7 solid stock picks for 2018
On Wall Street, investors are generally classified as either market-centric or stock-pickers. And those who belong to neither group are referred to as individualists, renegades or investors who just generally need advice, constantly.
The market-centric group pursues a strategy influenced mainly by how things are trending, and it proceeds with investing plans accordingly. If the market's performance is upbeat, these investors usually are inclined to buy more shares.
Stock-pickers, on the other hand, are very particular about the shares they buy, regardless of what the market is doing. They care more about the quality of the stock to raise their odds of gaining from both a calm or stormy market.
The individual investors who profess to be serious stock-pickers are more passionate because they personally accept the responsibility for the consequences of their choices. The other group can blame or praise the market for their results.
So for 2018, the big question for stock-pickers is which shares will gain no matter what uncertainties the market faces. No doubt, investors could confront a mighty uncertain market in 2018, despite the big gains it has piled up over the course of its nine-year bull run.
The question becomes more difficult because even as the Trump administration is into its second year, it remains difficult to discern what its priorities will be about the economy, foreign policy, global trade, defense and terrorism.
One thing is certain, it's essential to select stocks that will be able to endure, if not continue to grow, in a murky economic environment. True, economic growth is humming along, but what obstacles lie ahead remain a mystery. Will the Federal Reserve stick to its current monetary policy stay, or will the new President Donald Trump-appointed chair (Jerome Powell) take it in another direction? How about government policies on mergers and acquisitions, and consolidation in the financial industry?
Fortunately for investors, some analysts who have been around with expertise on many fronts have been tracing the same questions and seeking answers to help clients.
Here are seven stocks that they believe will overcome the possible travails the new year may bring and gain from the myriad difficulties that may arise.
The basic elements that these stocks have in common is they already have a track record of enduring despite problems -- and coming out on top of their peers. They have great proven leadership in their fields, and they face a brighter outlook not only in 2018 but in the years ahead.
Amazon
Amazon (AMZN) represents the present and future profile of the broader online retail industry. But more than that, under founder, chairman and CEO Jeff Bezos, it reflects a new innovatively growth-oriented American company that's blazing a trail of efficiency and expansion that cuts across many industries. Started in 1995 as the "Earth's biggest bookstore," by 2013 it posted annual sales of $74.4 billion. But by 2016, revenues had leaped to $135.9 billion. This year, analysts project sales to advance 30 percent -- yes, 30 percent, and 29 percent more in 2019.
Its stock has been an admirable performer, climbing from a low of $36 a share in 2007 to $1,305 as of Jan. 16, 2018. Equity analyst Tuna Amobi of CFRA has a price target of $1,350, "based on a price-to-sales of 2.9 times our 2019 estimate, a relatively modest discount to the medium multiple for the internet retail peer group, and slightly above Amazon's recent historical averages."
Amobi also sees "further market share gains versus tradition retailers in Amazon's core electronics and general merchandise offerings, thanks to a focus on providing value to consumers through selection, price and convenience."
Last week JPMorgan raised its price target for Amazon to $1,385 a share from $1,375, with a rating on it of "overweight."
Apple
Apple (AAPL) is as famous among investors as Amazon and also has a loyal following among the technology-loving crowd. It probably has among the best known U.S. corporate names and brands worldwide -- although it might as well be named after its No. 1 product, the iPhone, which accounted for 62 percent of total revenues in fiscal 2017, ended Sept. 30. Its revenue growth over the years has also been phenomenal, rising from $37.4 billion in 2008 to $229.2 billion in fiscal 2017.
CFRA equity analyst Angelo Zino projects Apple's revenues will rise 18 percent in fiscal 2018, and he anticipates iPhone sales to continue climbing as consumers upgrade older devices at with newer ones at higher average selling prices. "We think the iPhone X will appeal to consumers given features," including facial recognition, Zino said.
Apple's stock is another wonder, blasting off from a low of $11.17 a share in 2009 and rocketing to $176 now. Zino has a price target of $195, based on a price-earnings ratio of 16 times his fiscal 2019 EPS earnings estimate of about 13.9 times excluding net cash -- above its hardware peers but below the S&P 500 technology sector.
CVS
CVS Health (CVS), the nation's largest pharmacy health care provider, recently acquired for $77 billion Aetna (AET), the third-largest health insurer in the U.S., which analysts said made "strategic sense" because it provides CVS with a greater ability to encourage Aetna's 22 million health plan participants to use CVS unit Caremark's mail-order system or CVS' nearly 9,700 retail stores in 49 states. Analysts expect total sales to expand nearly 5 percent in 2018, to $183.6 billion from an estimated $177 billion in 2017.
Currently trading at $78 a share, analysts have an average price target of $90 for 2018. Investment firm Raymond James recently upgraded CVS stock to a "strong buy" from "outperform." The deal to acquire Aetna eliminates the risk for CVS losing Aetna's business, which represent about 12 percent of CS's revenues.
Walt Disney
Walt Disney (DIS) is definitely a well-known brand name in practically every household in America. It's a media and entertainment conglomerate with diversified operations globally, including theme parks, films, TV broadcasting and varied consumer products. As part of its continuing expansion, Disney purchased in December for $52.4 billion major entertainment assets of Twenty-First Century Fox (FOXA). Analysts described it as a "transformative" deal for Disney that should significantly boost its international exposure.
"After dipping 1 percent in fiscal 2017, consolidated revenues are projected to rise about 6 percent in fiscal 2018, partly on continued strong growth in cable network affiliate fees (including ESPN and Disney Channel) and continued gains at the worldwide theme parks (with rising international contributions from the Shanghai park)," noted CFRA's Amobi. He has a "strong buy" recommendation on Disney, with a price target of $130 a share.
Disney's stock has been relatively strong considering the company's various investments for further expansion, including the recent purchase of Fox assets. The stock has climbed from $90 a share in mid-2017 to $116 by year-end. It's currently at $111, but analysts see it climbing this year to a new high of $130 a share.
Analysts expect Disney's earnings to rise to $6.25 a share this year, up from last year's $5.69. "We see continued multiplatform benefits from a robust pipeline of homegrown and acquired franchises, with continued financial flexibility on further deleveraging initiatives," said Amobi.
Facebook (FB) has grown globally at a speed very few expected, even in the world of technology, and it has transformed social media. So it isn't surprising that its stock has been one super-performer in the short span of its existence. It sprang from $45 a share in 2012 to $133.50 at the end of 2017. Currently trading at $178, Street analysts' price projections go as high as $225 a share -- and rising. Almost every month, one or two analysts upgrade their recommendations to even higher price goals.
"We view Facebook as the premier social advertising platform, which is itself becoming a more strategic component of an advertising campaign, with a monthly user base that tops 2 billion and is still growing quickly, especially on mobile devices." said John Blackledge, analyst at Cowen who rated the stock as "outperform" in a recent report to clients. "Our survey work has demonstrated Facebook has high functional capabilities across analytics, ad formats and consistently demonstrates a high return on investment," he said.
"Facebook's ad performance is extraordinary," said Andy Hargreaves, analyst at KeyBanc Capital Markets, who recently raised his price target to $220 a share from $200, with a "buy" recommendation. "Facebook's continued improvement in ad effectiveness suggests the potential for significant future growth," he noted. And he sees Facebook with opportunities to "drive upside to our estimates through strong pricing growth, incremental growth in video and messaging, and lower-than-expected expenses."
Scott Kessler, chief technology analyst at CFRA, who continues to rate Facebook as a "buy," noted recently that the company is "prioritizing quality over quantity in terms of content and advertising, which we think could have a negative impact on revenues, especially over the near term." However, Kessler added, "we see these changes as constructive for brand value."
Kessler sees Facebook's flexible balance sheet allowing it to continue committing capital to new technologies and offerings, geographic expansion and acquisitions of companies and patents. And given its $38 billion in cash and short-term investments as of September 2017, "we see notable M&A as likely," said Kessler
He figures Facebook earned $5.93 a share in 2017 and should see higher earnings of $6.64 in 2018. He has a 12-month price target of $200 for the stock.
Goldman Sachs
Goldman Sachs Group (GS), one of the world's largest investment banking and securities companies, has long been a favored financial stock on Wall Street, rising from a low of $90 in 2012 to $245 in 2017. It's currently trading at about $258 a share, near its all-time high of $262, which had been the price target for many Goldman bulls. So, analysts are now in the process of raising their price targets as they readjust their valuations.
Kenneth Leon, equity analyst at CFRA, sees low-single-digit growth in 2018, after a 10 percent revenue decline in 2016. "Client services-driven businesses are likely to improve with trading gains in equities," he said. For Goldman to outperform peers, he argued, it has to execute better in 2018 given it has the highest revenue concentration to the capital markets, which can often fluctuate from quarter to quarter.
Longer term, Leon sees Goldman diversifying to reduce that concentration, possibly by expanding in investing and digital lending. And it seems logical that as the bull market continues, Goldman will greatly improve its prospects for improved revenue and earnings. After all, the firm is a big play on the equity markets for most investors.
Microsoft
Microsoft (MSFT) stock chart clearly displays how its shares have steadily ascended since 2009 from $14 to over $72 in 2017. This tech veteran is now trading at $88 a share, near its new high of nearly $91. Even as it expands, it's still developing personal computer software, including the Windows operating system.
Analysts' expectations for the stock remain high, even as the company has surprised investors with a stock that has climbed, despite fears about its exposure to PCs, notwithstanding its "mobile-first, cloud first" strategy. But "we see opportunities related to the LinkedIn purchase," said CFRA's Kessler. That acquisition was part of what rekindled Wall Street's attention to Microsoft. "We foresee notable share repurchases and dividend in raises at Microsoft," said Kessler.
The way Microsoft's stock has defied the bears could be a strong reason the Microsoft bulls see even better things ahead.
