The Dow is looking very strong right now- with the index up almost 14% year-to-date. In particular, the following five stocks are leading the pack in terms of year-to-date (YTD) performance. Here we turned to the Street to see whether these stocks still offer a compelling investing proposition. This is what top-performing analysts have to say:
1. Microsoft (MSFT)– up 35% YTD
Microsoft takes the award of best-performing Dow stock so far this year. The company has put on a remarkable sprint of over 30% year-to-date. And analysts are almost uniformly positive about the company’s outlook going forward. That’s despite the fact that the current average analyst price target of $143 only suggests upside potential of 4%. But if you take a longer-term outlook, the stock’s multiple opportunities quickly become apparent.
One analyst singing MSFT’s praises is five-star KeyBanc analyst Brent Bracelin. He has just reiterated his Microsoft buy rating with a $143 price target. Bracelin made the call following a number of upbeat meetings with Microsoft Gaming executives.
“Gaming represents a $100B+ TAM opportunity for Microsoft” commented Bracelin. “We see Microsoft Gaming as a small (9.4% of FY18 sales) but strategic growth segment where the transformation to a subscription-based model (i.e., the Netflix of gaming) could sustain healthy growth and improving margins over the next three to five years as it gains share within a $100B+ gaming industry” the analyst told investors on June 11.
Meanwhile Morgan Stanley’s Keith Weiss calls Microsoft ‘the best positioned firm in tech for the emerging Hybrid Cloud architectures.’ He highlights the company’s unique position as both a top ‘New Stack’ share gainer and the #1 ‘Old Stack’ share gainer.
And let’s not forget the savvy deal Microsoft has just struck with Oracle. The two companies announced a “cloud interoperability partnership enabling customers to migrate and run mission-critical enterprise workloads across Microsoft Azure and Oracle Cloud.” Moreover, “by enabling customers to run one part of a workload within Azure and another part of the same workload within the Oracle Cloud, the partnership delivers a highly optimized, best-of-both-clouds experience.”
“Given Microsoft’s Azure is the #2 public cloud vendor in the world and Oracle is the clear #1 database vendor with a strong #2 position in enterprise applications that includes a fast-growing SaaS portfolio, we believe the two clouds complement each other well” writes Monness analyst Brian White, adding that the deal is a positive for both companies.
2. Cisco (CSCO)– up 32% YTD
Close on Microsoft’s heels comes networking giant Cisco Systems. Over the last three years, Cisco shares have doubled and the stock shows no sign of slowing down. Even in the last five days, shares have soared 4%. Even a ratings downgrade from William Blair analyst Jason Ader didn’t deter investors for long.
The analyst cited “signs of tightening demand across the IT infrastructure universe” at the company. And this weaker demand environment “could pressure growth in Cisco’s fiscal 2020, especially when compared against unusually strong demand in fiscal 2019,” the analyst said.
As a result, Ader concludes that upside to consensus 2020 expectations, “as well as multiple expansion, will be more challenging from here.”
Nonetheless, Cisco still boasts a ‘Strong Buy’ analyst consensus rating. The average analyst price target stands at $59 (4% upside potential). And with the ongoing trade war between US and China, Cisco continues to look relatively attractive to tech-focused investors.
“Cisco remains our top pick for investors looking at safe havens in the current environment to navigate through the trade war noise,” commented JPMorgan analyst Samik Chatterjee recently. He notes that “relatively modest exposure to China and largely immune to any trade-related impacts.”
3. Visa (V)– up 31% YTD
Credit card and payments giant Visa continues to outperform. And now top-rated Wedbush analyst Moshe Katri has raised his V price target from $170 to $187 (8% upside potential). According to Katri, Visa benefits from a double whammy of “strong secular growth tailwinds,” and accelerated, ongoing monetization efforts. He is confident Visa can deliver annual growth of 10% to 15% in credit-card revenue and 20% growth in adjusted EPS over the next few years.
Encouragingly, Cantor Fitzgerald’s Joseph Foresi also sees a whole ‘basket of catalysts’ for Visa stock. Note that Foresi is ranked #2 out of over 5,200 analysts – so he clearly knows what he is talking about when it comes to stock picking. Not only does the company have a leading credit card position, it also offers significant opportunities for growth internationally and digitally.
“We like Visa’s opportunity to capitalize on the global conversion of cash into credit, international opportunities, and digital payment tailwinds. Visa has a basket of catalysts expanding its TAM including Visa Direct, contactless payments, & B2B to name a few” writes the analyst. “We remain attracted to Visa’s dominant position in the global card network market and its strong, recognizable international brand” the analyst told investors.
4. American Express (AXP)– up 31% YTD
Visa isn’t the only credit card company delivering sizable gains. AXP is also up over 30% year-to-date. What sets AXP apart is that it is one of only a few financial service companies capable of both issuing and processing electronic payment cards. This means the company can generate revenue from interest earning products on top of network processing transaction fees.
For Merrill Lynch’s Jason Kupferberg the company continues to look undervalued. He has just reinstated coverage of AXP with a buy rating with a Street-high price target of $145. From current levels this suggests shares can surge a further 17% in the coming months.
He calls the company’s credit card membership program “a worthy investment which offers customers unique experiences beyond traditional rewards points.” And even though costs have been rising as a proportion of revenue, the analysts writes that he has nevertheless “been pleasantly surprised to see [American Express] strategically raise card fees to help offset these costs.”
5. Disney (DIS)– up 28% YTD
Walt Disney Co is enjoying a wild ride so far in 2019. The company is gearing up for the launch of its highly anticipated Disney+ streaming service in November. “Disney is our top pick in the content space as we reiterate our Buy rating and raise our price target to $175” cheers Rosenblatt analyst Mark Zgutowicz. Meanwhile Loop Capital’s Alan Gould sees Disney +’s first year subscriber count topping the 10M consensus.
Plus excitement is building over the opening of its highly anticipated $1 billion theme park expansion Star Wars: Galaxy’s Edge. Starting June 24, the park will be open to the public without reservations. “The segment has been a key growth driver for the company over the last few years… Given the incremental returns from investment we are encouraged the company continues to invest in this segment with Star Wars Galaxy Edge” commented Zgutowicz.
As if that wasn’t enough, Disney’s 2019 blockbuster Avengers: Endgame is now the second-highest grossing movie of all-time worldwide. And now Disney plans to rerelease the movie with additional scenes- a sneaky attempt to topple box-office leader Avatar from first place according to commentators.
However, Imperial Capital’s David Miller has a word of warning for investors. He has just downgraded DIS from Buy to Hold, writing: “The core rationale for lowering our rating to In-Line is simply due to the fact that the stock has performed consistent with our previous Outperform rating.”
“Most of the catalysts we focused on at the time of that ratings change: the film slate, the opening of the two Star Wars lands, the disposal of the Regional Sports Networks, the Disney+ analyst day, and the re-financing of the various 21st Century Fox legacy debt tranches, have either happened, or are set to happen, and at a record multiple on 2021 earnings, are pretty much built in to the stock, in our view” the analyst concludes.