Top Wall Street analysts recommend these buys before 2020 comes to a close
As the year comes to a close, Wall Street is watching for a possible Santa Claus Rally. Historically, stocks tend to rise during the last five trading sessions of the calendar year, with this rally continuing until the second trading day of the new year.
Since 1969, the S&P 500 has gained 1.3% on average over this seven-day trading period, according to the Stock Trader's Almanac.
There are some stocks investors may want to pick up for 2021 before they close their books on the year. Finding compelling investment opportunities isn't easy. One strategy is to follow the moves of the analysts who consistently get it right. TipRanks analyst forecasting service attempts to find the best-performing analysts on Wall Street, or the analysts with the highest success rate and average return per rating.
Here are the best-performing analysts' five favorite stocks right now:
Top J.P. Morgan analyst Doug Anmuth just joined the Twitter bulls, upgrading the rating to Buy on December 16. Along with the call, the five-star analyst bumped up the price target from $52 to $65, with the new target suggesting 16% upside potential.
Anmuth explains that his price target is based on roughly 30x his 2022 EBITDA estimate, and also translates to approximately 9.5x his 2022 revenue estimate. Although this reflects a premium to advertising and social media peers like Google and Facebook, he believes it is "justified given a depressed EBITDA base and improving momentum in the business beyond 2020."
"We believe Twitter is uniquely positioned as the real-time broadcast and communications network, making it complementary to all other forms of media, including TV," Anmuth commented.
Additionally, Twitter is likely to benefit from the shift toward mobile and video given that the ad product and platform are continuing to improve, in Anmuth's opinion.
That being said, for the analyst to be even more optimistic about the company, he argues "better advertising execution, including diversification toward DR and performance-based, is critical."
Based on his 72% success rate and 32.1% average return per rating, Anmuth scores the #29 spot on TipRanks' ranking.
Costco
For RBC Capital's Scot Ciccarelli, Costco is a top pick in the retail space. On December 14, he maintained a Buy rating as well as a $439 price target (20% upside potential).
According to Ciccarelli, "Costco just keeps doing it what it does best," which is delivering strong sales growth and good margin performance. In its most recent quarter, the company posted comp growth of 17.1%, enabling it to generate strong leverage in fiscal Q1 2021, in the analyst's opinion. E-commerce sales surged 86% and now account for roughly 7% of total sales.
Even though U.S. comps moderated, Ciccarelli argues "this modest deceleration seemed to be driven by pull forward activity and… more aggressive Black Friday promotions starting as early as late-October from some competitors." On top of this, gross margins reached 13.3% thanks to efficiency gains, labor productivity and significantly lower product spoilage in fresh foods.
What's more, Ciccarelli points out that Costco has the strongest buying power in the retail space because it concentrates all of its scale on a small group of SKUs, while its bigger competitors spread their buying power across millions of SKUs. Additionally, he thinks it has the lowest markup in the industry.
"We believe this combination creates extremely compelling value for their members. As a result, while Costco has indeed benefitted from accelerated shopping activity as more consumer dollars are directed towards goods rather than services/experiences (what we call the Retail Lift), we believe Costco is extremely well positioned regardless of broader economic trends in 2021," Ciccarelli opined.
Currently tracking a 76% success rate and a 20.6% average return per rating, Ciccarelli ranks among the top 52 analysts on TipRanks' list.
MKS Instruments
Following MKS Instruments' analyst day, Benchmark's Mark Miller is even more optimistic about its long-term growth prospects. To this end, he lifted his price target from $150 to $175 (17% upside potential), as well as reiterated a Buy rating on December 14.
According to Miller, management painted a very "upbeat picture," with the team expecting the semiconductor business growth to surpass wafer fab equipment spending by 200 basis points between 2020-2025 and its Advanced Products business to grow at GDP plus 300 basis points. Additionally, the company anticipates non-GAAP gross margins of 50%.
"We see upside coming next year in the Advanced Products group lead by improved laser demand due to a rebound in global manufacturing and growth from the E&S segment," Miller stated.
On top of this, the data storage segment is likely to benefit from the ramp of 5G phones as they require more memory content, in Miller's opinion. "Next gen devices require more transistors and higher bit densities. Higher aspect ratios, which require more rf power, have enabled MKS to gain share in the WFE market lead by rf etch applications such as hard mask removal," the analyst explained. In just the first nine months of 2020, MKSI's power solutions business has grown 110% year-over-year.
Miller argues that all of this puts MKSI on a path to achieve higher earnings in FY21. He bumped up his non-GAAP EPS estimate from $8.40 on sales of $2.47 billion to $8.82 on similar sales.
A 71% success rate and 25.8% average return per rating support Miller's #45 ranking.
NeoGenomics
NeoGenomics is a cancer diagnostics and pharmaceutical services company that works to better patient care by providing improved diagnoses and helping pharmaceutical companies launch cutting-edge therapies based on precision genetics.
The company, last week, received a nod of approval from BTIG, with analyst Mark Massaro initiating coverage with a Buy rating and the Street high price target of $60 (12% upside potential).
"We view NEO as the leading high-growth reference lab focused in oncology offering comprehensive cancer diagnostic tests and pharma services for pathologists, oncologists, academic medical centers, and pharma companies," Massaro noted.
To back this up, the five-star analyst points out that NEO has the broadest cancer diagnostic testing portfolio in the U.S., with it also boasting a "strong track record of acquiring and integrating market-leading lab companies over the years." This includes the acquisitions of Clarient, Genoptix and the oncology assets of Human Longevity, which were purchased at average revenue multiples of 2.5x revenue, compared to the average industry takeout multiples of 6.5x.
Massaro added, "We are positive on NEO's May 2020 partnership and ownership stake in liquid biopsy company Inivata, as NEO looks to expand its footprint in the high-value liquid biopsy and minimal residual disease (MRD) testing space. We think NEO will likely announce additional deals from here, and we regard NEO as a 'onestop oncology shop' as it leverages a leadership position in the pathology and oncology channel."
Massaro's stellar track record is evidenced by his 66% success rate and 28.2% average return per rating.
Zynga
Wall Street's 6th best-performing analyst, Brian Fitzgerald, of Wells Fargo, believes the negative investor reaction following game developer Zynga's Q3 earnings results was "overdone," with the stock now appearing "inexpensive relative to growth." With this in mind, he upgraded the rating from Hold to Buy on December 15. In addition, he kept the price target at $12.50, implying 26% upside potential.
"We think shares of ZNGA present a favorable risk/reward in light of a new, more detailed strategic vision of organic growth, which CEO Gibeau recently articulated. This prompted us to reimagine what ZNGA will look like a few years down the road," Fitzgerald stated.
Putting it simply, the analyst likes what he's seeing. He envisions a vertically integrated ad network which, when combined with Rollic's games, could move the hyper-casual audience into the ZNGA network for monetization through ads and in-app purchases, while reducing UA costs. Additionally, its portfolio is now diverse enough to provide several options to allocate advertising spend on genres and regions with the best ROI, which could create a "less volatile recurring revenue stream," in Fitzgerald's opinion.
What's more, Fitzgerald sees "expansion of ZNGA's TAM beyond mobile by taking key franchises cross-platform in a cost-effective manner due to enhancements in game engine technology."
"We think FY21E FCF yield of over 5% limits the risk of underperformance as mgmt. has a successful track record of allocating capital into a TAM growing ~10%/year; moreover, management's commentary on December 9 suggests ZNGA's Q4 is still on track for double digit organic year-over-year growth," Fitzgerald added.
The Wells Fargo analyst boasts an impressive 83% success rate and 43% average return per rating.