Is the market gearing up for a pullback? A correction for stocks could be on the horizon, says strategists from Bank of America, but this isn't necessarily a bad thing.
"We expect a buyable 5-10% Q1 correction as the big 'unknowns' coincide with exuberant positioning, record equity supply, and 'as good as it gets' earnings revisions," the team of Bank of America strategists commented.
Meanwhile, Jefferies' Desh Peramunetilleke echoes this sentiment, writing in a recent research note that while stocks aren't due for a "prolonged unwinding," investors should take advantage of any weakness if the market does experience a pullback.
With this in mind, how are investors supposed to pinpoint compelling investment opportunities? By paying close attention to the activity of analysts that consistently get it right. TipRanks analyst forecasting service attempts to identify the best-performing analysts on Wall Street, or the pros with the highest success rate and average return per rating.
Here are the best-performing analysts' top stock picks right now:
Cisco Systems
Shares of networking solutions provider Cisco Systems have experienced some weakness after the company released its fiscal Q2 2021 results. That said, Oppenheimer analyst Ittai Kidron's bullish thesis remains very much intact. To this end, the five-star analyst reiterated a Buy rating and $50 price target.
Calling Wall Street's expectations "muted", Kidron tells investors that the print featured more positives than negatives. First and foremost, the security segment was up 9.9% year-over-year, with the cloud security business notching double-digit growth. Additionally, order trends improved quarter-over-quarter "across every region and customer segment, pointing to gradually declining COVID-19 headwinds."
That being said, Cisco's revenue guidance for fiscal Q3 2021 missed the mark thanks to supply chain issues, "lumpy" cloud revenue and negative enterprise orders. Despite these obstacles, Kidron remains optimistic about the long-term growth narrative.
"While the angle of recovery is difficult to pinpoint, we remain positive, viewing the headwinds as temporary and considering Cisco's software/subscription traction, strong BS, robust capital allocation program, cost-cutting initiatives, and compelling valuation," Kidron commented
The analyst added, "We would take advantage of any pullbacks to add to positions."
With a 78% success rate and 44.7% average return per rating, Kidron is ranked #17 on TipRanks' list of best-performing analysts.
Lyft
Highlighting Lyft as the top performer in his coverage universe, Wells Fargo analyst Brian Fitzgerald argues that the "setup for further gains is constructive." In line with his optimistic stance, the analyst bumped up his price target from $56 to $70 and reiterated a Buy rating.
Following the ride sharing company's Q4 2020 earnings call, Fitzgerald believes the narrative is centered around the idea that the stock is "easy to own." Looking specifically at the management team, who are shareholders themselves, they are "owner-friendly, focusing intently on shareholder value creation, free cash flow/share, and cost discipline," in the analyst's opinion.
Notably, profitability could come in Q3 2021, a quarter earlier than previously expected. "Management reiterated EBITDA profitability by Q4, also suggesting Q3 as a possibility if volumes meter through (and lever) '20 cost cutting initiatives," Fitzgerald noted.
The analyst added, "For these reasons, we expect LYFT to appeal to both fundamentals- and momentum-driven investors making the Q4 2020 results call a catalyst for the stock."
That being said, Fitzgerald does have some concerns going forward. Citing Lyft's "foray into B2B delivery," he sees it as a potential "distraction" and as being "timed poorly with respect to declining demand as the economy reopens." What's more, the analyst sees the $10-$20 million investment in acquiring drivers to meet the growing demand as a "slight negative."
However, the positives outweigh the negatives for Fitzgerald. "The stock has momentum and looks well positioned for a post-COVID economic recovery in CY21. LYFT is relatively cheap, in our view, with an EV at ~5x FY21 Consensus revenues, and looks positioned to accelerate revenues the fastest among On-Demand stocks because it is the only pure play TaaS company," he explained.
As Fitzgerald boasts an 83% success rate and 46.5% average return per rating, the analyst is the 6th best-performing analyst on the Street.
Carparts.com
For top Roth Capital analyst Darren Aftahi, Carparts.com is a top pick for 2021. As such, he kept a Buy rating on the stock, in addition to lifting the price target from $18 to $25.
Recently, the auto parts and accessories retailer revealed that its Grand Prairie, Texas distribution center (DC), which came online in Q4, has shipped more than 100,000 packages. This is up from roughly 10,000 at the beginning of November.
According to Aftahi, the facilities expand the company's capacity by around 30%, with it seeing an increase in hiring in order to meet demand, "which could bode well for FY21 results." What's more, management stated that the DC will be used for traditional gas-powered car parts as well as hybrid and electric vehicle supplies. This is important as this space "could present itself as a new growth category."
"We believe commentary around early demand in the newest DC…could point to the trajectory of DC being ahead of schedule and having a more meaningful impact on the P&L earlier than expected. We believe getting sales fully turned on still remains the next step in getting the DC fully operational, but overall, the ramp in hiring and fulfillment leave us optimistic around the potential upside impact to our forecasts," Aftahi commented.
Additionally, Aftahi believes the next wave of government stimulus checks could reflect a "positive demand shock in FY21, amid tougher comps."
Taking all of this into consideration, the fact that Carparts.com trades at a significant discount to its peers makes the analyst even more positive.
Achieving a whopping 69.9% average return per rating, Aftahi is ranked #32 out of over 7,000 analysts tracked by TipRanks.
eBay
Telling clients to "take a looksee over here," Stifel analyst Scott Devitt just gave eBay a thumbs up. In response to its Q4 earnings results and Q1 guidance, the five-star analyst not only reiterated a Buy rating but also raised the price target from $70 to $80.
Looking at the details of the print, FX-adjusted gross merchandise volume gained 18% year-over-year during the quarter to reach $26.6 billion, beating Devitt's $25 billion call. Total revenue came in at $2.87 billion, reflecting growth of 28% and besting the analyst's $2.72 billion estimate. This strong showing came as a result of the integration of payments and promoted listings. In addition, the e-commerce giant added 2 million buyers in Q4, with the total now landing at 185 million.
Going forward into Q1, management guided for low-20% volume growth and revenue growth of 35%-37%, versus the 19% consensus estimate. What's more, non-GAAP EPS is expected to be between $1.03-$1.08, easily surpassing Devitt's previous $0.80 forecast.
All of this prompted Devitt to state, "In our view, improvements in the core marketplace business, focused on enhancements to the buyer/seller experience and development of new verticals are underappreciated by the market, as investors remain cautious approaching difficult comps beginning in Q2. Though deceleration is expected, shares aftermarket trade at just 8.2x 2022E EV/EBITDA (adjusted for warrant and Classifieds sale) and 13.0x 2022E Non-GAAP EPS, below marketplaces and traditional omni-channel retail."
What else is working in eBay's favor? Devitt highlights the fact that the company has a history of shareholder-friendly capital allocation.
Devitt more than earns his #42 spot thanks to his 74% success rate and 38.1% average return per rating.
Fidelity National Information
Fidelity National Information serves the financial services industry, offering technology solutions, processing services as well as information-based services. As RBC Capital's Daniel Perlin sees a possible recovery on tap for 2H21, he is sticking to his Buy rating and $168 price target.
After the company published its numbers for the fourth quarter, Perlin told clients the results, along with its forward-looking guidance, put a spotlight on the "near-term pressures being felt from the pandemic, specifically given FIS' lower yielding merchant mix in the current environment." That said, he argues this trend is poised to reverse as challenging comps are lapped and the economy further reopens.
It should be noted that the company's merchant mix "can create confusion and variability, which remained evident heading into the print," in Perlin's opinion.
Expounding on this, the analyst stated, "Specifically, key verticals with strong growth during the pandemic (representing ~65% of total FY20 volume) tend to come with lower revenue yields, while verticals with significant COVID headwinds (35% of volumes) generate higher revenue yields. It's for this reason that H2/21 should setup for a rebound, as many of the discretionary categories return to growth (helped by easier comps) and non-discretionary categories could remain elevated."
Additionally, management noted that its backlog grew 8% organically and generated $3.5 billion in new sales in 2020. "We believe that a combination of Banking's revenue backlog conversion, pipeline strength & ability to drive product innovation, charts a path for Banking to accelerate rev growth in 2021," Perlin said.
Among the top 50 analysts on TipRanks' list, Perlin has achieved an 80% success rate and 31.9% average return per rating.
Source: cnbc.com
