe AMZN’s growth will be supported by key company-specific initiatives, including same-day/1-day delivery (SD1D), increased Prime member spending and strong 3P.” [third-party] Selection.”
In terms of competition, the analyst argues that while TikTok, Temu and Shein are expanding their global presence, they pose a competitive risk to Amazon, particularly in the lower price segment, as the company focuses on a wide range of consumers.
Anmuth reiterated its Buy rating on AMZN shares with a price target of $180. He ranks 84th among more than 8,500 analysts tracked by TipRanks. Its ratings were profitable 61% of the time and delivered an average return of 16.6% each time. (See Amazon stock charts on TipRanks)
Anmuth is also optimistic about the social media company Metaplatforms (META) and reiterated the buy recommendation for 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 profit growth estimates for 2024 and 2025 due to foreign exchange market headwinds.
The analyst highlighted that Meta is investing in the significant growth prospects of two major waves of technology – AI and Metaverse – while remaining disciplined. (See META Insider trading activity on TipRanks)
“AI is clearly paying off in terms of increasing engagement with 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, that Meta has ever shipped,” said Anmuth. Llama 2 is Meta’s new major language model.
The analyst expects Meta’s advertising business to continue to outperform, with AI investments bearing fruit and Reels expected to grow revenue soon. Overall, Anmuth believes Meta’s valuation remains compelling, with the stock trading at 15 times its revised 2025 GAAP EPS estimate of $20.29.
We now turn to semiconductor stocks Intel (INTC), which recently announced its decision to operate its Programmable Systems Business (PSG) as a standalone company with the intention of positioning it for an IPO in the next two to three years.
Needham analyst Quinn Bolton believes a standalone PSG company has several advantages, including autonomy and flexibility, that would boost its growth rate. Operating PSG as a separate business would also allow the unit to expand more aggressively into the mid- and low-end field-programmable gate array segments with its Agilex 5 and Agilex 3 offerings.
Additionally, Bolton said the move would help Intel refocus on the aerospace and defense, industrial and automotive sectors, which have high margins and long product life cycles. It would also help Intel increase shareholder value and monetize non-core assets.
“We believe that the separation from PSG will continue to 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 is ranked No. 1 among more than 8,500 analysts on TipRanks. His reviews were successful 69% of the time, with each review delivering an average return of 38.3%. (See Intel Hedge Fund trading activity on TipRanks).
Another semiconductor stock on this week’s list is Micron technology (IN). The company recently reported better-than-feared results despite revenue falling 40% year-over-year. The company’s revenue outlook for the first quarter of fiscal 2024 exceeded expectations, but its quarterly loss estimate came in higher than expected.
Following the release, Deutsche Bank analyst Sidney Ho, ranked 66th out of more than 8,500 analysts on TipRanks, reiterated his Buy rating on MU stock with a price target of $85.
The analyst highlighted that the company’s fiscal fourth quarter revenue exceeded expectations, driven by unexpected strength in NAND shipments through strategic purchases that helped offset a slightly weaker average selling price.
Micron management indicated that the company’s overall gross margin will not turn positive until the second half of fiscal 2024, even as pricing trends appear to be trending upward. However, the analyst considers 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 recovery driven by industry-wide supply discipline, we remain confident that positive pricing trends will provide strong tailwinds over the next few quarters.”
Ho’s ratings were profitable 63% of the time, delivering an average return of 21.5% each. (See Micron blogger opinions and sentiment on TipRanks)
Membership warehouse chain Costco (COST) recently reported strong fiscal fourth-quarter earnings, although macroeconomic pressures hurt purchases of high-priced items.
Baird analyst Peter Benedict said the profit increase was driven by bottom-line items, with higher interest income more than offsetting an increased tax rate.
“Steady traffic gains and an engaged member base underscore COST’s strong positioning amid a slowing consumer spending environment,” Benedict said.
The analyst highlighted other positive aspects of the report, including increased digital traffic due to the company’s omnichannel initiatives and encouraging comments on early holiday shopping.
In addition, the analyst believes that the prospects of an increase in membership fees and/or a special dividend continue to increase. He added that the company’s solid balance sheet provides enough flexibility in the use of capital, including the possibility of another special dividend.
Benedict believes COST stock deserves a premium valuation (approximately 35x next 12-month EPS) given its defensive growth profile. The analyst reiterated his buy rating on the stock and a price target of $600.
Benedict is ranked #123 among more than 8,500 analysts tracked on TipRanks. Additionally, 65% of its ratings were profitable, with each one producing an average return of 12.2%. (See COST’s technical analysis on TipRanks)