Analyst stock upgrades and downgrades create powerful headlines that will move the underlying shares. Investors should take advantage of the price swings analysts create, especially when they make the wrong calls.
Stock price changes are noisy. Investors may use the stock volatility to buy a stock at a temporary discount or sell on a spike.
Among the seven companies discussed below, those with a strong revenue pipeline and earnings visibility are buys. In addition, they are typically large capitalization companies that have decades of experience navigating the economic cycle.
Conversely, firms that posted weak growth, an earnings per share loss, and who failed to post an outlook are the stocks to avoid.
Some of the weak companies trade at lofty valuations. Their management team lacks the experience to prepare for an economic downturn. It will have operating cost growth that is rising while its revenue growth declines.
Hopeful investors may bet that the company will work through the elongated sales cycle, which hurt results. That bet is a risky proposition, especially when markets punish overvalued companies.
The discussion on a company’s fundamentals will help readers pick out the true stocks to buy and those to sell.
In Q1/2023, AbbVie posted revenue and earnings declines. Investors should listen to analysts reiterating buy ratings on the stock. Skyrizi and Rinvoq are growth catalysts.
Demand for Rinvoq and Skyrizi grew by around 60%. Looking ahead, growth could increase. The drugs benefit from the number of indications approved.
AbbVie has five additional indications for Rinvoq and Two for Skyrizi. The market’s failure to appreciate the revenue potential is creating mispricing of the stock.
The Allergan unit will thrive in the aesthetics market. The U.S. economy is still healthy, at least after building momentum in Q1. Strong real personal consumption expenditure suggests that consumers will spend on aesthetic products. Still, if the economy slows, toxins in aesthetics will grow in the low-to-mid single digits. The rebound in China’s economy should counter such slowdown risks.
Intel reported Q1 revenue falling by 36% Y/Y to $11.7 billion. This resulted in a GAAP EPS loss of 66 cents. Analysts are praising the expense management that drove efficiencies and cost savings in the last quarter. A demand rebound for PCs would justify multiple Buy upgrades in the coming quarters.
Intel may release multiple generations and benefit from leveraging. CEO Pat Gelsinger said that Sapphire and Emerald Gen 4 and Gen 5 are on the same platform.
Customers benefit from leveraging the same platform. Clearwater Forest, which follows Sierra Forest and Granite Rapids, is all on the same platform.
The ramp-up on the Sapphire Rapids product will capture market share in the data center sector. Customers need hardware to support artificial intelligence. They need more security capabilities. This will require buying the latest Intel hardware.
Chief Financial Officer Amy Hood praised Microsoft’s partnership with OpenAI to introduce AI in its ecosystem. Azure infrastructure and Azure AI services will support end customers in implementing AI. The AI may handle many new workloads. Once Microsoft optimizes them, system efficiency will increase, lowering costs. It will also result in higher conversion rates as customers subscribe to Azure OpenAI API.
Microsoft earned the stock upgrade for continually finding additional revenue sources. Copilot will monetize by introducing various price meters. Customers may sign up for a consumption meter or a per-user subscription. The flexible fee schedule should increase monetization rates, boosting profits.
MaxLinear (NASDAQ:MXL) earned multiple buy ratings in the last week. The highest price target is $48.00.
The hardware company of integrated radio-frequency analog posted weak expectations that missed the analyst forecast. It expects revenue of between $175 million to $205 million. Analysts expected $230 million.
The company’s unwillingness to offer a forecast for the rest of the year hurt MXL stock. The company discussed inventory across all of its end markets, especially in broadband and connectivity. It needs to work through the inventory glut in the second half of the year first.
While demand for hyper scaler solutions unfolds, MaxLinear did not want to issue a strong forecast for the second half of this year. CFO Steve Litchfield sees optical product ramps later, accelerating in 2024.
The company lowered operating expenditure in Q1. It expects costs to fall in Q2, aligning with the revenue headwinds. It will need demand to continue after it works down its revenue first.
Cloudflare (NYSE:NET) earned mixed ratings from analysts after posting weak quarterly results. Goldman Sachs issued a ‘Sell’ rating from a 0.5-star analyst. Conversely, analysts from three different firms but with 0.5-star ratings called NET stock a buy.
Look closely at the condensed consolidated statement of operations. Stock-based compensation rose to $61.7 million, up from $41.8 million last year.
CFO Thomas Seifert said that the company faced a more challenging quarter than expected. While it expected an elongation in closing sales deals, the company was not ready for the deteriorating environment. Expenses grew while sales slumped.
CEO Matthew Prince said that AI companies of all sizes are having a positive impact on the business.
Cloudflare may offer both an efficient back-end and cybersecurity. In the short term, investors should not count on the momentum of AI to lift this company to profitability.
In the last quarter, the flu season boosted vaccine demand. Momentum will continue as it expands Efluelda in Europe, a flu vaccine for seniors. It has a sizable volume of trivalent to quadrivalent vaccine formulations that China and Mexico demand.
Sanofi earned the stock upgrade as analysts expect positive momentum to continue. The company has a solid ongoing supply execution that will fulfill vaccine demand in the year ahead.
SNY stock should get a lift later this year during the flu season. Sanofi will book strong revenue for influenza vaccines in the third and fourth quarters.
Unlike other drug companies, Sanofi does not have a loss of exclusivity headwinds that would hurt its growth. Instead, it offers attractive growth from products like Tamiflu and Dupixent.
Tractor Supply (TSCO)
An analyst at Telsey Advisory issued a “buy” rating on Tractor Supply (NASDAQ:TSCO) with a $270 price target. The largest rural lifestyle retailer in the U.S. posted modest comparable sales store growth of 2.1%. It benefited from the strength in consumable, usable, and edible categories. It expects to earn up to $10.60 a share in FY 2023.
CEO Hal Lawton said that the cooler spring weather is slowing its sales recovery. As the company progresses into the summer, the annual business momentum will benefit from the cultivation of farms.
In particular, investors should expect a favorable comparison to last year. In 2022, the U.S. experienced a one-in-10-year drought.
Spending in the consumer sector remains strong. For example, consumers are spending more in poultry feed. Tractor Supply’s CEO said that organic fee continues to be the strongest segment in its feed. Dog food demand continues to be strong. The strong cat food market is also healthy.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.