Buy these stocks heading into the fourth quarter.
Given the uncertainty surrounding the economic recovery, the November U.S. election and the ongoing global health crisis, investors are understandably feeling a bit cautious heading into October. But second-quarter earnings season was a bullish catalyst for stocks, and analysts are expecting third-quarter earnings to be even better. In fact, the September sell-off has created buying opportunities for long-term investors willing to ride out the volatility, according to CFRA analysts. If stocks get another big boost from third-quarter earnings season, now is the perfect time to buy the dip. Here are CFRA’s eight most recently upgraded stocks to buy in October.
Tesla (ticker: TSLA)
Electric vehicle leader Tesla has been one of the most divisive stocks on Wall Street in recent years. Analyst Garrett Nelson upgraded Tesla and says it’s understandable why traders saw Battery Day as an opportunity to take profits in a stock that was up more than 700% in the last year. However, he says Tesla’s September pullback has brought its valuation down to a more attractive level. Nelson says Tesla will soon be added to the S&P 500, which will trigger a wave of institutional buying. CFRA has a “buy” rating and $500 price target for TSLA stock.
Canopy Growth Corp. (CGC)
It has been another difficult year for Canadian legal cannabis producers like Canopy Growth. However, Nelson upgraded Canopy and says it is approaching an inflection point in investor sentiment. The company is starting to gain operational momentum under its new CEO, David Klein, who previously served as chief financial officer of Canopy minority owner Constellation Brands (STZ). Nelson says Constellation’s 38% ownership stake should reassure investors that Canopy will maintain a healthy balance sheet. In addition, Nelson says the stock is trading at a steep discount to net present value. CFRA has a “strong buy” rating and $26.20 price target for CGC stock.
Winnebago Industries (WGO)
Winnebago Industries manufactures motorized and towable motor homes and specialty vehicles. Nelson upgraded the stock and says its 23% decline in the last three months is because of concerns that a rebound in air travel will derail surging RV sales. He says those concerns are unwarranted. Nelson is particularly bullish on high-margin towable RV products, which performed extremely well throughout the summer. Last quarter, Winnebago reported an 87% increase in its unit backlog, suggesting that the company should have no problem supporting earnings and free cash flow for some time. CFRA has a “buy” rating and $70 price target for WGO stock.
WPP is one of the world’s largest communication services companies. Its businesses include advertising, public relations, branding and media. Analyst Adrian Ng upgraded the stock and says its exposure to emerging markets provides a long-term growth driver. Roughly 30% of WPP’s revenue comes from emerging markets, which will help it overcome headwinds in 2021 and beyond. WPP has significantly reduced its debt in recent years, and Ng says cost-cutting measures will support 2020 earnings per share that are roughly in line with 2019 levels. CFRA has a “buy” rating and $47 price target for WPP stock.
Moderna is a clinical-stage biotechnology company focused on a type of gene therapy called mRNA therapy. The company is also one of only four companies that have coronavirus vaccine candidates in Phase III clinical trials. Analyst Kevin Huang upgraded Moderna and says the company’s mRNA-1273 vaccine will likely be one of the first coronavirus vaccines approved by the Food and Drug Administration, creating an “extraordinary commercial opportunity.” Huang says Moderna should capture a significant share of the initial vaccine market and will maintain much of that share over time. CFRA has a “strong buy” rating and $91 price target for MRNA stock.
Autodesk develops architectural and engineering design software. Analyst John Freeman upgraded Autodesk and says the company’s transition to a subscription model has boosted both its growth rate and its profitability. A subscription model not only creates more stable, predictable sales but also will help Autodesk monetize nonpaying users, Freeman says. Given the operating leverage of the company’s tethered cloud business, Freeman projects that operating margins will reach 40% in fiscal 2023. Finally, he says the company’s Fusion platform will generate pricing power in the long term. CFRA has a “strong buy” rating and $316 price target for ADSK stock.
Coty is a global manufacturer of fragrances, cosmetics and body care products. Analyst Arun Sundaram upgraded Coty and says investors aren’t appreciating the company’s transformation process. Coty is selling manufacturing plants to improve its balance sheet and become more asset-light. In addition, it plans to cut 25% of its fixed costs and revitalize underperforming brands, such as CoverGirl. Finally, Coty plans to invest in skin care and expand its business into Asia. Coty will also likely emphasize and leverage partnerships with reality stars Kim Kardashian and Kylie Jenner. CFRA has a “buy” rating and $5 price target for COTY stock.
Synopsys provides electronic design automation software used by chipmakers to design and test their products. Freeman upgraded Synopsys and says the company has significant long-term revenue and earnings growth potential. He says Synopsys is a clear winner from the snowballing effect of increasing complexity in the semiconductor industry. The company has competitive advantages over peers, plus a loyal customer base and significant pricing power. Freeman says the company’s transition to a subscription-based, recurring-revenue model has it well-positioned to expand operating margin of more than 40% by fiscal 2025. CFRA has a “buy” rating and $236 price target for SNPS stock.
Upgraded stocks to buy:
— Tesla (TSLA)
— Canopy Growth Corp. (CGC)
— Winnebago Industries (WGO)
— WPP (WPP)
— Moderna (MRNA)
— Autodesk (ADSK)
— Coty (COTY)
— Synopsys (SNPS)
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