Top Wall Street analysts are bullish on these stocks for the long run
Pedestrians pass by a Lululemon store.
Scott Mlyn | CNBC
Markets are tense, and May’s hot inflation report has only worsened the situation.
Last month’s consumer price index rose 8.6% from a year ago, making it the highest increase since December 1981. The reading spurred further worries about a recession and bond yields jumped on Friday.
The situation is a frightening one for investors, but it’s important for them to keep a long-term focus and look past the volatility that’s shaking up the market right now. To that effect, top analysts have picked out stocks with attractive prospects, according to TipRanks, which ranks the best-performing Wall Street professionals.
Here are five stocks that are catching analysts’ attention.
Nevertheless, Credo has run into hurdles. The resurgence of Covid-19 in China led to lockdowns in key cities including Kunshan, forcing key suppliers to shutter their businesses and hurting the supply chain in the semiconductor industry even further. Credo’s Active Electrical Cable unit sources its materials from suppliers in Kunshan.
However, the company still managed to deliver better-than-expected quarterly results on the basis of strong sales of its non-Kunshan products. Needham analyst Quinn Bolton said, “We believe investors will view this as a sign of resiliency as CRDO absorbs shutdown related effects due to strength in non-AEC product revenue.”
Bolton also pointed out key strengths in the company’s business. He noted that Credo’s strong expertise in analog and DSP design helps the company use the most appropriate technology combinations to provide “high-performance designs at lower power and lower cost.”
The analyst believes that this edge can lead the company to considerably expand its total addressable market in data center in the next three years making it one of the fastest-growing semiconductor companies.
Bolton ranks No. 3 out of almost 8,000 financial analysts on TipRanks. He has successfully rated stocks 72% of the time, and his rated stocks have delivered an average return of 45% on each.
Semiconductor company Ambarella’s (AMBA) system-on-chips (SOCs) brings together key technologies to deliver superior quality videos and images with low power consumption. Its chips are gaining fast traction in markets like autonomous vehicles, and the Internet of Things.
Needless to say, semiconductor companies have suffered this year. As if the existing supply-chain snarls weren’t enough, the Covid-led lockdowns in China earlier this year hurt the supply of components to the chipmaking industry further. AMBA stock has not been spared, and shares have fallen more than 60% this year. (See Ambarella Stock Chart on TipRanks)
Needham’s Quinn Bolton dove into the company’s earnings performance and pointed out that the headwinds that it faced in the first quarter of fiscal 2023 are expected to persist in the near future. However, the analyst believes that these are only short-term problems that are beyond the company’s control.
Shipping issues all over the world are leading to inventory build-ups, making it difficult for Ambarella’s customers to procure their orders. This has been exacerbated by the lockdowns in China, leading to delayed orders that hurt Ambarella’s performance in the first quarter of fiscal 2023. The guidance for the fiscal second quarter also indicated a slowdown in revenue growth.
However, Ambarella expects supply chain issues to cool in the second half of the year. Bolton chose to go with the fundamentals and business strength and look past the short-term setbacks. He reiterated a buy on AMBA, despite trimming the price target to $120 from $175.
The analyst is confident about Ambarella’s computer vision (CV) suite of processors, and believes that this product holds the key to significant revenue as well as future share price growth. “We forecast Ambarella’s CVflow products will generate more than 50% of annual revenues by CY23. While we estimate Ambarella’s CV-based product sales will grow at a 10-year CAGR of 45%,” said Bolton.
American Tower (AMT), one of the largest infrastructure REITs, is an independent operator of wireless and broadcast communications infrastructure. Its business is spread across 22 countries around the world. The growing use of 5G and other technology is supporting the demand for American Tower’s infrastructure and spaces to operate communication services.
Recently, RBC Capital Markets analyst Jonathan Atkin attended a few meetings with AMT’s management, and compiled a few key takeaways for investors.
Atkin said that management is optimistic about AMT‘s business in Europe and is confident about its key partnerships and government support in that region, especially in Germany, Spain, and France.
Atkin believes that AMT’s growth in the medium term will be supported by national U.S. wireless operators when they roll out mid-band 5G spectrum. (See American Tower Dividend Date & History on TipRanks)
Among challenges, the analyst sees slow growth in India due to Covid-19 and low average revenue per unit, and in Brazil due to Covid-related obstructions. However, he expects AMT to manage these challenges as soon as leasing fundamentals in these markets stabilize after an effective economic recovery from Covid-19.
Atkin holds the No. 11 spot among almost 8,000 Wall Street analysts covered on TipRanks. He has achieved 337 successful ratings out of a total 437 ratings. Moreover, he delivered an average return of 45% on each stock rating.
Guggenheim analyst Robert Drbul had some interesting insights into the company’s developments after it released its quarterly print. He noted that Lululemon is navigating the worldwide supply chain pressures by utilizing air freight to send orders to customers, notwithstanding the high freight costs.
Drbul points out that the company’s products are characterized by limited seasonality, which is a huge positive. Also, its robust e-commerce business and minimal exposure to the wholesale market are a boon during the current situation of rising inventory. (See Lululemon Risk Factors on TipRanks)
The analyst reiterated a buy on the LULU stock, encouraged by its medium-to-long-term business outlook. “We believe LULU remains on track to quadruple its international business by the end of FY22. This should support continued robust top-line growth and structurally higher operating margins in coming years (digital operating margins in the 40%-plus range), which in our view justifies the shares’ premium multiple,” said Drbul.
Drbul is ranked No. 582 out of almost 8,000 analysts tracked on TipRanks. Notably, 59% of his ratings have been successful so far, with an 8.2% average return per rating.
Shares of Veeva (VEEV) have tumbled in 2022, dragged down by the broader tech sell-off. Nonetheless, this is one of the companies that are not seeing any significant hit to its business. This is because it’s a cloud-computing company that focuses on two key industries: life sciences and pharmaceuticals.
Interestingly, hedge funds have increased their positions in the company’s shares in the March quarter. (See Veeva’s Hedge Fund Trading Activity on TipRanks)
The company issued quarterly results earlier this month, beating Street estimates for per-share earnings and revenue.
Needham analyst Ryan MacDonald was encouraged by Veeva’s largest deal — a 12-product win with a top pharmaceutical firm during the first quarter. “While VEEV views this win as more of a one-off event in the near-term, it has the potential to fundamentally change the conversation around strategic roadmap with customers over time,” said MacDonald.
The analyst is also confident that if investors look past the near-term concerns around the sluggishness in the demand for Veeva’s core cloud-based customer relationship management platform, once its products like Compass and Link start gaining momentum.
MacDonald maintained his bullishness on VEEV, with a buy rating on it, despite a price target cut to $205 from $270. However, long-term investors need not worry because, according to MacDonald, the lower price target takes into account an “industry-wide multiple compression.”
The analyst was impressed by the fact that Veeva could increase its FY23 outlook despite current currency headwinds, as this “highlights the durable nature of the business in an uncertain macro.”
MacDonald is ranked No. 482 among nearly 8,000 analysts on TipRanks. With a success rate of 49% on his ratings, his rated stocks have returned 14% on an average.