The Netflix logo is seen on one of the streaming giant's Hollywood buildings in Los Angeles on July 12, 2023.
Mike Blake | Reuters
The U.S. stock market remains volatile due to uncertainty over when and how often the Federal Reserve will begin cutting interest rates. Despite the highest interest rates in a generation and a difficult macroeconomic environment, several companies have delivered strong performances, reflecting the resilience of their business models.
To select the stocks of such companies that have attractive growth potential, investors can follow the recommendations of Wall Street experts.
Here are three stocks that are favored by the Street's top analysts, according to TipRanks, a platform that ranks analysts based on past performance.
First and foremost is the cloud-based workflow management platform service now (NOW). The company recently announced positive fourth-quarter 2023 results and increased its subscription revenue and operating margin guidance for 2024.
Following the results, Baird analyst Robert Oliver reiterated his Buy rating on NOW stock and increased his price target to $870 from $780. The analyst noted that all key financial metrics were above expectations in the fourth quarter of 2023.
ServiceNow's cRPO (current remaining performance obligations), which will be recognized as revenue over the next 12 months, increased 23% on a constant currency basis. The Baird analyst highlighted that while this growth rate represented a slight slowdown from the previous quarter's 24% growth, it beat the company's own forecast of more than 21% growth.
Oliver explained that the increase in cRPO was driven by net new ACV (annual contract value) and higher early renewals. He also noted the strength of ServiceNow's public sector business and the appeal of its generative AI (artificial intelligence) products.
The Baird analyst said his revised price target for NOW reflects a reasonable valuation of 44x its 2025 FCF (free cash flow) estimate, given its “1) above-average growth profile, 2) strong competitive positioning, 3) large TAM. “ [total addressable market]and 4) top decile FCF margin.”
Oliver is ranked #367 among more than 8,600 analysts tracked by TipRanks. Its ratings were profitable 58% of the time and delivered an average return of 11.5% each time. (See ServiceNow financial reports on TipRanks)
Streaming giant Netflix (NFLX) impressed investors with excellent fourth-quarter results. The company added 13.1 million subscribers in the final quarter of 2023, helping the stock gain 16% so far in 2024.
DBS analyst Sachin Mittal noted that the company's crackdown on password sharing in more than 100 markets since May 2023 led to the strong subscriber gains in the fourth quarter of 2023. He added that ad membership increased 70% sequentially in the fourth quarter and now accounts for 40% of all new subscriber signups across the company's 12 advertising markets.
“Overall, we believe paid sharing and advertising would help re-accelerate subscriber and revenue growth while generating high-margin additional revenue,” Mittal said.
The analyst also highlighted that while Netflix posted subscriber growth for the sixth consecutive quarter, its competitor Disney's (DIS) The subscriber base has declined for three quarters in a row. Wall Street expects Netflix's subscriber base to grow faster than Disney's, reflecting a reduced competitive threat from Bob Iger's theme park operator.
Mittal confirmed the buy rating for Netflix and increased the price target from $540 to $580. He believes NFLX deserves a higher valuation compared to its peers due to faster earnings growth, supported by its dominance in the streaming space, and increased value from its ad-supported tier and paid sharing efforts.
Mittal is ranked 334th among more than 8,600 analysts tracked by TipRanks. Its ratings were successful 79% of the time, with an average return of 22.8% each. (See Netflix hedge fund activity on TipRanks)
This week's third stock pick is electric vehicle maker Rivian (RIVN). In early January, the company reported 13,972 deliveries in the fourth quarter of 2023. In total, Rivian delivered 50,122 electric vehicles in 2023.
Recently, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on RIVN stock with a price target of $36. Feinseth believes the stock's decline presents a good opportunity to gain exposure to the emerging EV player. Rivian is down 33.5% in 2024.
Feinseth is optimistic about RIVN, citing several catalysts including “ongoing production ramp-up, expanded commercial vehicle capabilities, new leasing programs and the upcoming launch of its R2 platform.”
The analyst noted that the company continues to see solid demand for its pickup trucks and SUVs, and he also expects Rivian to benefit from increasing demand for its commercial vehicles as the company expands an existing partnership with Amazon (AMZN).
In particular, Feinseth highlighted the recently announced deal with Rivian AT&T (T), under which the telco agreed to purchase commercial vehicles and R1 electric vehicles to reduce its carbon footprint.
Feinseth is bullish on Rivian, saying the company has a total addressable market (TAM) of $9 trillion and an addressable services market of more than $1 trillion over the next three years. The analyst believes that Rivian has a significant first-mover advantage as a leading manufacturer of electric pickups and SUVs.
Feinseth is ranked #235 among more than 8,600 analysts tracked by TipRanks. Its ratings were profitable 62% of the time and delivered an average return of 11.4% each time. (See Rivian insider trading activity on TipRanks)