The markets are setting new records with an almost boring regularity. The tech-heavy NASDAQ is well above 11,600, and the S&P 500 has tested – and broken – resistance at 3,400. Investors are clearly willing to buy, and the only question is, what to buy?
There is no one easy answer to that question, but investors can still find answers – by following Wall Street’s top analysts when they publish their top picks. As we head into the tail end of the year, the analysts are doing just that – publishing their top stock picks for the rest of this year and into the next.
The stocks are a varied lot, offering investors a range of choices – in economic sectors, in return potential, and in cost of entry. Using TipRanks’ Stock Comparison tool, we lined up the three alongside each other to get the lowdown on what the near-term holds for these top picks.
We will start with CarParts.com, an e-commerce company in the factory direct niche – in this case, making it easier and cheaper for drivers and garages to find and buy quality car parts. By cutting out much of the brick-and-mortar supply chain, CarParts.com can offer lower prices and quick delivery. The coronavirus crisis presented a unique opportunity for the company, as the lockdown policies had the side effect of promoting online and mail delivery business along with all sorts of DIY.
That combination helps explain the rapid share appreciation that PRTS has seen in recent months. The stock has a long history of mostly flat trading, under $5, but after bottoming out on March 18 this year, PRTS has seen a long, uninterrupted, 5-month run of growth. Shares are up a whopping 967% during that time, making PRTS one of the stock market’s strongest recent growth stories.
Craig-Hallum’s analyst Ryan Sigdahl is deeply impressed by CarParts.com. The 5-star notes that the corona crisis was only the opportunity for the company’s rise – by good fortune, it came as management was working to improve customer service and profitability, and the timing was a happy coincidence.
Sigdahl selected PRTS as his top pick, noting: “The dynamic change at PRTS is quite remarkable. From a no growth company a few quarters ago to a company growing revenue over 60% with accelerating business momentum. This isn’t a COVID pop-and-fade play, there are real operational improvements driving this fundamental inflection, including meaningful improvements to technology, marketing and supply chain… We think the stock is going significantly higher as they [management] execute on a massive market opportunity.”
Accordingly, Sigdahl rates PRTS a Buy, along with a $20 price target. This figure implies a 37% upside potential for the coming year, shows his confidence. (To watch Sigdahl’s track record, click here)
After its strong recent growth, CarParts.com has earned a unanimous Strong Buy analyst consensus rating, based on 3 recent positive reviews. Shares are selling for $14.40, and the $18.67 average price target suggests it has room for 29% growth this year. (See PRTS stock analysis on TipRanks)
Ternium SA (TX)
And now we move on to the heavy industry sector, where Ternium is a major steel producer in Latin America. The company has manufacturing plants in Argentina, Brazil, Colombia, Mexico, and the southern US. Ternium is a steel supplier for a variety of industries, including automotive, construction, HVAC, and home appliance. Steel is a found in a wide range of common products that we use daily, giving the company a solid niche.
Writing for Scotiabank, analyst Alfonso Salazar explains why Ternium is his top pick in the Latin American steel industry. In his view, the case is clear: “We continue to favor steel producers in Mexico over peers with operations in other LatAm countries. We believe Mexican producers are better positioned for a recovery, as steel demand relies more on exports of steel products that should be boosted by the USMCA agreement. We see Ternium’s better-than-expected shipments in Q2/20 as an indication of a good start point for a gradual recovery in 2H20.”
These comments support an Outperform (i.e. Buy) rating, and Salazar’s $25 price target suggest that TX has room for an impressive 45% upside in the coming year. (To watch Salazar’s track record, click here)
Overall, it has been relatively quiet when it comes to other analyst activity. In the last three months, only 3 analysts have issued ratings — 2 Buys and 1 Hold. Based on the $21.50 average price target, shares could climb nearly 25% higher from current levels. (See TX stock analysis on TipRanks)
First Republic Bank (FRC)
Next on our list of analyst top picks is First Republic Bank, a banking and wealth management company based in San Francisco. The company has offices in many of California’s wealthy coastal cities (Los Angeles, San Diego, Palo Alto, Santa Barbara), as well as in Palm Beach, Boston, New York City, and Jackson, Wyoming. First Republic offers trust and wealth management services to clients in the low-risk, high net-worth categories.
First Republic’s business model gave it two important advantages over other bank companies during the coronavirus crisis of 1H20. First, the company’s clientele is high quality, with plenty of money, assets, and resources; and second, the bank has no formal branches to maintain. When the social lockdown policies went into effect, First Republic was able to adapt easily to the virtual office. This made it possible for the bank to report only a minor dip in Q1 earnings, followed by a surge in Q2. Revenues in the first half of the year rose modestly from Q4 2019.
Dave Rochester, 5-star analyst with Compass Point, has chosen FRC as his top pick, and explains why in a detailed note: “A stronger credit profile better insulates FRC vs. peers from tail risk on the credit side. Solid underwriting, unique incentive structures including credit claw-backs, and stronger-relative credit history likely supports safety stock status and continued material valuation premium in the downturn… [A] key differentiator of FRC is its large concentration of high net worth individuals in the customer base… FRC’s urban coastal markets contain 59% of all high net worth households in the US, positioning the company well for continuing to take share in this higher net worth segment.”
In line with these comments, Rochester rates the stock a Buy. His $132 price target implies a one-year upside of 14%. (To watch Rochester’s track record, click here)
The analyst consensus rating on First Republic is a Moderate Buy, based on 7 Buys, 7 Holds, and 1 Sell set in the past 3 months. The stock is selling for $114.86 and has an average price target of $114.86; this suggests a modest upside of 4% from current levels. (See FRC stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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