December's 'best-in-class' stocks include this obesity beneficiary, Wall Street analysts say

Published Sat, Dec 2 20238:57 AM EST

An obesity beneficiary and a snack foods company are just a few of the top stocks to buy in December, analysts said this week. Wall Street research firms named a slew of companies that they believe have upside heading into the years end. CNBC Pro combed through recent analyst notes to find stocks that are too attractive to ignore in December. They include: Mondelez , Estee Lauder, ITT, Gracell Biotechnologies and Eli Lilly. ITT "Picking a high-quality operator in a difficult macro," Bank of America analyst Andrew Obin said in his recent upgrade of aerospace and transportation component manufacturer ITT to buy from hold. Obin said the company has a "preponderance" of margin tailwinds for 2024, including "differentiated auto exposure, underappreciated margin expansion opportunities, and best-in-class execution." Shares are up 34% so far this year, but the stock's valuation remains compelling, he said. Obin has a $125 price target, up from $105, and it's tied for a Street high. "ITT reported some of the best orders in our coverage in 3Q and backlog coverage provides strong visibility into '24 growth," he said. To be sure, the firm said ITT is very much a self-help story, but expects the margin opportunity is too attractive to ignore. "ITT is a top-tier operator with plenty of opportunities for margin expansion to deliver positive EPS revisions next year," he wrote. Mondelez RBC analyst Nik Modi upgraded the food and snacks company to outperform from market perform earlier this week, saying it offers "Best-in-Class Organic Growth with Some M & A Icing on Top." RBC previously downgraded the stock earlier this year due to overall concerns about the food industry, but Modi says now's the time to get more constructive. "Since then, MDLZ has consistently delivered on earnings and is one of the very few staples names to deliver volume growth in 2023," he wrote. Modi also sees M & A as a big piece of his thesis, noting that Mondelez "has ample current/future dry powder to opportunistically pursue additional attractive deals." Since 2018, Mondelez has pulled off nine acquisitions, according to the firm. Finally, the stock is relatively inexpensive compared to its peers in the sector, he added. Shares are currently up 6% year to date. According to LSEG, there is about 13% upside for the stock based on the average analyst price targets. Estee Lauder DA Davidson is getting very bullish on the beauty company. "We are including BUY-rated EL in our research team's Best-of-Breed Bison initiative, which focuses on long-term best-in-class companies with sustainable competitive moats," analyst Linda Bolton Weiser said earlier this week. The firm said the company has a business model it calls "easy to understand" with exposure to retail travel and skincare. In particular, Bolton Weiser said Estee's impressive foot traffic is primarily driven by its loyal customers who return for the same products. "Beauty companies spend heavily to get trial, and the highest financial returns are earned on repeat purchases," she added. Bolton Weiser acknowledged that the timing for a return to growth remains uncertain but at current levels shares are just too attractive to ignore. She raised her price target to $163 per share from $146. "EL is among the best-in-class consumer product companies on profitability and ROIC," she summed up. The stock is up 26% over the last month. Gracell Biotechnologies — Evercore ISI, outperform rating "Initiating with an Outperform: potentially best-in-class efficacy in multiple myeloma. ... Gracell is late to market, with a potential launch in 2027 and no established pharma partner yet but even modeling only an extremely conservative share in MM [multiple myeloma], there is significant upside to the stock – compare GRCL's market cap of ~$350M with competitors." Mondelez — RBC, outperform rating "Since then, MDLZ has consistently delivered on earnings and is one of the very few staples names to deliver volume growth in 2023. ... With the divestiture of its developed market gum business we believe MDLZ has ample current/future dry powder to opportunistically pursue additional attractive deals. ... Best-in-Class Organic Growth with Some M & A Icing on Top." ITT — Bank of America, buy rating "Picking a high-quality operator in a difficult macro. We are upgrading ITT shares to Buy on: resilient end market exposure, differentiated Auto exposure, underappreciated margin expansion opportunities, and best-in-class execution. ... ITT reported some of the best orders in our coverage in 3Q and backlog coverage provides strong visibility into '24 growth ... ITT is a top-tier operator with plenty of opportunities for margin expansion to deliver positive EPS revisions next year." Eli Lilly — Morgan Stanley, overweight rating "We view LLY and NVO as having the best-in-class assets in diabesity based on the data to date, with a building body of data from large outcomes trials. Our view is based on: 1) Data from competitors to date suggest at best comparable profiles to the data LLY/ NVO have reported (with the usual caveats of cross trial comparisons); and 2) LLY and NVO are building data 'walls' from ongoing/ completed outcomes studies that competitors have largely not yet started." Estee Lauder — DA Davidson, buy rating "We are including BUY-rated EL in our research team's Best-of-Breed Bison initiative, which focuses on long-term best-in-class companies with sustainable competitive moats. ... EL is among the best-in-class consumer product companies on profitability and ROIC. ... EL has an easy-to-understand business model. ... EL excels at driving repeat purchase, loyalty, and retention."