The last week of May put our minds slightly at ease with a relief rally (or rather, a bear market rally). Nonetheless, inflation remained in the back of investors' minds no matter how hard they tried to buy-the-dip and sustain the rally.
In the event that harder days are more likely in the guise of a slower economy, rising above immediate concerns and staying invested in the right stocks might actually be a good thing to help tide over near-term waves while solidifying your long-term wealth portfolio.
To understand better how stocks are performing in these trying times, and how they are expected to perform in the future, it makes sense to keep an eye open for what Wall Street's top experts are saying.
Let's take a look at five stocks recently being picked by the best performing analysts, according to TipRanks.
Forty-year high inflation has hit various sectors differently. For Workday (WDAY), it was delayed deal closures, as understood from its recent quarterly report on May 27. Despite delivering a solid quarter and a slightly raised outlook for revenues for the current fiscal year, Workday suffered a spate of lower price targets from several analysts.
The backlog is piling up on this financial and human resources software solutions provider, as deals are getting delayed due to the uncertain economy. But management is confident that none of the deals will be canceled.
Workday has not been spared from the broader tech sell-off this year. The stock has lost almost 41% of its valuation through the course of the year, thus far. (See Workday stock chart on TipRanks)
Nonetheless, management commentary during the FQ1 earnings call indicates sustained demand and solid levels of engagement. Moreover, the company underscored that it has ample means to effectively navigate economic downturns, as demonstrated through the recessions of 2008 and 2020.
Also, this is the wrong time to judge a tech company, when looking at the near-term concerns. "Thinking about the broader Software universe, we remind investors that none of the companies in the space are immune to a broader economic slowdown. It is only a question of when and to what extent they will be impacted," said Deutsche Bank analyst Brad Zelnick in a research report released May 27.
Encouraged by the long-term prospects of the company, Zelnick reiterated a buy rating on the stock but lowered his price target to $225 from $340, noting elevated costs of business acquisitions as Workday expands internationally, and strong competition.
Zelnick acknowledged how tactfully Workday has been driving customer expansion in the past two years, even during the early Covid-19 days. Moreover, the analyst is also upbeat about the company's business activities from May, which indicate strong customer renewal trends. Also, consistent growth in headcount even during labor shortages was encouraging.
Zelnick, who is ranked at No. 82 among nearly 8,000 analysts tracked on TipRanks, has been successful in 70% of his ratings, and has delivered an average return of 17.4% on each of his rated stocks.
The macroeconomy is currently riddled with snags, including continued supply-chain obstructions. These disruptions have deeply hurt technology, especially the semiconductor industry, which is suffering from a shortage of components essential for the manufacture of chips. Out of this tumult comes semiconductor company Marvell (MRVL), which reported solid Q1 earnings, upbeat guidance for the near term, favorable long-term growth prospects, and strong fundamentals. What's more, Marvell has been rated highly by analysts.
For the unversed, Marvell's chips are used in rapidly emerging automotive, enterprise networking, data center and 5G infrastructure end markets. Opportunities for Marvell's secular growth focus on prospects for use of chips in data processing units, Ethernet switches and controllers, and other Data Center uses.
In coming months, notwithstanding higher costs from inflation, Marvell expects strong revenue growth, fueled primarily by demand from the Data Center market and the rapid proliferation of 5G in the U.S. and overseas. Importantly, analysts are counting on Marvell to deliver earnings at a CAGR of 42% over the next five years.
Last week, Deutsche Bank analyst Ross Seymore, a TipRanks-rated five-star analyst, reiterated a buy rating on Marvell. Seymore was encouraged by demand from the Data Center business. "Management highlighted that near-term Data Center strength should accelerate into the second half of FY23 on the back of company-specific design win ramps and incremental supply deployment (strategically built up in the first half to fuel new product growth)," said Seymore.
Seymore was also impressed with Marvell's commitment to return cash to investors through regular dividends and share repurchases. The company resumed its stock buyback program faster than originally expected, already buying back $50 million in shares so far in the current quarter. (See Marvell's dividend data on TipRanks)
Among the risks to Marvell are larger-than-expected growth in the company's inventory in Q1. Moreover, supply constraints led to a mismatch in Marvell's ability to meet strong demand in the Enterprise Networking segment. Also, weak PC demand dented the performance curve of the Consumer unit.
Taking into account these concerns, along with the "market-wide value compression," Seymore lowered his price target on Marvell to $75 from $80.
Seymore has an enviable spot of No. 8 among almost 8,000 Wall Street analysts ranked by TipRanks. Moreover, the analyst has successfully rated 79% of 307 total ratings, delivering an average return of 26% per rating.
The tech bear market has not spared semiconductor giant Nvidia (NVDA), either. The stock has plunged about 36% so far this year. The Russia-Ukraine war and the Covid lockdowns in China are expected to pressure Gaming demand and further fuel supply-chain disruptions, leading Nvidia to project about a $500 million hit to fiscal second quarter revenue.
Nonetheless, Nvidia enjoys tremendous secular growth prospects in the same dynamic end-market as Marvell: data center. Over the past few years, Nvidia's efforts to grow beyond a video-game chip designer into an AI platform has made it one of the strongest players serving data centers. (See Nvidia's Blogger Sentiment on TipRanks)
Interestingly, artificial intelligence (AI) is in the middle of an upgrade cycle, leading to major upgrades in AI technology performance and other efficiencies. This was spurred in part by demand for digital solutions since the onset of the pandemic in 2020. Nvidia is taking full advantage of the opportunity and designing new chips for the Data Center and AI end markets, which are expected to significantly boost revenues.
Nvidia has a huge scope with AI factories that will be set up to train AI models using enormous volumes of data. In this regard, Nvidia and Meta (FB) recently announced that they will jointly build one of the world's most powerful AI factories.
Last week, Evercore ISI analyst C.J. Muse reiterated a buy rating on Nvidia, with a price target of $300, suggesting that its shares are currently too cheap to be ignored, and probably in the process of bottoming out. "July quarter revenues should mark a bottom with a clear path to sequential growth into both the October and January quarters. We think this is enough to suggest the bottoming process for NVDA shares is coming to an end," wrote Muse, who ranks No. 521 among nearly 8,000 analysts in the TipRanks database.
Muse has so far enjoyed a 62% success rate, and 19.5% average returns on each of his ratings.
The oil and gas sector has been a massive beneficiary of the war in Ukraine, which has helped feed faster inflation since the beginning of the year. A major player is ConocoPhillips (COP), whose shares have gained about 63% year to date.
The Houston-based explorer is poised to cash in on the crude price rally, which doesn't appear to be easing and looks to possibly last into 2023.
Strategic acquisitions followed by surging demand is expected to help ConocoPhillips grow its business. Last December, ConocoPhillips bought the Permian Basin assets of oil and gas producer Shell (SHEL), solidifying its core business. Earlier this year, ConocoPhillips acquired an additional 10% stake in the Australia Pacific LNG joint venture to strengthen its capabilities in energy transition and diversify its product portfolio.
Commitments to strengthen its balance sheet by reducing debt and spinning off secondary assets to invest in the core business are other strengths. (See Conocophillips Hedge Fund Trading Activity on TipRanks)
Earlier this week, Mizuho Securities analyst Vincent Lovaglio reiterated a buy rating on ConocoPhillips, and raised his price target to $157 from $151 in light of the current tight energy market. He believes that the supply chain snarls and other macroeconomic setbacks that have brightened prospects for U.S. oil and gas will remain a boon for the sector, including ConocoPhillips, at least in the near-term.
"Global energy undersupply has continued to drive energy commodity prices higher, while logistics and supply chain constraints, broader macro uncertainty, and a shift in corporate behavior push back the growth response. This theme has been to the benefit of the US E&Ps, and we expect this to remain the case," wrote Lovaglio.
With a whopping 96% successful rating and 69% average return on each rated stock, Lovaglio enjoys the coveted No. 2 spot among almost 8,000 analysts tracked in the TipRanks universe. TipRanks also rates him as a five-star analyst, based on various benchmarks.
Health-care player Danaher (DHR) is also on analysts' radar. The company designs, manufactures, and markets professional, medical, industrial and commercial products. It also rode a pandemic-led rally in health care the past two years. More recently, Danaher's share price corrected along with the broader market sell-off, falling about 19% so far this year.
Nonetheless, experts seem to be thinking that this is a perfect opportunity to buy the dip. Notably, there have been 11 buy transactions by 11 unique corporate insiders, and only one sell transaction in the month of May. (See Danaher Insider Trading Activity on TipRanks)
RBC Capital Markets analyst Deane Dray belongs to this bullish analyst cohort. Dray is a celebrated and seasoned analyst, who ranks at No. 775 among almost 8,000 analysts on TipRanks. His ratings have delivered an average return of 8.9% throughout the course of his career as an analyst.
Encouraged by the company's strong product portfolio, Dray upgraded Danaher earlier this week to a buy from hold, with a price target of $310.
Dray believes that the defensive nature of Danaher's product mix makes the stock a "safe haven." Recurring revenues account for 75% of the company's portfolio and more than 90% of product mix is in life sciences/diagnostics, as well as Water Quality.
Dray also believes that Danaher's strong balance sheet puts it in a strong position to make a strategic acquisition this year. In the past three years, the company has made two key acquisitions: GE Biopharma (currently known as Cytica) in 2019, and genomics component provider Aldevron in 2021.
For a defensive stock like Danaher with an attractive price-to-earnings valuation near its lowest ever, Dray believes that now is the perfect entry point for investors searching for safer bets.