Lisa Su, CEO, AMD
Scott Mlyn | CNBC
It was a wild week for stocks, and investors still have plenty of data to weigh as they gauge which companies can emerge from the downturn as winners.
The Federal Reserve raised interest rates by another 0.75 percentage point last week. Investors considered the central bank’s next steps on its policy-tightening campaign, while also assessing a strong October jobs report.
The market’s cloudy picture is yet another reason for investors to maintain a long-term perspective as they pick out stocks.
To that end, here are five stocks chosen by Wall Street’s top professionals, according to TipRanks, a service that ranks analysts based on their past performances.
Learning platform provider Chegg (CHGG) is marching ahead amid macroeconomic challenges with large strides. The company reported a third-quarter top and bottom line beat and also raised its guidance for the full year. This led to a nearly 22% surge in share price the following day.
Barrington Research analyst Alexander Paris seemed even more upbeat on Chegg after he analyzed the earnings report and commentary. The analyst calculated the valuation of the company as attractive when compared with its EdTech as well as vertically-focused SaaS peers, and thus reiterated his buy rating on the stock. He also increased the price target to $30 from $25.
Notably, the fall semester is now in full swing, prompting management to raise its revenue and adjusted earnings before interest, taxes, depreciation and amortization expectations for the year. (See Chegg Financial Statements on TipRanks)
Paris was also upbeat about Chegg’s strategy to increase its TAM (total addressable market) as well as the percentage of Chegg Study Pack subscribers. These boost the company’s average revenue per user (ARPU) and profitability.
In all, 57% of Paris’ ratings have generated profits. Moreover, each rating has brought 14.6% returns on average. The analyst is also ranked 207th among more than 8,000 analysts tracked on TipRanks.
Huron Consulting Group
The next on our list of top analysts’ favorite stocks is Huron Consulting Group (HURN), an operational and financial consulting firm. The company is benefiting from the demand for its digital services, which led to a robust third quarter.
The company raised its full-year revenue guidance, gaining the confidence of Barrington Research analyst Kevin Steinke. The analyst raised his near-term revenue and adjusted EBITDA estimates and consequently raised the price target to $89 from $80. Steinke also rates Huron a buy — a rating he has maintained on the company for the past four years.
The analyst is upbeat about Huron’s expectations of adjusted EBITDA expansion to the mid-teens by 2025. “This is expected to drive annual adjusted EPS growth in the high teens through 2025,” said Steinke. (See Huron Consulting Stock Chart on TipRanks)
The company’s ability to return cash to shareholders was also highlighted by the analyst. The company intends to return 25% to 50% of yearly free cash flow to shareholders through repurchases.
Steinke stands at No. 415 out of more than 8,000 analysts on TipRanks. The analyst has had 54% successful ratings in the past year, with each rating generating an average of 11.5% returns.
KAR Auction Services
KAR Auction Services (KAR) provides a platform to auction used cars and offers salvage auction services in North America and the United Kingdom. The company has been feeling the pain of supply-side challenges in terms of the vehicles auctioned on its platform.
Although the company did not provide quarterly guidance, management did mention that it is looking at the bottom of supply issues. Management expects the recovery to be slow and gradual because of the various headwinds that continue to weigh on the business. (See Kar Auction Services Blogger Opinions & Sentiment on TipRanks)
Reflecting this sentiment was Barrington Research analyst Gary Prestopino, who also believes that growth in new vehicle production, higher interest rates and a slowing economy “should put downward pressure on new and used vehicle pricing.”
Nonetheless, the analyst is upbeat about KAR’s proactive cost-cutting measures, which are ahead of schedule and are keeping the company afloat in the market.
The analyst reiterated a buy rating on the stock with a price target of $25. “We believe that as the market recovers on a unit volume basis, KAR will show significant leverage and adjusted EBITDA growth based on a lower cost structure and a streamlined auction platform,” said Prestopino, who is ranked 56th among over 8,000 analysts on TipRanks.
The analyst also has a track record of 56% profitable ratings in the past year, with each rating generating 31.5% returns, on average.
High-precision, analog and mixed-signal integrated circuit (IC) developer Cirrus Logic (CRUS) is beating the blues of the semiconductor industry with solid execution and solid design. The company has been a favorite of Susquehanna analyst Christopher Rolland, who recently reiterated his buy rating on the stock with a $95 price target.
Cirrus was also among the tech names that reported quarterly results that were significantly better than expected. Moreover, the guidance provided was upbeat. Higher smartphone volumes and new product ramps drove results. (See Cirrus Logic Risk Factors on TipRanks)
The company’s close association with Apple (AAPL), which is its largest customer, is not as bad as skeptics claim it to be. Rolland sees the relationship between the two companies tightening over time, driving outsized growth for Cirrus. Moreover, Rolland also believes Cirrus to be a potential buying target for Apple, which also depends on Cirrus’ IC products.
Nonetheless, even Rolland was cautious in the near term, saying that a pull-in in shipments might be coming soon. “However, in our experience, multiple quarters of better-than-expected revenue at Cirrus are often indicative of potential shipment pull-ins,” said Rolland, who expects a steeper sequential drop in shipments in March next year.
Rolland is placed at the 66th position among more than 8,000 analysts followed on TipRanks, and has a success rate of 66% on his ratings. Moreover, each of his ratings has generated 19.3% returns on average in the past year.
Advanced Micro Devices
Leading semiconductor company Advanced Micro Devices (AMD) is another stock on Christopher Rolland’s buy list. This is despite the company’s facing the headwinds of a PC inventory correction and demand slowdown. The analyst believes 2023 to be “turning into a ‘throwaway year’ for AMD as it works through major PC industry issues.”
The analyst reiterated his buy rating on the stock with a price target of $80, despite the company’s dull third quarter and even more lackluster fourth-quarter guidance. (See Advanced Micro Devices Stock Investors on TipRanks)
Rolland expects AMD to continue gaining market share, although at a slower pace than in the last few years.
Moreover, AMD’s new source of revenue from Xilinx is “highly strategic and profitable,” said Rolland. Xilinx’s acquisition opens an opportunity for AMD to accelerate its mix shift toward servers, which will be great for margins.
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