A man check his phone near an Apple logo outside its store in Shanghai, China September 13, 2023.
Aly Song | Reuters
Companies are feeling the ill effects of dampening consumer demand in a range of sectors, but select names are confident they can deliver solid growth even as the economy becomes more challenging.
Wall Street analysts can help investors identify stocks that have what it takes to thrive amid short-term headwinds — and that can offer attractive returns going forward.
Here are five stocks favored by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.
Tech giant Apple (AAPL) recently reported its fiscal fourth-quarter results. While the company’s earnings exceeded expectations, the top line reflected the impact of macro challenges on consumer spending. Apple’s overall revenue declined for the fourth consecutive quarter due to notable declines in iPad and Mac sales.
Baird analyst William Power lowered his revenue estimates and also cut his price target for AAPL stock to $186 from $204 to reflect the company’s flattish top line guidance for the December quarter. That said, Power raised his EPS estimate slightly to $2.08 from $2.04 due to higher margin guidance.
Commenting on the guidance, Power noted that Apple’s Services business remains a key pillar. The analyst thinks that management’s commentary about the expectation of continued strength in the Services business in the holiday quarter and the projected rise in iPhone revenue addressed some concerns.
Power explained that his $186 target price target is 29 times his calendar year 2024 EPS forecast, putting AAPL’s valuation at the high end of its historical average and at a premium to other technology and consumer staples leaders, “reflecting strong execution, growing services contribution, continued eco-system benefits and strong free cash flow.”
Power ranks No. 194 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 55% of the time, with each delivering a return of 14.7%, on average. (See Apple Technical Analysis on TipRanks)
Goldman Sachs analyst Eric Sheridan noted that Amazon’s Q3 earnings beat was fueled by the momentum in its e-commerce business, expansion of the North America unit’s operating margin, and continued stabilization in Amazon Web Services’ (AWS) revenue growth.
The analyst added that the company’s restructuring initiatives, regionalization of its domestic fulfillment center network, and success at overcoming the cost headwinds seen in the past 24 months have helped deliver an inflection point in North American e-commerce margins.
Sheridan thinks that Amazon is well-positioned to outperform in the future, given that e-commerce margins continue to overcome headwinds that emerged in recent years and its advertising business continues to expand. Further, AWS can still gain from long-tailed structural opportunity created by the transitioning needs of enterprise customers, he said.
“Looking over a multi-year timeframe, we reiterate our view that Amazon will compound a mix of solid revenue trajectory with expanding margins as they deliver yield/returns on multiple year investment cycles,” said Sheridan, reiterating a buy rating and raising the price target for AMZN stock to $190 from $175.
Sheridan holds the 288th position among more than 8,600 analysts on TipRanks. His ratings have been successful 57% of the time, with each rating delivering an average return of 10.1%. (See Amazon Options Activity on TipRanks).
Deutsche Bank analyst Brad Zelnick noted that Microsoft’s revenue surpassed guidance, driven by strength across the board, with significant upside in the high-margin Windows offering.
The analyst highlighted that revenue from Azure, MSFT’s cloud computing platform, grew 28% year-over-year, thanks to higher GPU capacity and marginally better per-user services. He was also impressed with the improvement in the fiscal first quarter’s margins, thanks to the company’s operating discipline.
Zelnick is quite optimistic about the Microsoft 365 Copilot artificial intelligence (AI) add-on. He pointed out that 40% of the Fortune 100 were said to be already using the product in pre-release with very strong feedback. While the company said it expects the related revenue from this new launch to increase “gradually over time,” he thinks that the outlook is likely conservative.
“We believe this is the most anticipated new product we have ever seen released in our long time covering the Software industry,” the analyst said about Microsoft 365 Copilot.
Zelnick raised his price target from $380 to $395 and reiterated a buy rating on MSFT stock. He ranks No. 48 among more than 8,600 analysts on TipRanks. His ratings have been successful 69% of the time, with each rating delivering an average return of 15.1%. (See Microsoft Hedge Fund Trading Activity on TipRanks).
Zelnick is also bullish on ServiceNow (NOW), a cloud-based software company that helps enterprises automate and manage workflows. The company delivered market-beating third-quarter earnings and revenue, thanks to the impressive growth in subscription revenues and an aggressive push into generative artificial intelligence.
Following the Q3 2023 print, Zelnick maintained a buy rating on NOW stock and increased the price target to $650 from $625. In particular, the analyst highlighted the 24% year-over-year growth in the current remaining performance obligations — that is, contract revenue that will be recognized as revenue in the next 12 months — that was fueled by the performance of the U.S. federal vertical. This vertical saw net new annual contract value increase by more than 75% and strong early renewals in the quarter.
“Management commentary suggests the Federal opportunity is both robust and durable as agencies look to standardize on a single platform that offers end-to-end solutions,” said Zelnick.
The analyst also observed the early demand for ServiceNow’s generative AI offering Now Assist and broader generative AI capabilities, with the company mentioning that it has a pipeline of 300 customers and signed four large deals at the quarter-end.
Overall, Zelnick thinks that ServiceNow is ideally positioned to help customers adapt to a digital-first world and leverage generative AI across multiple enterprise workflows. (See ServiceNow Insider Trading Activity on TipRanks)
The last stock for this week is identity security company CyberArk Software (CYBR). Earlier this month, the company reported solid third-quarter results. The company raised its full-year guidance for annual recurring revenue, or ARR, following 38% year-over-year growth in Q3 2023 ARR to $705 million.
After the results, Mizuho analyst Gregg Moskowitz, who ranks 151st out of more than 8,600 analysts on TipRanks, increased the price target for CYBR stock to $195 from $175 and reaffirmed a buy rating. The analyst raised his full-year revenue and earnings estimates to reflect the company’s upgraded guidance.
The analyst acknowledged the company’s improved execution and a healthy increase in seven-figure annual contract value transactions in the third quarter. He highlighted management’s commentary about customers increasingly buying more than two products and the dramatic rise in the average deal sizes for new logos.
“We continue to view CYBR as a primary beneficiary of a heightened threat landscape that has amplified the need for privileged access, and identity and secrets management,” said Moskowitz.
Moskowitz’s ratings have been profitable 57% of the time, with each delivering an average return of 13.8%. (See CyberArk Financial Statements on TipRanks)