Apple (NASDAQ:AAPL). Netflix (NASDAQ:NFLX). Regeneron (NASDAQ:REGN). Today some of the top analysts on the Street are saying “buy, buy, buy.” This makes me wonder: Has the bottom of the bear market just been called?
A surprise gain of 312,000 new jobs, with higher wages but also big growth in the labor force, hit the wires Jan. 4, just as analysts started pounding the table for big tech stocks to buy.
Goldman Sachs now calls NFLX a “conviction buy.” New Street, which said to sell Apple in August, now says buy it. Guggenheim has upgraded Regeneron from a neutral to a buy.
As China prepares to re-open trade talks, most of those calls to action are getting a dim reception.
But this shows me that bargain hunting season has begun on Wall Street … and there are many ways to define a bargain.
You can buy what’s cheap, you can buy what’s fallen or you can buy what works. Of those three, I will always go with what works. Trading, in an age of index funds and machine algorithms, is a mug’s game, but if you pick stocks to buy that can perform three or five years down the road, you’ll usually come out a winner. With that said, here’s a breakdown of the latest calls on the Street and how they stack up in terms of potential.
Loving Netflix (NFLX)
As I wrote on Jan. 2, there is a lot to love about Netflix.
While rivals like Walt Disney (NYSE:DIS) and AT&T (NYSE:T) are just launching into streaming, Netflix is already a global player. While rivals like Comcast (NASDAQ:CMCSA) tout their libraries of old shows, Netflix is running hundreds of new shows it knows people want to watch. While rivals worry about China, Netflix has a licensing agreement with iQiyi (NASDAQ:IQ), and is learning how to serve the growing mobile TV market.
Since my story was published, NFLX stock is up over 5%, but my story had nothing to do with the rise. The stock had just gotten dirt cheap relative to the company’s performance, as low as 7 times projected 2018 revenue given its advantages in technology and global market penetration.
Is Apple (AAPL) Stock Cheap?
Apple has been a tougher sell.
Despite selling at 12 times earnings, with $237 billion in cash on hand, meaning the market cap less cash is just $428 billion, or less than twice the anticipated 2018 sales of $261 billion, Apple barely got back one-fifth of its Jan. 3 loss in the pre-market, rising no faster than the Nasdaq Composite.
The assumption remains that the iPhone boom has busted, and that Apple can’t make up that revenue. But that boom has only busted in China, as CEO Tim Cook insisted in the note that sent the stock tumbling. Furthermore, Apple has a new earnings catalyst in its service revenue as well as technology for its Apple Watch that will, within a few years, make it a true medical device.
Apple is waiting for the trade war with China to end, and for investors to look beyond the price of its iPhone to the technology innovation coming on-stream.
It might get a little cheaper, but if you can hold it for a few years you’ll be a winner.
Regeneron (REGN) Strong
The call to buy Regeneron, meanwhile, is the first green shoot of the next leg up.
Biotech today looks a lot like computer technology did in 1978, and Regeneron is the Apple of the market’s eye. That’s because, as I wrote in June, shortly before buying some shares for my retirement account, REGN has a system for drug discovery, not just a collection of drugs.
Whether Regeneron becomes what Apple is remains an open question, but despite a price of $380 per share it’s still worth just $41 billion, because there are just 106 million shares outstanding. While other drug companies are busy buying rights to develop new products, Regeneron is selling rights, acting more like a drug start-up than an established player.
I like that.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL and REGN.
