A sign can be seen at the campus offices of chipmaker Broadcom Ltd in Irvine, California.
Mike Blake | Reuters
As the first half of 2022 draws to a close, investors can at least be certain of one thing: this year will likely continue to be difficult.
Economic risk is a priority for investors as investment banks – including UBS, Citigroup and Goldman Sachs – raise their expectations of the likelihood of a recession.
Analysts are looking beyond the short-term turmoil and picking stocks they think could be solid bets over the long term. Here are five stocks picked by some of Wall Street’s top pros, according to TipRanks, which lists the best-performing analysts.
KLA Corporation
KLA Corporation (KLAC) is a semiconductor company specializing in the manufacture of wafer fab equipment. Global supply chain issues have limited the company’s potential, and the stock is down around 21% year-to-date.
However, KLA’s leadership in the niche process control market can act as a buffer in recessionary times. Needham analyst Quinn Bolton, who recently reiterated a buy rating on the company with a price target of $395, remained bullish on KLA’s improved balance between foundry/logic and memory processes.
Bolton highlighted KLA’s consistent dividend policy. “The company expects to continue growing its dividend at a mid-teens growth rate,” he said. (See KLA dividend date and history on TipRanks)
The analyst believes that KLA will continue to outperform the wafer fab equipment industry and gain further market share in the process control market.
Bolton ranks second among nearly 8,000 analysts tracked on TipRanks. Additionally, 65% of its stock reviews were successful, earning an average of 41.7% per review.
Broadcom
Broadcom (AVGO) designs, develops, manufactures and supplies various semiconductor and infrastructure software products. Like most major semiconductor companies, Broadcom has faced supply chain inconveniences and falls in value that have accompanied the broader technology sector sell-off. AVGO stock is down around 23% so far this year. (See Broadcom stock chart on TipRanks).
Still, Deutsche Bank analyst Ross Seymore isn’t overly concerned about the company’s prospects. At a recent investor meeting, the analyst interviewed Broadcom’s C-suite members. When the company was asked during the interview how the company plans to cope with the recession, management said that the company only prioritizes shipping on real demand and not on aggregated bookings. This is done to “ensure a relatively soft landing if/when cyclical concerns play out.”
Additionally, Broadcom is known for its strategy of growth through acquisition, which has helped the company reduce competition and enter untapped markets earlier. This time Broadcom acquires cybersecurity player VMWare (VMW). Broadcom acknowledged that it faces near-term impacts on its accounting revenue due to the move of its VMWare business to a subscription-based model. However, revenue is expected to accelerate after the initial pullback.
“We continue to believe that AVGO’s combination of infrastructure-heavy, mission-critical semiconductors and products provides the desired stability in an environment of increasing macro/semi-sector volatility,” said Seymore.
Ross Seymore is ranked 19th among nearly 8,000 analysts on TipRanks. His reviews generated an average return of 23.6% and were successful 73% of the time.
Adobe
One of the most famous software companies, Adobe (ADBE) has built a brand supported by a strong product line that spans Photoshop, Illustrator and InDesign. However, recent times have not been good for the company, which recently issued weak fiscal 22 guidance, causing its shares to plummet.
Adobe has halted all new software sales to Russia and Belarus, which may result in a $75 million loss in revenue. Additionally, headwinds in foreign exchange rates are expected to sweep away $175 million in the fiscal third and fourth quarters. (See Adobe Risk Factors on TipRanks)
Still, Deutsche Bank analyst Brad Zelnick isn’t as concerned as other investors. Rather, he was impressed that the company was taking proper account of the impact of the headwinds. He also believes this weak expectation will help Adobe negotiate deals with large companies more efficiently. Additionally, the tepid guidance will also help the company capitalize on the “seasonality of F4Q renewal, which comes with an associated increase in creative pricing.” That means more customers are likely to renew their subscriptions under new pricing plans.
With the total addressable market for Adobe products amounting to a whopping $205 billion, the analyst doesn’t see the company having much trouble recovering from the current bear market.
Bolton reiterated his bullish stance on Adobe with a buy rating on the stock. However, he updated his estimates for the company’s results for the current quarter and fiscal year, and accordingly lowered the price target to $500 from $575.
According to TipRanks, Zelnick has a 68% success rate and an average return of 16.5% per review. Specifically, with Adobe, he’s had 78% success and a 19.1% average return per review.
Suncor
Integrated energy company Suncor (SO) produces synthetic crude oil from oil sands. Needless to say, the stock has benefited immensely from being in the energy sector this year, gaining nearly 38%.
RBC Capital analyst Greg Pardy is optimistic about the sustainability of the stock rally. He noted that Suncor has made several leadership changes to improve its operational reliability and security following intense scrutiny from activist investors like Elliott Management.
Pardy speculates that Suncor will maintain stable oil sands production rates and optimize its resource base to support a reduction in carbon emissions in its oil production process over time. (See Suncor Energy Insider Trading Activity on TipRanks)
The analyst reiterated a Buy rating on SU stock and increased the target price from $47 to $53. “Our recent series of institutional meetings with Suncor in London has encouraged us that the company has a firmer grip on the steps needed to regain its status as a world-class oil sands operator,” he said.
Pardy ranks 64th out of around 8,000 analysts tracked on TipRanks. In addition, 60% of its previous reviews have been successful, resulting in an average return of 27.1% per review.
Imperial Oil
RBC’s Pardy believes integrated oil producer Imperial Oil (In my opinion) can be a great stock to hedge your portfolio against the uncertainties markets are facing this year.
Specifically, Imperial is working tirelessly on a blueprint that will take the company to a zero-emissions future. With the support of advanced technologies, the company is rapidly approaching its goal. Imperial anticipates these technologies will reduce the intensity of carbon emissions at its upcoming oil sands production projects by 25% to 90%. (See Imperial Oil Hedge Funds Trading Activity on TipRanks)
Pardy believes Imperial has “a capable leadership team, a favorable long-term operating outlook, a strong balance sheet and a commitment to shareholder returns.” In addition, the analyst notes that strong production rates at Imperial’s Kearl property in northern Alberta are enhancing the Company’s overall operating momentum, further driven by an improving cost structure.
Pardy reiterated a buy rating on the stock and raised its price target to $78 from $66. “Our recent discussion with Imperial CEO Brad Corson at the RBC Global Energy, Power & Infrastructure Conference underscored the strength of the company’s downstream segment amid significant tailwinds in commodity prices and Imperial’s commitment to continued returns for shareholders,” wrote the analyst.