As the 2020 comes to a close, Wall Street is watching for a possible Santa Claus Rally. Historically, stocks tend to rise during the last 5 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.
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.
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. 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.