These stocks are flying under the radar. Any investor who has tried chasing popular stocks has likely learned the hard way that it’s extremely difficult to beat the market by following the herd. Instead, the…
These stocks are flying under the radar.
Any investor who has tried chasing popular stocks has likely learned the hard way that it’s extremely difficult to beat the market by following the herd. Instead, the best investing ideas are often those that are contrary to the prevailing market sentiment. Bank of America recently ran its Thematic Beats screen to identify stocks with exposure to long-term growth themes that its analysts believe are flying under the radar on Wall Street. By comparing its analyst team’s price targets and earnings estimates to consensus analyst estimates, Bank of America identified the following nine out-of-consensus stock picks for long-term investors.
Bank of America’s Beat Factor score ranges from -100 to 100 based on how much the firm’s earnings and price targets vary from consensus estimates. With a Beat Factor of 100, D.R. Horton is the firm’s highest-scoring out-of-consensus stock pick. In a difficult market for U.S. homebuilders, D.R. Horton recently preannounced solid fiscal fourth quarter order growth of 11.4 percent. Analyst John Lovallo II says the company’s impressive management team and track record make it a top pick. Bank of America has a “buy” rating and $75 price target for DHI stock.
Unfortunately, due to the wave of large U.S. hurricanes in recent years, business for Generac Holdings has been booming. Generac holds roughly a 70 percent share of the North American standby and portable generator market, and the stock has a +98 Beat Factor score. Analyst Ross Gilardi says Generac has made progress in de-levering its balance sheet, and the robust 2018 Atlantic Coast hurricane season has provided a shot in the arm for demand. Bank of America has a “buy” rating and $64 price target for GNRC stock.
Intuit is one of the world’s largest financial management solutions companies, specializing in tax and accounting software such as TurboTax, QuickBooks and Quicken. Analyst Kash Rangan says Intuit is one of the better-managed software companies in the market with opportunities to expand operating margins over time. He says fiscal 2019 could be an inflection point for TurboTax Live, a service which he says will be the primary long-term growth driver for the company. Intuit has a Beat Factor score of 96. Bank of America has a “buy” rating and $252 price target for INTU stock.
Sirius scores a 95 on the Beat Factor scale. Analyst Jessica Reif says a strong auto market in recent years has allowed Sirius XM to accelerate its revenue growth. The recent acquisition of Pandora will combine two complementary business models. Pandora has a younger user base of 70 million active listeners. In addition, Pandora’s targeted, ad-supported business model coupled with Sirius XM’s subscription model will allow the combined company to tackle the streaming music market from both directions. Bank of America has a “buy” rating and $8 price target for SIRI stock.
NRG Energy is an integrated independent power producer that generates 27 gigawatts of energy capacity for more than 3 million U.S. customers. Analyst Julien Dumoulin-Smith says the company’s transformation plan, which includes asset sales and aggressive cost-cutting, is positioning the stock for a cycle of outperformance. Proceeds from these strategies were recently used for $500 million in share buybacks, and Dumoulin-Smith says at least another $1 billion in buybacks are coming in 2019. NRG has a Beat Factor score of 93. Bank of America has a “buy” rating and $42 price target for NRG stock.
Reif says Walt Disney Co. has been generating impressive revenue growth in its parks & resorts segment, which has benefited from success at Shanghai Disney. Disney’s unparalleled intellectual property portfolio coupled with the potential monetization of recently-acquired Twenty-First Century Fox assets provides a strong foundation on which Disney can build its streaming video empire. Reif says the closing of the Fox deal and the Disney streaming launch are among several near-term catalysts for the stock. Disney has a Beat Factor score of 93. Bank of America has a “buy” rating and $144 price target for DIS stock.
Splunk is a market leader in collecting, storing and analyzing machine-generated data, positioning the company to be a market leader in the Internet of Things era. Rangan says there are a number of long-term catalysts that should help propel Splunk’s stock, including its exposure to the economy’s digital transformation, its massive addressable market, its defensible position, its recurring revenue model, its operating margin leverage and its opportunity for average contract value growth. Splunk has a Beat Factor of 91. Bank of America has a “buy” rating and $135 price target for SPLK stock.
Wall Street’s focus on FANG stocks in recent years has allowed Microsoft Corp. (MSFT) to fly somewhat under the radar for an $820 billion company with a massive cloud services business growing at roughly an 80 percent rate. Even with the stock up 25 percent year-to-date, Rangan says investors are still not fully appreciating the long-term impact of $20 billion in 2018 cloud revenue at a 60 percent gross margin, up from 30 to 40 percent two years ago. Microsoft has a Beat Factor of 84. Bank of America has a “buy” rating and $136 price target for MSFT stock.
Advanced Micro Devices is up 140 percent in 2018 on optimism that the company can gain meaningful server processor share away from competitor Intel Corp. (INTC). Analyst Vivek Arya says the recent sell-off in semiconductor stocks has been driven more by investor sentiment than changes in fundamental data. He estimates AMD’s share in the server market will increase from 1.7 percent in the second quarter to roughly 5 percent by the end of the year. AMD has a Beat Factor of 83. Bank of America has a “buy” rating and $35 price target for AMD stock.