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3 Top Stock Picks From the ‘Big 3’

·8 min read

It’s a totally different ballgame out on Wall Street. During a period marred by COVID-induced panic, the market has been on an upward trajectory. Stocks have been on a wild ride to say the least, which included unprecedented volatility and a sideways movement for much of June and July, yet the S&P 500 is only 5% below its record high.

Add in continued uncertainty regarding the pandemic and the upcoming U.S. presidential election, and it becomes even more challenging to navigate the investment landscape. So, where is an investor to turn? To the best of the best.

Compiling data on thousands of financial experts, TipRanks has been tracking and measuring each one’s performance. Based on the success of their ratings as well as the average return per rating, the platform has identified the Top 25 Wall Street Analysts.

Bearing this in mind, we looked to the ‘Big 3’ – the three best-performing stock pickers – for some investing inspiration. Zeroing in on one stock backed by each of these pros, we used TipRanks’ database to pull up all of the details on each ticker. This is what we found out.   

Tyler Technologies (TYL)

Which name is the number 1 analyst on Wall Street recommending? Tyler Technologies. The company, which offers governments and schools a wide range of products designed to improve engagement and efficiency, has an exciting opportunity at its finger tips.

Ranked #1 on TipRanks, Piper Sandler's Brent Bracelin believes TYL has “a compelling opportunity over the next decade to build a digital dynasty within the government vertical.”

Part of what makes the company so appealing is its differentiated vertical software business model, which Bracelin argues could potentially support “durable revenue growth and 25%-plus operating margins as the domain expert in cloud software and services for local, state and federal governments.” In addition, this digital dynasty could cause revenue, which already exceed $1 billion last year, to triple or even quadruple.

On top of this, management indicated it has seen an increased interest in its digital and cloud solutions, particularly from governments trying to serve their constituents during the pandemic. Its new Virtual Court product, whose launch date was pushed forward to May from the summer, will be used by 60 courts, with 21 already running live sessions. Adding to the good news, TYL has inked deals to establish self-serve functions for Veteran Affairs and other civic services.

Going forward, the company still has plenty of upside drivers on tap, in Bracelin’s opinion. “That said, the number of upside drivers could be even more meaningful over the next three to five years given untapped potential within cloud, digital payments, international, and federal. Early cloud proof points include a ~$100 million statewide court win at North Carolina, hinting at the further statewide potential as it partners with AWS,” he said.

With TYL’s domain expertise and 10,000 government customers making the barriers to entry high, the deal is sealed for Bracelin. To this end, he puts an Overweight (i.e. Buy) rating and $423 price target on the stock. This target implies upside potential of 22% from current levels. (To watch Bracelin’s track record, click here)     

Judging by the consensus breakdown, other analysts also like what they’re seeing. 4 Buy ratings and a single Hold add up to a Strong Buy consensus rating. Given the $382 average price target, the upside potential comes in at 10%. (See TYL stock analysis on TipRanks)

Global Payments Inc. (GPN)

According to the Street’s second-best stock picker, Global Payments is the name that should be on investors’ radar. Offering cutting-edge payments and software solutions to help businesses simplify commerce, the company might just have what it takes to emerge as a long-term winner.  

Oppenheimer’s Glenn Greene tells clients that GPN is “the best way to play the pure play payment space.” To back this claim up, the 5-star analyst cites the fact that the company isn’t as vulnerable to cross border profitability and revenue mix headwinds that threaten other players in the space.

Expounding on this, Greene stated, “Thus you get the economic payment rebound without as much worry on long-haul cross border returning and no direct balance sheet credit loss risk (vs. issuers). What is better than that?”

Although the near-term consensus expectations regarding expense synergies might be overly optimistic when compared to the company’s guidance, Greene does point out that GPN saw above average peer group adjusted EPS growth over time. Looking at its performance compared to the NASDAQ, the analyst argues its higher valuation multiples are warranted based on this higher adjusted EPS growth rate.

As for its international presence, Greene explained, “GPN has the most international exposure/diversity... As payments become more globally focused, we think GPN’s revenue distribution is well positioned to partner with international clientele.” That said, its growth prospects go even further. “Looking ahead, we see runway for GPN to continue to expand in international markets as well as at home. We also think that the company’s overall payment concentration/strategy in SMB/E-commerce likely continues to provide additional profitability benefits,” he noted.

When it comes to the M&A strategy, GPN is expected to be actively searching for additional opportunities by year-end. Greene thinks the company has already “pulled a rabbit out of a hat when it comes to expense synergies as we are mystified by the strong execution of expense goals and the near constant upward revisions of total expected expense attainment” since it finalized its acquisition of TSS.

“...with what we interpret as GPN’s buy, de-lever then look for the next target, revolving methodology. This has extended GPN’s capabilities/reach both domestically (Heartland) and internationally (TSS) with cross-sell opportunities across the geographic regions,” Greene added.

Everything that GPN has going for it keeps Greene with the bulls. To this end, he maintained an Outperform (i.e. Buy) rating and boosted the price target from $190 to $202. The implication? Upside potential of 18%. (To watch Greene’s track record, click here)

Most other analysts agree with Greene’s assessment. 18 Buys trounce a lone Hold, so the word on the Street is that GPN is a Strong Buy. The $198.84 average price target puts the upside potential at 16%. (See GPN stock analysis on TipRanks)

Semtech Corporation (SMTC)

Scoring the final spot on our list, the last member of the ‘Big 3’ is singing the praises of Semtech Corporation, which supplies analog and mixed-signal semiconductors and advanced algorithm solutions for high-end consumer, enterprise computing, communications and industrial markets.

Amid all of the chaos brought on by COVID-19, Needham analyst Quinn Bolton tells clients that SMTC held up strong.

For fiscal Q1 2021, the company reported revenue of $132.7 million, which exceeded the midpoint of guidance. This impressive result was driven by record demand for 10G PON and 5G PMD solutions as well as continued strength in DC demand. Even though lower absorption and costs related to COVID-19 caused NG gross margin to land below the midpoint of guidance, NG EPS beat the Street’s call.

What does this bang-up performance mean for SMTC? “Based on its strong fiscal Q1 2021 bookings, a much higher backlog entering the July quarter and record POS in fiscal Q1 2021,” Bolton stated. “At the midpoint, fiscal Q2 2021 revenue and NG EPS guidance of $138 million-$146 million/$0.40-$0.44 beat the Street's $132.7 million/$0.41 estimates and our conservative estimates of $125.0 million/ $0.30, which we lowered on April 15th by ~ $10 million/$0.05 to reflect the negative impact from the COVID-19 outbreak,” he added.

Adding to the good news, based on recent discussions with end customers and tracking of new tenders, management believes its visibility in Signal Integrity has gotten even stronger. “Signal Integrity is expected to grow strongly quarter-over-quarter driven by potentially record setting revenues from DC and continued strength in the 5G base station market,” Bolton said.

As for its LoRa segment, it is slated to generate record revenue in the July quarter, which should fuel growth for Wireless & Sensing in fiscal Q2 2021. “Further, Semtech believes its new LoRa wins remain on track to ramp in smart home and consumer designs in North America in F2H21 as qualification and testing is progressing,” Bolton commented.

Add in the fact that shares are currently trading at 19.9x Bolton’s CY22 NG EPS estimate, making it one of the lowest valuation stocks in his analog/mixed-signal coverage universe, and it’s clear why the five-star analyst is standing squarely with the bulls.

In addition to keeping a Buy recommendation on the stock, Bolton lifted the price target from $65 to $68. A twelve-month gain of 29% could be in store, should the analyst’s thesis play out in the year ahead. (To watch Bolton’s track record, click here)      

Overall, the bulls have it on this one. Out of 11 total reviews published in the last three months, 10 analysts rated the stock a Buy while only 1 said Hold. Meanwhile, with a $60.45 average price target, shares could surge 15% in the next twelve months. (See Semtech stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.