Today’s market contains many overvalued stocks. Concerns regarding a bubble are not new. The stock market’s incredible 11-month bull run shows no signs of stopping. However, it has become a troubling time for several investors looking for stocks to buy.
Value investing is not an easy investment strategy to pursue in these times. Yet one of the easiest ways that you can gauge which stock is overvalued is through analyst estimates.
A consensus estimate forecasts the stock price 12-months out based on all equity analysts’ combined estimates that cover the stock. Understandably, it’s not the ultimate way to invest in stocks. However, navigating the stock market with the help of analyst estimates is a good starting point. Add fundamental analysis, and you have a pretty good understanding of where a company stands.
Before we go onto the main list, fair warning that the entrants on this one are not all found on the American bourses. Some of them are Chinese companies because they are operating in one of the world’s largest markets.
- Alibaba (NYSE:BABA)
- S&P Global (NYSE:SPGI)
- Barrick Gold (NYSE:GOLD)
- Shaw Communications (NYSE:SJR)
- ADT (NYSE:ADT)
- Salesforce (NYSE:CRM)
- TAL Education Group (NYSE:TAL)
Stocks To Buy: Alibaba (BABA)
TipRanks 12-Month Consensus Price Target: $325.38 (40.33% Upside Potential)
We start this list of stocks to buy with one of the biggest companies in the world. Although Alibaba has not gained as much of a foothold in the U.S. as it would have liked, the company remains a juggernaut by all counts.
Sporting a market capitalization of $635.3 billion, the e-commerce giant has done nothing but go from strength to strength in the last decade. The company’s operations are divided into four core areas. Its foremost segment deals with the e-commerce and logistics that form the backbone of its business. Products and services offered under Taobao Marketplace and Tmall come under this area.
Then you have the cloud computing segment, which is also growing by leaps and bounds. Finally, you have a digital media segment that offers services beyond its core offerings and an innovation segment, one that is responsible for research and development.
Fundamentals are excellent for BABA stock. Sales and EPS have grown by an enviable 46.8% and 16.6%, respectively. In the financial results for the quarter ended Dec. 31, 2020, revenue increased by 37% year-over-year, and income from operations rose 24%. The pandemic did not affect its operations that much since China was the only major economy to achieve positive GDP growth last year.
The only major issue that has cropped up recently is regulatory pressure from Chinese authorities. The biggest casualty was the much-anticipated IPO for Ant Group, Alibaba’s financial services unit. Until it meets the requirements of the antitrust regulations, that listing is on hold. These issues have knocked off a significant amount of market value from the company. But that means shares are trading at an even more attractive valuation, making it one of the best stocks to buy.
S&P Global (SPGI)
TipRanks 12-Month Consensus Price Target: $419.67 (21.43% Upside Potential)
One stock that doesn’t get a lot of love is market intelligence company S&P Global. Its rating business is the biggest revenue contributor at 47%. Nevertheless, for several years now, it is fashioning itself as a market intelligence company. Moving forward, this is where the future of the company lies.
In November, the company announced a $44 billion all-stock merger with IHS Markit (NYSE:INFO), an Anglo-American information data company. It’s rare to see a deal of this size in the data space. However, it goes to show how valuable that commodity is now.
According to the company website, “IHS Markit’s fixed-income indices, transportation sector data, and pricing and reference data on millions of corporate and sovereign bonds all would give S&P Global a footprint in less-developed or entirely new verticals.”
Overall, the company is on fire at the moment. According to data compiled by Seeking Alpha, the company has beat Wall Street estimates six times consecutively. EPS has grown 18.7% in the last three years, and margins are excellent, an expected result of having an asset-light business.
As a result of the merger and some much-needed streamlining, now the company is in a much better position than before. SPGI stock trades at 27.9 times forward P/E.
Barrick Gold (GOLD)
TipRanks 12-Month Consensus Price Target: $30.45 (49.85% Upside Potential)
Canada-based gold and copper miner Barrick Gold took a pounding due to the pandemic. The GOLD stock price slumped to a 52-week low of $12.65 per share at the height of the crisis. However, the company has done well since then.
In the last six quarters, the Toronto-based miner has beat expectations every time. Most recently, fourth-quarter net income fell to $685 million, or 39 cents a share, from $1.39 billion, or 78 cents a year earlier. Adjusted per-share earnings came in at 35 cents per share and revenue at $3.28 billion, beats of 4 cents and $45.17 million, respectively.
Barrick has also announced it would pay out $750 million or 42 cents a share distributed into three tranches. These funds are being distributed from $1.5 billion in proceeds from disposing of assets, including its stake in Australia’s Kalgoorlie mine in 2019.
Looking ahead, Barrick issued 2021 output guidance of 4.4 million to 4.7 million ounces, slightly below the average analyst estimate of 4.77 million ounces. Overall, it was an excellent quarter for the major bullion producer. It reinforces that despite a stressed general outlook, the company has done exceedingly well for itself.
GOLD stock is trading at 15.5 times forward P/E. Looking ahead, the company offers the most potential upside in the gold and copper sector.
Shaw Communications (SJR)
TipRanks 12-Month Consensus Price Target: $22.41 (16.90% Upside Potential)
Although not a household name in the U.S., Shaw Communications is the biggest Canadian telecommunications company, it provides telephone, Internet, television, and mobile services, with a concentration in western Canada.
By all accounts, SJR stock is one of the most consistent performers out there. Due to its large size and enviable business model, the company continues to do well despite a tough operating outlook.
One of the main reasons this is so is that its operations are heavily tilted toward its wireline business. The segment contributes over 75% of Shaw’s total revenue in fiscal 2020. However, its satellite business is also doing well, especially considering how big streaming has become.
Overall, operating metrics are excellent, with gross margin and return of 56.3% and 11.0%, respectively. Even from a dividend perspective, SJR presents an attractive proposition. The company has maintained a solid dividend of 8 cents per share and did not slash it even at the pandemic height. The trailing 12-month yield stands at 4.9%, none from its peer group comes close.
SJR stock trades at 25.3 times forward P/E. Altogether, it’s one of the best stocks to buy out there.
TipRanks 12-Month Consensus Price Target: $10.55 (26.80% Upside Potential)
Next on this list of stocks to buy is home security solutions provider ADT. The chances are that you might have used some of the products of this company at your home. However, it also provides small and large business electronic security and fire protection.
Annual revenues are $5.3 billion, having grown 7.2% in the last three years. Its gross margin is an astounding 71.5%. One of the reasons it’s not surprising is that the company operates an asset-light model, and it focuses on automating its processes as much as possible. So, for instance, its solutions can sense carbon monoxide, flooding and address personal emergencies.
The company traces its history to 1863. Hence, it’s a mature business with several years of solid performance behind it. However, unlike several entrants on this list, the pandemic really did a number on ADT’s earnings.
For the full fiscal year 2020, net loss ballooned to $632 million, compared to $424 million in the year-ago period. Total revenue came in $5.315 billion, compared to $5.126 billion. It makes sense. When most people have seen their discretionary income go down substantially, people will not be buying ADT products, focusing on the essentials themselves.
Refinitiv data tracks six analysts offering revenue estimates. According to the projections, revenues are expected to increase modestly by 1.5% to $5.4 billion.
Aside from the upside potential, shares are also trading at a 56% discount to the S&P 500 Index. If you can look past the recent performance, this is one stock that has the potential to rise substantially once we see a broader recovery.
TipRanks 12-Month Consensus Price Target: $277.30 (30.67% Upside Potential)
Salesforce has quickly become one of the foremost customer relationship management firms in the world. Its innovative suite of products has a slew of amazing clients in all business segments. Essentially, the company provides you the tools and analytics to manage your business better. The software giant can serve multiple industries and it’s whirring on all cylinders.
But then why is CRM stock trading at a deep discount to the shares’ 52-week high? Well, it has a lot to do with its $27.7 billion mega-merger with Slack (NYSE:WORK). Salesforce’s loss of value after the merger announcement was a massive $32 billion.
There are two aspects to look at this one. First is Slack itself, a “channel-based messaging platform” that has made a lot of positive noise since debuting on the New York Stock Exchange in a massive IPO.
Many analysts and investors believe it could replace email. However, the company is still in a nascent stage, meaning there is still a lot of room to grow. Not to mention it’s still unprofitable. Since it is one of the largest acquisitions in the tech space, investors could be miffed that they paid so much Slack. It’s creating a classic merger arbitrage scenario, where investors are shorting the acquiring company stock and buying up the target company as share prices trend in different directions.
The best thing about all this is that CRM stock is now trading at a 25.41% discount to its 52-week high. If you couple that with sales and EPS growth of 24.6% and 135.4% over three years, you have one of the best stocks to buy out there.
TAL Education (TAL)
TipRanks 12-Month Consensus Price Target: $87.33 (24.40% Upside Potential)
We wrap up this list of stocks to buy with another Chinese company making waves in its local market. TAL Education offers after-school education for students in primary and secondary school. It has several options for learners, depending upon their preference, so you have the option of either going for personalized individual classes or combined learning or online courses. It offers services in 90 cities in China and is growing fast.
No surprise that online education flourished during the pandemic, and the company was a net beneficiary. However, the in-person business has suffered, and that’s why TAL delivered mixed results last year.
In the nine months ended November 30, 2020, net revenues rose by 29.7% year-over-year to $3.13 villion from $2.42 billion. However, the loss from operations was $141 million, compared to income from operations of $178.7 million in 2019.
But you can count this as a momentary blip for the after-school education provider that is on the way up. Last month, the TAL stock price dropped 19.9%, giving you the perfect opportunity to add this high-performing stock to your portfolio.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.