Google parent Alphabet is No. 3 on the best-loved list.
Ore Huiying/BloombergStocks are looking a little more sketchy lately—or a least a little more complicated. Inflation, a rotation out of growth into value, memes, vaccines and government stimulus are causing investors to reassess what’s next for the market.
One way to navigate the choppiness is to look for Wall Street’s best-loved stocks. They are the ones, presumably, that analysts have the most confidence in and will be able to weather whatever 2021 throws at them.
A good definition of best-loved is stocks that are nearly universally rated Buy by the analysts covering them. Barron’s looked at the Russell 3000 Index to find a couple dozen that fit the bill. To be included on our list, the stocks had to meet three benchmarks. For starters, at least 10 analysts have to cover the stock. There isn’t much use in declaring a stock well-loved if only one analyst rates it Buy. The companies also have to have no Sell ratings and market capitalizations greater than a few billion dollars.
We also excluded biotech stocks. There are well-loved biotech stocks, but buying one or two can be a dangerous strategy for many investors. Biotech stocks can jump—up or down, depending on the outcome of medical data. It can be better to simply hold a basket of biotech stocks instead of looking only at analyst ratings, which can lead investors to implicitly bet on one or two drug programs.
More REading
The Russell 3000’s best-loved 24 large companies, in descending order of market capitalization: Microsoft (MSFT), Amazon.com (AMZN), Google parent Alphabet (GOOGL), ConocoPhillips (COP), software providers Twilo (TWLO) and RingCentral (RING), Cheniere Energy (LNG), property owner, VICI Properties (VICI), auto lender Ally Financial (ALLY), GoDaddy (GDDY), sales tax manager Avalara (AVLR), drug development services provider PPD (PPD), material distributor Builders FirstSource (BLDR), footwear maker Deckers Outdoor (DECK), lender OneMain (ONF), optical products maker Lumentum (LITE), energy firm Chart Industries (GTLS), government and defense contractor Science Applications International (SAIC), software provider Medallia (MDLA), New Residential Investment (NRZ), software provider Rapid7 (RPD), Agree Realty (ADC), software provider Tenable (TENB) and solar power company Sunnova Energy International (NOVA).
Favorites of Analysts
These stocks have among the highest buy-rating ratios
Source: Bloomberg
It’s quite a list covering many industries. The largest tech giants are in there as well as little-known software providers, shoe companies and drywall distributors. The companies are connected by analysts’ love for their stocks.
There are 490 ratings on the two dozen; 469 of the ratings are Buy—about 96%. Cheniere, Ally, GoDaddy, Builders FirstSource, OneMain, Science Applications, New Residential and Sunnova are perfect. Every analyst covering those stocks rates shares Buy. The lowest Buy-rating ratio is Microsoft, with 93%.
Still, that’s pretty good. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is 60%.
The price-to-earnings ratio for the group falls around 25 times estimated earnings for the coming 12 months. That’s a little higher than the comparable PE ratio of the S & P 500. But that hasn’t hindered the 24 stocks. Shares are up about 55% on average over the past year. What’s more, only three of the 24 are down over that period.
The average expected gain, based on analyst target prices, from current levels is about 27%. Typically, analyst target prices represent where analysts expect a stock to trade over the coming 12 months. The Sunnova average analyst target price is about $58 a share, almost 60% higher than recent levels. The Conoco target, on the other hand, is right where the stock is trading, but oil prices are moving up, which can help any oil producer stock.
There is no guarantee that analysts are right. But there are no guarantees in the stock market. What the high Buy-rating ratio does represent, however, is dozens of different analysts from many brokers have all arrived at the same conclusion. These are solid bets.
Write to Al Root at allen.root@dowjones.com
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March 09, 2021 at 08:33PM
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The 24 Best-Loved Stocks on Wall Street and Why That Matters - Barron's
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