TipRanks does the legwork of analyzing the analyst. The platform uses natural language algorithms to sort through the stock reports of over 5,500 Wall Street analysts, determining who made the best calls, and which recommendation brought in the best returns. The result is a comprehensive database of stock analysts, rated and ranked by success and return. When you see 5 stars next to a TipRanks analyst, you know who to trust.
Today, we’ve pulled reports from three of the top analysts in the TipRanks database. These Wall Street wizards have success rates in excess of 70%, and average returns above 20%. We’ll look at a recent recommendation from each of them, to see what makes a stock compelling to the experts.
Oppenheimer’s Glenn Greene is currently ranked #1 in the TipRanks database. He earned his five stars with an 84% success rate on his stock calls. Greene’s average return of 21.3%, indicating that the stocks in his coverage universe are profitable as well as bullish.
Greene has recently issued a report on Mastercard, the credit card company. The top analyst had attended the company's Investor Day, and came away with a bullish outlook, giving the stock a Buy rating and a $312 price target (15% upside from current levels).
Mastercard isn’t really a credit card company. Rather, it’s a payment processor, for cards issued with the company brand. Mastercard’s business model is built on a range of income streams – royalties from card issuers using the brand, fees from the card issuers for using the company’s payment processing, and transaction fees from card users for the privilege of having a credit card. Like most multi-stream incomes, the model is resilient in bad economic times and highly profitable in good times. A look at the stock’s recent performance bears this out.
Markets swooned in Q4 of 2018, and the S&P 500 slipped 14%. MA shares showed a steeper loss, of 21%. But where the S&P has since made an impressive 22% rebound, MA has gained an even more impressive 50% since bottoming out. Mastercard’s most recent report, for Q2, showed a 12% revenue gain, to $4.11 billion, and an adjusted EPS of $1.89 per share, well ahead of the $1.83 expected.
All of that forms the background to Glenn Greene’s meeting with company management. In Greene’s words, “MA maintains a sizeable global market opportunity and continues to emphasize its broad B2B opportunity (particularly around accounts payable), Services business and real-time ACH capabilities. Encouragingly, MA's intra-quarter volumes through August remained directionally stable with both July and 2Q19 levels. We remain quite encouraged by MA’s strategic direction and that its long-term growth trajectory remains intact.”
Wall Street’s analysts have been nothing but bullish on MA over the past three months. Out of 16 analysts, all 16 are bullish on the stock. With a return potential of 17%, the stock's consensus target price stands at $317.31. (See Mastercard stock analysis on TipRanks)
Holding the #3 spot in TipRanks is Canaccord analyst Richard Davis. Davis’ specialty are the tech stocks; he particularly likes the Software-as-a-Service sector. Davis boasts an excellent 79% success rate on his stock reviews, but his real strength as an analyst is in his return. An investor following Davis’ advice over the past year would have seen an impressive 42.5% return on cash invested.
Smartsheet is one of the companies that Davis likes. It’s a SaaS company, marketing a cloud-based workspace management and collaboration system. Companies use Smartsheet’s products to share and a manage work projects, assign and track progress, and manage calendars. The interface is designed to make tracking simple and intuitive. Most importantly, for customers, Smartsheet’s product is meant to interface with other popular cloud systems, such as Microsoft Office, Google Apps, Salesforce.com, or Dropbox.
Filling a necessary niche, and allowing integration with competitor’s products, has brought Smartsheet success. While the company’s earnings, like those of many recent tech companies, are underwater, revenues are rising steadily and the earnings consistently beat expectations. In the Q2 report, released this past September, the company showed an EPS loss of 8 cents, against the 16 cents expected. Revenues were solid, and at $64.6 million beat the $63.5 million forecast. In the last year, SMAR has beaten earnings and revenue forecasts four times out of four.
In his comments on SMAR, Davis displays both his acumen for finding the right stock, and his strategic sense for long-term investing. He writes, “We believe software has become much more secular than cyclical in terms of growth and Smartsheet is one of the best positioned and executing firms that we follow. The stock’s valuation is cheaper, but obviously not cheap on any traditional metric. However, we strongly believe this firm has a long-tail growth opportunity, so investors should own at least a starter position in SMAR and hope for a pullback to fill out their position.” His $45 price target suggests a 14% upside to SMAR shares.
Overall, this stock’s Strong Buy analyst consensus rating is based on 8 Buys and 1 Hold set in the past three months. SMAR’s $50 average price target is slightly higher than Davis’, and indicates room for a potential 27% upside. (See Smartsheet stock analysis on TipRanks)
ON Semiconductor (ON)
Jefferies' Mark Lipacis is one of ON's biggest bulls, and he is also one of the top-rated analysts who cover the stock.
Lipacis holds the #7 slot out of the 5,500 analysts rated at TipRanks. His 75% success rate and 28% average return indicate a solid performance over time. The stocks he studies are oriented heavily towards hi-tech hardware; his recent ratings have included most of the big semiconductor companies.
ON is one of the world’s top semiconductor companies, counting by sales, with $5.88 billion in revenue for FY 2018. Net income that year was $630 million. The products behind the earnings are a normal array of computer chips. ON Semi’s chips are used to power logic systems, signal management systems, and custom devices in the automotive, communications, and industrial sectors. The company is based in Arizona, but has offices and facilities across North America, Europe, and East Asia.
The generally poor 2H18 market performance hit ON particularly hard, and the company’s earnings are still depressed. Revenues in Q2 2019 missed the forecast, with the $1.35 billion reported being 2.3% below expectations. EPS, at 42 cents, was positive, meeting the analysts’ consensus. Guidance for Q3 is also below consensus, a common tactic for managing expectations.
Lipacis, in his notes on ON shares, pointed out, “ON noted inventory days in channel declining, a meaningful QQ pick up in disti resales and signs of recovery in industrial and automotive Greater China demand. We believe our margin expansion thesis will play out.”
Expanding on this, Lipacis added, “ON believes the demand has stabilized at a lower level of revenue... Automotive and Industrial end markets saw a positive pick up in the Greater China region... Based on conversations with customers, ON expects QQ growth in 3Q19 communications (5G deployment and new smartphone models with higher content)…” In other words, Lipacis believes that the hard times are behind ON, revenue and demand have found a new equilibrium, and that 5G conversion will boost sales and profits going forward.
Lipacis has a price target of $27.00 on this stock, suggesting an eye-opening 43% upside. In this, he is far more bullish than most; ON has an average price target of $23.46, indicating about 24% upside from the $19 share price. The stock’s Strong Buy consensus rating is based on 12 Buys, versus just 1 Hold and 1 Sell. (See ON Semiconductor stock analysis on TipRanks)