By Steve Reitmeister, Editor in Chief of TipRanks
This week we turn our attention to large caps which held up better than most groups during the Q4 correction. However, some great companies did see their valuations trimmed down to attractive levels for the first time…in a long time. So I want to point out three that I believe have outsized potential for the year ahead.
We all know the growth story. We all know the phenomenal share price gains of the past two decades. However, many value investors have been scared off these shares because the PE got well into the triple digits.
Gladly, the formerly outrageous PE of the past is shrinking as they keep crushing earnings and estimates roll higher. Combine that with a 20% haircut from the peak and you have the makings of a GARP stock (Growth At a Reasonable Price). The other way to look at it is from the FANG perspective that wherever the world of technology goes…they will be there to monetize with the best of them.
Their most recent earnings report was a classic AMZN beat with estimates moving higher for the future. Yes, they will invest more in new growth areas which may subdue profits a little in the near term, but has typically been in the investors best interest over time. After the report came a slew of analyst target price increases with an average of $2121…nearly 30% above the current price.
No other large cap provides this much growth potential. And few offer this much value under their target price. That is ample reason to put AMZN in your portfolio (if you haven’t done so already).
Do you really believe cable is dead? Nobody is doing a better job in that space than Comcast to transition their offering to keep people in the fold with their Xfinity platform. And on top of that they continue to diversify away from cable to be less dependent on the space (internet access, mobile phones and NBC/Universal content).
This past quarter was another sparkling display of their operational consistency. A solid 6% beat with guidance that points to continued growth in the year ahead. In fact, they have only had 1 earnings missing the past 5 years.
Looking at the TipRanks indicators we see a lot of positives pointing the way to more upside ahead. The Best Performing Individual Investors on the site are as strongly positive as you can get. Bloggers are also singing their praises. Ditto for News Sentiment.
As we turn to the analyst community we see the vast majority are labeling the stock as a Buy. Better yet, is the $43.50 average target price which is 17% above Tuesday’s close. Yes, that upside may not sound as impressive as some of the other small caps I have recently put forward. But in the large cap community of stable stocks there are few offering better upside potential. And fewer still that are as consistent with their quality earnings outlook. So risk and reward look strongly skewed in our favor.
This is yet another angle to take advantage of a very healthy consumer. And that is to hop onboard this leading cruise line providing an attractive growth and value proposition.
Think about this cycle of behavior. When a recession comes around, then consumers pull back on all discretionary purchases to save money. Then in the early days of the economic recovery they will start to make purchases that are necessary like overdue home and car repairs, new clothes etc. Once we get past this phase, and consumers feel a bit more flush, then they will move to more discretionary purchases like entertainment and leisure. RCL is a clear beneficiary of this trend with earnings growth estimated at +12% this year…nearly 2X the average company in 2019.
Things are also looking good from a TipRanks perspective. Investor Sentiment and Bloggers are in the plus column. Hedge Fund Managers are also becoming big fans with nearly $90 million in fresh share purchases. However, it is the analyst action I find most promising.
Yes, it is nice to have so many Buy ratings. Even better is the count of 4 and 5 Star analysts talking up the stock. And even better, the average target price is still 30% current levels after the company rallied 8% on their 1/30 earnings report.
Sooner or later other investors will catch wind of this great growth and value story. Until then we can load up on shares at a more attractive price and then benefit as others come late to the party pushing up share prices to its rightful place.
(AMZN, CMCSA and RCL are just 3 of the stocks I have selected for the Smart Investor portfolio. There you will see many others stocks loaded with positive TipRanks indicators that are primed to outperform in the year ahead. Discover the Smart Investor portfolio here).
Disclaimer: In general, I own the stocks that I highlight in commentary. When you think about it…why would you ever take advice from an investment professional who wasn’t willing to put his money where his mouth is?