Why is it so hard to find Wall Street’s favorite stocks?
It has to do with analysts tending to be bullish about the stocks they cover. According to a September 2023 post by FactSet Vice President and Senior Earnings Analyst John Butters, of the 11,062 ratings of S&P 500 stocks, 54.4% were Buy ratings, 40.0% were Hold, and just 5.6% were Sell ratings.
Historically, analysts have been hesitant to put a Sell rating on a stock because it may hurt their investment bankers’ ability to get new business or keep what they already have. You don’t want to step on anyone’s toes.
Interestingly, only two S&P 500 companies had 100% Buy ratings from analysts at the time, although there were plenty above 90%. The names in the top 10 are stocks Wall Street loves.
These will be considered as I put together my list of three stocks to buy that are highly rated by the professionals on Wall Street.
Alexandria Real Estate Equities (ARE)
Of the 13 analysts covering Alexandria Real Estate Equities (NYSE:ARE), 12 rate it either Overweight or an outright Buy, with a target price of $125.50, less than 10% above where it’s currently trading. FactSet’s data show that 100% of analysts in September rated ARE stock a Buy.
You can own real estate and not lose your shirt. At least, that’s the analyst’s perspective. ARE stock is down 18% year-to-date, nearly 40% worse than the index.
Alexandria is a life sciences-focused real estate investment trust (REIT). On Dec. 4, the REIT announced a quarterly dividend of $1.27, 3 cents higher than in Q3 2023 — the annual payment of $5.08 yields a healthy 4.3%. As the company pointed out in its press release, its payout ratio is a low 55% from funds from operations.
In late November, it announced an exclusive partnership with longstanding tenant Eli Lilly (NYSE:LLY) to expand Lilly’s Gateway Labs model to the San Diego life science cluster. Its press release stated:
“Gateway Labs is a shared innovation accelerator designed to speed the discovery of innovative medicines by providing emerging biotechnology companies with mission-critical, flexible laboratories and essential, integrated nontechnical space.”
If you believe in reversion to the mean, ARE stock is down nearly 4% over the past five years. It’s time for some gains for shareholders.
Lamb Weston Holdings (LW)
Of the 11 analysts covering Lamb Weston Holdings (NYSE:LW), all 11 rate it either Overweight or an outright Buy, with a target price of $125.00, 19% above where it’s currently trading. FactSet’s data shows that it is the other stock in the index where 100% of analysts in September rated it a Buy.
Lamb Weston was spun off from Conagra Brands (NYSE:CAG) on Nov. 9, 2016. Shareholders got one LW share for every three CAG shares. Since the spinoff, LW shares are up 221% compared to -15% for Conagra.
The company supplies retailers and restaurants with frozen potatoes, sweet potatoes, appetizers and vegetable products. Its products are sold in more than 100 countries. It’s best known for supplying McDonald’s (NYSE:MCD) with its fries. My cats love them.
When it reported earnings in October, it said that the combination of cooling cost pressures and price increases means its results for 2023 should be higher than its original guidance.
For example, it expects 2024 revenue of $6.9 billion at the midpoint, $100 million higher than its guidance earlier this year. On the bottom line, it expects earnings per share of $5.70, up from its guidance of $5.18.
No wonder its shares are up 20% YTD.
Delta Air Lines (DAL)
And finally, the last of Wall Street’s favorite stocks. Of the 23 analysts covering Delta Air Lines (NYSE:DAL), 22 rate it Overweight or an outright Buy, with a target price of $50.00, 24% above where it’s currently trading. FactSet’s data shows that 95% of analysts in September rated it a Buy.
I was a big fan of CEO Ed Bastian’s handling of the airline during the pandemic. In July 2020, I said the company’s decision to keep the middle seat open on flights long after its peers would reward patient investors. They’re up 55% since, significantly higher than Southwest Airlines’ (NYSE:LUV) 11% decline over the same time.
Some on Wall Street have said that business travel is dead. Bastian recently noted that while the airline’s business travel is down 20% from before the pandemic, it’s made up the difference with work-from-home and hybrid workers traveling to other parts of the world for a “workation.”
“The thing that people miss is that while people aren’t traveling for managed business, they’re traveling on the road at a much higher level because mobility has been at a premium because of hybrid opportunities to travel and bring your office with you,” Bastian told CNBC.
Further, he pointed out that Thanksgiving traffic this year was its highest on record. Half serious, this might be the time for Warren Buffett to get back in DAL stock.
On the date of publication, Will Ashworth 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.
