These stocks are starting to captivate analysts with their incredibly attractive risk/reward

Published Sat, Sep 18 20218:54 AM EDT

Wall Street analysts said this week that there are a bunch of stocks that are just too enticing to pass up. Investors stand to be richly rewarded for investing in these compelling, multi-faceted companies that are firing on all cylinders, analysts say. CNBC Pro combed through top research to find some of the most attractive stocks to buy on Wall Street. They include PennyMac Financial, Restaurant Brands, Fox , Petco and McAfee. Fox Investors better not underestimate one of the most well positioned company's on Wall Street, Loop Capital's Alan Gould wrote last week. The entertainment and media behemoth has it all, starting with a robust balance sheet and continues to buyback an estimated $1 billion of shares per year, according to Gould. "The company has a focused strategy of sports and news, should benefit from strong political advertising and engagement next year, as well as a Super Bowl and the elimination of Thursday Night football losses," the firm said. Gould also wrote that Fox has superior betting assets which shareholders are not giving Fox enough credit for. "In addition, the company owns almost $1 billion of Flutter stock and has an option to acquire 18.5% of Fan Duel and 50% of the legacy The Stars Group US operations," he said. The firm has a price target of $50 per share which ties a Street high reinforcing Gould's thesis that 2022 is poised to be a very big year for Fox. "We continue to believe Fox shares have the most compelling risk/reward in our large-cap universe," Gould said. Shares finished the week up almost 5%. McAfee PC demand may be easing a bit but that's not going to stop the software security company's momentum, Morgan Stanley said earlier this week. "Durable double-digit topline growth and improving profitability should drive meaningful EPS revisions over the next couple years, despite fears of post pandemic demand slowdown," analyst Hamza Fodderwala said. In fact, McAfee's earnings power is "underappreciated," he added. There are other catalysts too which could bolster revenue including an "underpenetrated opportunity" in mobile as well as subscriber renewals, according to Fodderwala. Meanwhile, the firm says even if PC sales deteriorate a bit further from record demand during the pandemic, it likely won't be much below historical levels, which is good for McAfee. Fodderwala says his thesis is also bolstered by the fact that McAfee has exclusive partnerships with multiple PC makers' like Dell, HP, and others. With the stock down just over 17% this month, Fodderwala says investors should take advantage of what he calls a very "strong" buying opportunity. Petco "More than a pandemic puppy," Baird analyst Peter Benedict quipped in a recent note to clients after the company's better than expected second-quarter earnings report in mid-August. The stock is up just 4.4% this month, but Benedict says Petco remains on a clear upward trajectory. "While we acknowledge steep near term compares, the sector is thriving following last year's surge in new pet households and WOOF's re-tooled business is delivering market share gains," he said. Petco's same-store sales have been bolstered by the return of in-store shopping and recurring revenue from repeat customers. Benedict also praised the company for balancing the need to raise prices while still managing inflationary cost pressures. "Services increased 49% as demand for grooming/training has come roaring back and WOOF continues to execute against its vet hospital network rollout," the firm wrote. Additionally, the stock currently has a very attractive risk/reward in what Benedict calls a "defensive growth" sector. "While a very good sector pre- COVID, the recent surge in new pet households (up ~6% in 2020) is expected to drive even stronger growth over the next several years," he wrote. Restaurant Brands-Oppenheimer, Outperform rating "After a deep-dive analysis, we believe the search for attractive risk-reward over next 18 months has shifted to QSR from YUM. We install an $80 price target for QSR (implying 25% upside potential) and remove our prior $145 target for YUM. To be clear, we have not identified a fundamental breakdown in the outlook for YUM's operating model, nor are we expecting measurable earnings misses in future quarters. Our call is based on our belief that QSR is armed with more drivers for outperformance from August 26, 2021 and onward." Fox- Loop Capital, Buy rating "We continue to believe Fox shares have the most compelling risk/reward in our large-cap universe. The company is selling for less than 5x our FY2021/2022E EBITDA, has a strong balance sheet, and is repurchasing shares. The company has a focused strategy of sports and news, should benefit from strong political advertising & engagement next year, as well as a Super Bowl and the elimination of Thursday Night football losses. ... .In addition, the company owns almost $1 billion of Flutter stock & has an option to acquire 18.5% of Fan Duel and 50% of the legacy TSG US operations." McAfee- Morgan Stanley, Overweight rating "Underappreciated earnings power, strong buying opportunity on pullback. Durable double-digit topline growth and improving profitability should drive meaningful EPS revisions over the next couple years, despite fears of post pandemic demand slowdown. Trading at 12X $1.75 EPS by 2023e growing > 30%, MCFE presents the most attractive risk-reward in our coverage. ... ,Expansion into a large, under-penetrated opportunity in the mobile & ISP (internet service provider) Channel." Petco- Baird, Outperform rating "More than a pandemic puppy. ... .While we acknowledge steep near term compares, the sector is thriving following last year's surge in new pet households, and WOOF's re-tooled business is delivering market share gains. ... .Services increased 49% as demand for grooming/training has come roaring back and WOOF continues to execute against its vet hospital network rollout. ... .Leading player in an attractive, 'defensive growth' sector. ... .While a very good sector pre- COVID (~5% growth), the recent surge in new pet households (up ~6% in 2020) is expected to drive even stronger growth over the next several years." PennyMac Financial- Piper Sandler, Overweight rating "We believe PFSI is one of the most attractive risk-rewards within our coverage with the stock now trading at 5.1x FY22E P/E. It is clear the market is heavily discounting the company's capacity to continue generating 15%+ ROEs in the face of increasing competition in the mortgage market. In our view, this presents a very attractive entry point for investors willing to wait for the market to recognize PFSI's stellar profitability and/or start to show a turn in the cycle--whereby we would expect a rapid increase in earnings."

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Source: BusinessWire

Wall Street analysts said this week that there are a bunch of stocks that are just too enticing to pass up.