Well, that was an exciting week, wasn’t it?
Driven by Congress’s $2 trillion coronavirus spending bill designed to provide relief from the pandemic’s economic impact, the Dow Jones posted its largest one-day climb since 1933, a more than 11% jump to be precise. As for the S&P 500, it recovered from its lowest point since 2016, with it making its biggest one-day move since October 2008. Overall, despite Friday’s sell-off, the week ended on an up note, with the S&P 500 gaining 10%.
With it remaining unclear if the improved sentiment has pushed the market to an inflection point, investors are relying on the pros for guidance. Using TipRanks database, we’ve narrowed down three mid- to large-cap stocks, with Buy ratings and over 20% upside potential for the next 12 months. Here are three that fit the profile, with a twist: each has received a rating upgrade recently. Let’s take a closer look.
Activision Blizzard (ATVI)
This Southern California company has long been a major player in the entertainment sector, where it has built a reputation – and a library of products – in the video gaming niche. ATVI owns a series of popular titles, hit game franchises like ‘Call of Duty,’ ‘Guitar Hero,’ ‘World of Warcraft,’ and ‘Candy Crush.’ Activision Blizzard is the largest game maker in the US and European markets.
There is plenty here for income investors to like. The stock has recovered well from declines in 2H18, and has been on a year-long upward trend, gaining 37% over that time. Downturns, like the most recent we are experiencing now, have proven to be just blips in that successful run.
The company recently made its Q4 earnings report, giving another incentive for investors. Q4 is typically the company’s strongest, and this was no exception. EPS, at $1.19, was 3.4% higher than expected – and it was the eighth time in a row that ATVI reported quarterly earnings over the estimates. Looking ahead, Q1 is expected to show just 32 cents per share – but as mentioned, the sequential drop from Q4 to Q1 is baked into this company’s reporting pattern.
Andrew Uerkwitz, 5-star analyst with Oppenheimer, sees current conditions as perfect for investors to move into ATVI. He writes, “We believe the sell-off creates a good entry point to build an opportunistic position in ATVI. We believe momentum from the CoD franchise will contribute to material upside for near-term results and build stronger confidence for ATVI’s ability to revitalize its aging franchises.”
Uerkwitz’s $68 price target suggests a 20% upside for the stock. In line with his optimism, he has upgraded his stand here from Neutral to Buy. (To watch Uerkwitz’s track record, click here)
Overall, Wall Street likes this stock, and the analyst consensus rating is a Strong Buy, based on 17 Buys, 2 Holds and single Sell rating. Shares are priced at $56.95, and the average price target is line with Uerkwitz’, at $68.00. (See Activision Blizzard’s stock analysis at TipRanks)
Silicon Laboratories (SLAB)
Next up semiconductor chip maker, Silicon Labs. This company practices the fabless model, focusing on design and marketing, while outsourcing the major production to the foundries. The disruption caused by COVID-19 to the Chinese supply chain and to general trade and travel patterns is likely to weigh hard on fabless chip companies, and SLAB shares are down sharply since the end of January.
Of course, the virus may only be part of the problem. Before COVID-19 started sucking up all the headlines, SLAB had missed the estimates on its Q4 earnings. EPS, at 84 cents, was below the forecast and down year-over-year. Revenues, however, were up yoy, to $219.44 million.
Still, the company has a firm foundation to get back to growth. The company has a wide range of products, with applications in retail, industry, and IoT, and among its assets, SLAB has over 1,700 patents issued or pending. A solid base of intellectual property is golden for a tech design company.
Rajvindra Gill, 5-star analyst with Needham, was impressed enough by what he saw to upgrade his coverage of this stock to a Buy. He put a $115 price target here, implying an upside of 21%. (To watch Gill’s track record, click here)
In support of his stance, Gill wrote, “We had been looking for an attractive entry point; we believe at these levels, we found it… customer orders in China are rebounding as manufacturing plants come online, and there could be a sizable snapback in June. Moreover, we find SLAB’s positioning in IoT compelling, specifically around wireless IoT…”
Silicon Laboratories has 5 Buy ratings and 1 Hold, giving the stock a Strong Buy from the analyst consensus. The average price target of $107.80 suggests a premium of 33% from the current $81.08 share price. (See Silicon Laboratories stock analysis at TipRanks)
Xenia Hotels & Resorts (XHR)
Last up is a real estate investment trust (REIT), one of the specialized companies that exists to buy, own, and manage all sorts of real properties and mortgage-backed securities. Xenia focuses on luxury and upscale hotels and resorts. The company owns 39 hotels, with a total of 11,245 rooms, across 16 states. The properties are part of the 25 largest lodging markets in the US.
REITs make their money from property management, and licensing and rental fees. Xenia licenses its properties to leading hotel companies, including Marriott, Hyatt, Loews, and Hilton. The model works, and in Q4 the company reported earnings and revenues both above the forecasts. The funds from operations (FFO), a REIT’s equivalent of EPS, came in at 58 cents. Revenue, at $282.2 million, was 1.7% above the estimates, and up 2.4% year-over-year.
By tax law, REITs must share a high percentage of their profits with investors. To comply, they naturally gravitate toward dividends, and XHR is no exception. The company pays out 27.5 cents quarterly, or $1.10 annually. This gives the stock a dividend yield of 9.31%, almost 5x higher than the average dividend yield among S&P-listed companies.
Riley FBR analyst Bryan Maher believes that now is the time to get into REITs. He writes of XHR, “While we understand the uncertainty facing the economy and the hotel industry, we believe that XHR shares … mostly reflect this uncertainty at current levels. If one were to believe this uncertainty is substantially removed within 6-9 months, this will likely have proven to be a good time to build positions in REITs like XHR.”
Maher puts an $18 price target on this stock, showing confidence in a 72% upside potential. In line with this, he has upgraded his stance from Neutral to Buy. (To watch Maher’s track record, click here)
XHR get a Moderate Buy from the analyst consensus, based on 1 recent Buy and 2 Holds. This stock is currently trading for $10.40, while the average price target of $18.50 suggests an upside of nearly 78%. (See Xenia’s stock analysis at TipRanks)