Retail investors often follow analyst recommendations to figure out which stocks to buy and which ones to avoid. It’s natural to lean on the professionals who get paid to follow companies and report their findings to clients.
Conviction lists are highly followed by investors as a result, and the Goldman Sachs buy list is especially popular. Like the old E.F. Hutton ads, when Goldman Sachs speaks, people listen.
On July 19, the investment bank added Alcoa (NYSE:AA) to its conviction buy list. As I write this, AA stock is up more than 25% since it got the boost.
Analysts can drive stocks higher. It doesn’t matter that they often get it wrong. Buy ratings are gold for investor relations departments.
So which are the top stocks to buy at the moment, according to analysts? Unfortunately, it’s hard to answer that question objectively. But most of these ten stocks have at least 20 analysts covering them and all have an overall rating of overweight or better:
- BHP Group (NYSE:BHP)
- Twilio (NYSE:TWLO)
- Stellantis (NYSE:STLA)
- Constellation Brands (NYSE:STZ)
- ConocoPhillips (NYSE:COP)
- KB Financial Group (NYSE:KB)
- Koninklijke Philips (NYSE:PHG)
- Waste Connections (NYSE:WCN)
- CoStar Group (NASDAQ:CSGP)
- Microsoft (NASDAQ:MSFT)
Stocks to Buy: BHP Group (BHP)
Analyst Ratings: 8 buy, 1 overweight, 4 hold, 2 underweight
Target Price: $78.61
Out of 15 analysts covering BHP stock, only two have a negative rating of the company.
Focused on the mining of iron ore, copper and other minerals as well as the exploration and development of oil and gas, BHP has come a long way over the past year. It has a one-year total return of 50.4% through Aug. 4, putting its valuation at historically high levels.
Perhaps that’s why the analysts’ 12-month target price provides zero upside for investors. Without some catalyst to boost earnings estimates, it appears most of the pros feel a correction is due.
In the meantime, BHP Group has been busy. In its 2021 operational review, BHP shared that it has launched production with four different development projects. These include the company’s South Flank iron ore project in Western Australia and its Ruby oil and gas project in Trinidad and Tobago. All four were on time and on budget.
The analyst consensus for earnings in 2021 is $7.08 per share.
Analyst Ratings: 26 buy, 1 overweight, 3 hold
Target Price: $476.29
The last time I wrote about TWLO stock was early September 2020. At the time, I was fairly cautious about buying the communications-platform-as-a-service company because it had gone on a big run over the previous year.
Trading near $270 at the time, I thought it would be wise to wait a few weeks to see what happened to its stock. After that, I thought there was a chance investors could pick it up for less. By mid-September, it had fallen to $225, but that was as low as it went. By February 2021, it was trading at an all-time high of $457.30.
It cooled off in May, but now TWLO stock is closing in on $400 as I write this. Its valuation has gotten even pricier — it now trades at 26.5x sales.
While the analysts love Twilio, I believe it’s an excellent long-term buy over the next three to five years. I think the smart play is to wait for TWLO to retreat again. Since the beginning of 2020, Twilio has had five decent-sized corrections. As the multiple goes even higher, I don’t see that trend changing anytime soon.
Stocks to Buy: Stellantis (STLA)
Analyst Ratings: 16 buy, 1 overweight, 3 hold
Target Price: $24.40
On July 26, Stellantis announced the establishment of the Stellantis Design Studio. The business will provide outside companies and its own brands with design services. The Design Studio’s offerings won’t be exclusive to transportation companies, mimicking what other car manufacturers are doing today.
“Looking back on our brand portfolio, Stellantis designers have created some of the most exciting and visually appealing vehicles in automotive history,” creative director Arnault Gournac stated according to Motor Authority. “We plan to take that creative energy and offer our key competencies to our global external partners to help them take their brand and design projects to the next level.”
When you have all this high-priced talent, why not keep them busy when they’re not working on in-house design projects?
Stellantis continues to get lost in the conversation about car and truck companies. Investors do so at their peril.
In mid-July, Stellantis held its electric vehicle (EV) Day. It announced it would spend 30 million Euros ($35.6 billion) on low-emission vehicles (LEVs) over the next five years. By 2030, it expects 40% of its U.S. sales from LEVs and 70% in Europe. It will even bring out an electric-powered Dodge muscle car.
Electrification is coming and Stellantis intends to make it to the party. Better late than never.
Constellation Brands (STZ)
Analyst Ratings: 14 buy, 2 overweight, 8 hold
Target Price: $266. 55
Constellation Brands is best known for Corona and Modelo beer, Kim Crawford wine, Casa Noble tequila and Canopy Growth (NASDAQ:CGC) cannabis. However, it recently branched out into an entirely new category.
On July 28, Constellation Brands announced it would acquire a minority stake in Hop Wtr, a sparkling water product infused with adaptogens and nootropics. Their goal is to provide a healthy alternative for those who may not drink alcohol.
Constellation Ventures vice president Jennifer Evans stated, “The functional beverage category continues to show strong potential and is well-aligned with today’s growing consumer preferences for wellness and betterment.”
In the press release, she added that the company’s founders “have taken a consumer-first approach in building a great product and brand, and through this investment we expect to learn more about what resonates with consumers in this fast-growing space.”
In March 2020, I recommended investors looking to bet on cannabis should buy STZ stock. I still believe that, and I feel that Constellation is one of the best-run companies in the beverage industry.
Its investment in Hop Wtr shows the company is dipping its toe in the water to understand the functional beverages marketplace. Additionally, the move is less expensive than buying a big chunk of Canopy Growth.
It’s a smart move. Being first-in for an industry rarely equates to being the most successful company in a sector.
Stocks to Buy: ConocoPhillips (COP)
Analyst Ratings: 24 buy, 5 overweight, 2 hold
Target Price: $75.78
I’m not a fossil fuel fan, but it’s hard not to notice ConocoPhillips’s overall analyst rating.
If a buy rating is worth 5 points and a sell is worth 1, stocks with more buys get higher overall ratings. So in ConocoPhillips’s case, a perfect score for 31 analysts covering its stock would be 155. Its current score is 146, or 94% of its total possible score.
At the end of June, ConocoPhillips said it would increase its 2021 share buybacks by $1 billion to $6 billion, or nearly 8% of its current market capitalization of $77 billion. It also expects to find $1 billion in annual savings from its integration of Concho Resources, which it acquired in January for $10 billion.
I’m a free cash flow (FCF) nut. So the fact that ConocoPhillips plans to generate $70 billion in FCF throughout its 10-year plan (its estimate is based on a $50 barrel of oil with a 2% inflation increase cooked in) explains why analysts are sold on its stock.
Over the same period, it plans to return $65 billion to shareholders in dividends and share repurchases. But, unfortunately, that doesn’t leave much room for acquisitions or debt repayment.
But hey, the analysts love it.
KB Financial Group (KB)
Analyst Ratings: 13 buy, 3 overweight
Target Price: $62.49
The South Korean financial services company held its second quarter 2021 conference call on July 22. Its results were very healthy. Revenue increased by 14.2% over Q2 2020 to 12.24 trillion South Korean Won ($10.69 billion). Additionally, the company’s net profit was 1.21 trillion South Korean Won ($1.06 billion).
KB Financial operates several companies that specialize in banking, investment banking, insurance, asset management and other financial services.
In December 2020, Jefferies Financial Group (NYSE:JEF) entered into a co-branding alliance with KB Securities to provide equity research, sales and trading in South Korea. The research would be produced by KB Securities analysts and co-branded to Jefferies clients around the world.
It is the kind of arrangement that Asian companies seem far more comfortable with than American businesses. Hence, it’s good to see Jefferies partnering with South Korea’s largest financial conglomerate by assets.
Stocks to Buy: Koninklijke Philips (PHG)
Analyst Ratings: 10 buy, 1 overweight, 9 hold
Target Price: $59.54
I don’t know about you, but the first thing I think of when I hear Philips is light bulbs. In the neighborhood where I grew up, I hung around with a kid whose dad ran the lightbulb business in Canada. Of course, Philips is so much more. Its purpose is to keep people healthy and well.
In 2011, approximately 44% of its annual revenue was generated by health-related products and services. By 2020, it was most of its overall business. By 2025, it plans to have revenues of 23 billion Euros ($27.3 billion), all of it from its health and wellness products.
At the end of March, based on Phillips’ trailing 12-month (TTM) sales, it generated 39% of its revenue in North America, 22% in Western Europe and another 10% in other mature markets. 29% of revenue came from emerging growth economies.
In Q1 2021, its TTM free cash flow was 1.96 billion Euros ($2.32 billion). Moreover, its market cap of $40.6 billion has an FCF yield of 4.8%, which provides investors with growth at a reasonable price.
Philips deserves a closer look.
Waste Connections (WCN)
Analyst Ratings: 16 buy, 1 overweight
Target Price: $133.50
If there’s a diamond in the rough in this list, Waste Connections would have to be it. It probably has to do with the fact it’s based in Toronto and not somewhere in the U.S.
Dumpster rentals, waste management services and garbage pickup — Waste Connections does it all. Serving more than seven million residential and commercial customers in 43 states and six Canadian provinces, it has grown into the third-largest solid waste company in North America. It generates 87% of its revenue in the U.S. despite being based in Toronto.
Make no mistake — long-time shareholders are pleased with their investment. For example, if you invested $10,000 in WCN a decade ago, today it’s worth six-fold, or about $59,000.
As page seven of its presentation shows, Waste Connections’ 10-year total shareholder return is 1.4 times higher than that of Waste Management (NYSE:WM) and Republic Services (NYSE:RPG), its two larger peers. Against the S&P 500, the 10-year total shareholder return is 1.8 times higher than the index.
It flies under the radar, but WCN stock delivers for shareholders just the same.
Stocks to Buy: CoStar Group (CSGP)
Analyst Ratings: 10 buy, 1 overweight, 2 hold
Target Price: $102.73
Back in February, I recommended CoStar’s stock and nine other companies that were trading around $1,000. It split 10-for-1 on June 28.
Although it has gained nearly 6% since my recommendation, CoStar’s stock has definitely underperformed in 2021. It’s down 7.4% YTD.
That’s okay. In the long term, you will make money owning CSGP stock. On July 27, the company released its Q2 2021 results. They were impressive. Revenues rose 21% to $480 million.
As I said earlier, I’m an FCF nut. Its TTM FCF is $410 million. However, as the company continues to accelerate growth through acquisitions like Homes.com, which it purchased in May for $156 million, its FCF generation will also accelerate.
CoStar currently has a 1% FCF yield, but I could see that rising to 2% to 3% in the next year or two. Add multiple expansion to its valuation and you’ve got a recipe for future gains.
Analyst Ratings: 31 buy, 5 overweight, 2 hold
Target Price: $323.50
Microsoft’s analyst rating score is 178 out of 190 possible points. Like ConocoPhillips earlier, it’s 94% perfection. Not to mention the analyst target price provides for a nearly 13% upside. And we all know if Microsoft keeps delivering strong quarters, those targets will be adjusted much higher.
On July 27, Microsoft reported Q4 2021 earnings. They were a thing of beauty. Sales increased 21% and net income was up 47%. FCF for the entire year was $56.1 billion, 24% higher than in 2020.
However, what really caught my attention was the news that LinkedIn’s annual revenue was more than $10 billion in fiscal 2021. Its fourth quarter saw 46% year-over-year growth.
In fiscal 2017, LinkedIn had annual revenue of $2.27 billion. Four years later, it’s now more than $10 billion. In February 2017, I said that LinkedIn was vital to the future of MSFT stock.
It’s not a coincidence that a gain of more than 340% in LinkedIn revenues over the past four years resulted in a similar gain in MSFT stock.
Yes, Microsoft’s Azure cloud business did the heavy lifting. But LinkedIn was indicative of the changes happening at the company — good ones, at that.
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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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