Top Wall Street analysts say these stocks have the best long-term value
Sanjay Mehrotra, CEO, Micron Technology
Scott Mlyn | CNBC
Volatility in the stock market appears to be far from over.
Market churn is still very high amid hot inflation and a worrisome economic outlook. Although the near-term perspective may be blurry, investors may scoop up healthy returns in the long run if they pick out stocks with strong long-term prospects and give them time to grow.
Here are five stocks that some of the top pros on Wall Street have singled out, according to TipRanks, which ranks analysts based on their performance.
Tech stocks were hit particularly hard by this year’s downturn. However, Google parent company Alphabet (GOOGL) managed to stand its ground, backed by the rapid adoption of cloud computing and the popularity of its search engine.
Monness Crespi Hardt analyst Brian White acknowledges that regulatory headwinds, a volatile equity market, and the unpredictable geopolitical situation call for a cautious stance on the near-term stock performance prospects. However, he believes that solid long-term trends in digital ads, secular growth in the cloud space, and consistent repurchase of stocks bode well for Alphabet.
White notes that the ground-breaking privacy initiatives by Apple (AAPL) last year had minimal impact on Alphabet’s advertising business (except for YouTube ads, which have been impacted slightly), as compared with other digital ad players. This year, the economic downturn might affect digital ad spending budgets across industries, which could mean bad news for Alphabet’s ad revenues. Nonetheless, the comapny’s diverse portfolio will help spread out the risks and mitigate the impacts of headwinds. (See Alphabet Hedge Fund Trading Activity on TipRanks)
White said that Alphabet has generated sales and operating profits of 23% and 27% per annum, respectively, over the last five years. Meanwhile, the company has also maintained its dominant position in the search engine space. These led White to believe that “Alphabet should trade at a healthy premium to the market and tech sector in the long run.”
Keeping in mind the near-term pressures and dim outlook, White trimmed his price target for Alphabet to $2,900 ($145 adjusted for the 20:1 stock split, scheduled to complete after the business closes for the day on July 15), from $3,500.
However, he reiterated a buy rating on GOOGL, demonstrating his optimism in the long-term prospects of the second-largest company by market cap and the biggest digital ad player in the world.
On TipRanks, White is rated as No. 423 out of nearly 8,000 analysts. He has been successful in 57% of his 313 stock ratings, and has returned an average of 10.9% on each of them.
Memory and storage behemoth Micron Technology (MU) had been fighting a supply shortage of components even before the economy soured this year. Like most other companies, Micron’s near-term prospects have been clouded by various macroeconomic pressures,
Moreover, the persistent shrinking of PC and smartphone demand over the past few months led to an inventory correction across DRAM and NAND memory semi-components. This has been hurting Micron, and Evercore ISI analyst C.J. Muse expects this to continue hurting the company in the second half of the year before recovering sometime in 2023. (See Micron Risk Factors on TipRanks)
Despite Micron missing revenue estimates in its recently reported quarterly results, Muse noticed that earning power and free cash flow generating capacity look solid for Micron for this year. Moreover, other inventory-optimizing initiatives are expected to help the company once the situation stabilizes. “Micron is also reducing its planned WFE (wafer fab equipment) spend in FY23 to reduce bit output with plans to work down inventory to meet demand in CY23,” noted Muse.
Additionally, management noted that the MU shares are trading well below intrinsic value (a measure of a share’s worth by means of objective calculation rather than the current market price), and the company is planning to participate in more aggressive share repurchases in the current quarter. This is a positive sign for the future share price.
With these observations, Muse upheld a buy rating on the stock with a price target of $90. Notably, Muse is ranked No. 663 among nearly 8,000 analysts tracked on TipRanks. Furthermore, 55% of his ratings have been successful, and each has generated 14.5% in returns on average.
Seagate Technology (STX) offers hardware and software solutions for data storage and transfer. The company’s HDD products cater to mission-critical and nearline applications in enterprise servers and storage systems. Like most other technology companies, Seagate has also been fighting numerous headwinds this year.
At several recent investor conferences, many large companies, including Seagate, pointed at weakening consumer sales in the June quarter, catalyzed by a slowdown in PC and smartphone demand. This also led the company to issue weak guidance for its fiscal fourth quarter, which ended June 30. (See Seagate Tech Earnings Date on TipRanks)
Benchmark analyst Mark Miller took these headwinds into account and lowered his expectations for the near term. He also slashed his price target to $90 from $100.
Nonetheless, Miller maintained his bullish stance on Seagate’s longer-term prospects. “As such, we are reducing our Seagate estimates for the June quarter and FY23. However, continued expected strength in Nearline drive demand keeps us at Buy,” the analyst said, reiterating the firm’s rating on the STX stock.
Miller is ranked No. 159 among nearly 8,000 analysts in the TipRanks universe. In all, 53% of his 427 ratings have been successful, generating a 17.5% return per rating on an average.
TD SYNNEX Corporation
Despite the year’s challenges, business process service provider TD SYNNEX (SNX) has benefited from a steady IT spending environment amid rapid digital transformation. The company recently posted quarterly earnings.
Barrington Research analyst Vincent Colicchio dug into the results and noted that strength in the company’s core and high-growth businesses were major positives. “The company experienced strong demand for technology products and solutions to enable hybrid work, foster collaboration, improve security, and advance multi-cloud adoption. The distribution business experienced revenue growth in all regions including the Asia-Pacific region if we exclude the impact of one large government contract in the year-ago period,” the analyst said. (See TD SYNNEX Corporation Stock Chart on TipRanks)
Colicchio was also encouraged by the strong margin execution demonstrated by SYNNEX, amid the difficulties related to high costs and supply constraints. The analyst reiterated his bottom-line forecast for the company’s fiscal 2023 and increased his estimates for fiscal 2022.
Nonetheless, keeping the near-term challenges in mind, Colicchio reduced the price target for SYNNEX to $106 from $128. “Growth should continue to be tempered by continued supply chain challenges throughout the year,” he said.
However, Colicchio reinforced a buy rating on the stock, believing that it’s undervalued and thus offers a great entry point. “Revenue growth prospects should improve in fiscal 2023 and beyond as the company benefits from revenue synergies and as supply chain conditions normalize. We are confident in management’s ability to achieve its targeted cost synergies given a solid track record of execution on acquisitions,” said Colicchio, justifying his long-term stance.
Out of almost 8,000 analysts on TipRanks, Colicchio is ranked No. 439. Additionally, 54% of the time, his ratings have been successful, and have generated an average return of 11.9%.
Financial services firm Northern Trust (NTRS) has held its ground during this year’s strong headwinds, with the support of its wealth management operations.
Recently, RBC Capital analyst Gerard Cassidy compiled key reasons for his optimism with regard to the company’s prospects. One of the major reasons for his reiteration of a buy rating on the stock was its strong balance sheet, which reflects its robust financial operations. “Although other banks claim to have ‘fortress’ balance sheets, we believe NTRS not only has one, but it has withstood the test of time; it is one of only two of the top 20 banks that did not cut its dividend during the Financial Crisis of 2008–09,” said Cassidy. (See Northern Dividend Date & History on TipRanks)
A powerful management team with a solid track record is also a strong point for Northern Trust, according to Cassidy. Moreover, steady growth in assets under management (AUM) and assets under contract (AUC), along with improving market conditions, should ensure a boost in revenues.
Most importantly, Cassidy is optimistic about the immediate tailwinds that Northern is poised to enjoy, in the form of elevated interest rates. “As the Federal Reserve moves to increase short-term interest rates in 2022, possibly by as much as 200 basis points, NTRS’s revenue will be driven higher by a reduction of money market fee waivers which were an annualized $200+ million in 1Q22 and higher net interest income,” the analyst said.
Nonetheless, Cassidy is concerned that the volatility in the equity and bond markets might keep Northern Trust’s core custody and wealth management businesses under pressure. This prompted him to cut his price target on the stock to $110 from $133.
Cassidy has a No. 27 rank among almost 8,000 Wall Street analysts on TipRanks. Also, 66% of his ratings have been correct, with each rating generating an average return of 22.1%.