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20 must-'buy' stocks deliver big bucks

Adam Gault | OJO Images | Getty Images

Maybe you should stop ignoring Wall Street analysts after all. The stocks analysts loved going into the year — their must-buys if you will — have delivered big time. The analysts told you so.

The 20 stocks in the Standard & Poor's 500 that started the year with the very highest "buy" ratings from analysts, including H&R Block, Celgene and Starbucks are blowing the doors off the rest of the market, according to a USA TODAY review of data from Thomson Reuters.

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These 20 stocks, on average, have rocketed 14.8% this year. That easily tops the 9% average gain of all the stocks in the S&P 500. A chart of a custom equal-weighted index of analysts' favorite stocks coming into 2014, versus the S&P 500, shows just how definitely the pros nailed it.

The stellar performance of Wall Street analysts is a big slap across the face of cynical investors who say these professionals are just shills pushing stock. Analysts from time to time can miss potential winners and be too late to downgrade losers. But the profession has worked to live down the bad reputation it earned in the wake of the dot-com bubble. Large research firms in 2003 paid upwards of $900 in disgorgement and agreed to reforms to settle allegations of issuing overly positive research on companies to lure investors to buy.

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But at least this year so far, the analysts have been right on target. And as a result, investors are paying attention to stocks that analysts like going forward.

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Don't think the analysts' hot hand was due to one or two lucky picks that gained huge and yanked the average up. Of the 20 top recommended stocks, 13 have beaten the market so far this year. Just four of the analysts' top "buy" recommended stocks are down. Besides, analysts didn't just nail the winners but also correctly warned about the losers. The 20 stocks that analysts liked the least going into 2014 are up 6.4% this year, trailing the average gain of the other stocks in the S&P 500.

Some of the calls were undeniably on target. Tax preparation company H&R Block was analysts' absolutely favorite stock going into the year. And it was a perfect call. Shares of the company are up 15.6% this year, which is roughly twice the 8% gain of the S&P 500 this year. Analysts expected the company to turn in rapid 28% earnings growth in its critical April quarter, and the company delivered.

The year isn't over yet, so it's a bit early to judge the performance of some of the more marginal picks. But it's fair to say analysts didn't nail every call. Precision Castparts, a company that makes metal parts, was among the favorites of analysts going into the year. But the stock has fallen 9.7% this year. One problem is that the company reported second quarter revenue of $2.6 billion, missing estimates by 2.7%.

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Staunch critics of research firms correctly say analyst picks haven't truly been put to the test yet. Analysts tend to have a positive bias toward stocks, which means their picks perform best in raging bull markets like the one we're witnessing now. Analysts will need to really prove their skill by turning negative before the market finally cools. But until then, investors listening to what these pros have to say are glad they did.

Below are the 20 S&P 500 stocks that analysts were the most bullish on going into the year:

Company
Symbol
Average rating
YTD % Ch.
H&R Block HRB 1.56 15.60%
Ryder R 1.56 22.80%
Celgene CELG 1.61 12.10%
Quanta PWR 1.61 14.80%
American Tower AMT 1.64 23.80%
Agilent A 1.65 -0.10%
Starbucks SBUX 1.68 0.70%
Delta Air DAL 1.69 7.80%
Thermo Fisher TMO 1.69 7.80%
Facebook FB 1.71 35.10%
Covidien COV 1.71 27.30%
Schlumberger SLB 1.72 22.30%
NRG Energy NRG 1.73 6.10%
Precision Castparts PCP 1.74 -9.70%
Gilead Sciences GILD 1.75 43.20%
Zoetis ZTS 1.75 8.10%
AES AES 1.78 4.10%
Affiliated Managers AMG 1.78 -3.00%
Cardinal Health CAH 1.78 9.70%
Discover Fin

Sources: Thomson Reuters on ratings, S&P Capital IQ on stock price movements
1: Strong buy, 2: Buy, 3: Hold, 4: Sell, 5: Strong sell

—By Matt Krantz, USA Today

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