Stock selection becomes more important.
The stock market has taken a steep dive due to the coronavirus outbreak, and the near-term outlook for stocks is as uncertain as it has been for years. In this type of environment, stock selection becomes increasingly important. Some of the market's top performers of the past year are already experiencing severe sell-offs, but some are holding up better. Analysts say business fundamentals are key to maintaining bullish momentum in the long term. For investors looking for best-in-breed stocks that can best weather the storm, here are eight stocks to buy that have outperformed their industry peers by at least 50% in the past year, according to Bank of America.
Nvidia Corp. (ticker: NVDA)
Nvidia designs and produces high-end graphics and video processing chips for personal computers, servers and supercomputers. Nvidia shares are up 87% in the past year and 1,230% in the past five years. However, analyst Vivek Arya says there are still plenty of things to like about Nvidia at its current price. Arya says Nvidia's gaming business should benefit from the rise of ray tracing technology and the expansion of cloud gaming. In addition, artificial intelligence and autonomous vehicles are long-term growth drivers for Nvidia. Bank of America has a "buy" rating and $350 price target for NVDA stock.
Qualcomm designs and develops semiconductors and collects royalties on its wireless handset patents. Qualcomm shares have rallied 67% in the past year, but analyst Tal Liani says the imminent global rollout of 5G wireless networks will be a massive bullish catalyst for Qualcomm. Liani says Qualcomm's business should get a boost from both the launch of 5G-enabled devices and rising revenue contributions from partner Apple (AAPL). He says Qualcomm's 5G pipeline has secured some key design wins that should pay off handsomely in coming years. Bank of America has a "buy" rating and $115 price target for QCOM stock.
Advanced Micro Devices (AMD)
Advanced Micro Devices was the top-performing stock in the entire S&P 500 in 2019 and is up 131% over the past 12 months. But rather than taking profits, Arya says investors should keep loading up. AMD has capitalized on production missteps by server chip leader Intel (INTC) to gain market share in the massive $19 billion server processor market. Arya says Google's reliance on AMD server chips for its Google Cloud platform is further evidence of AMD market share gains. Bank of America has a "buy" rating and $62 price target for AMD stock.
Applied Materials (AMAT)
Applied Materials is a semiconductor fabrication equipment company that provides nanomanufacturing technology solutions to the semiconductor industry. Applied Materials shares are up 66% in the past year. However, Arya says the stock is just getting started. Applied Materials has outpaced its peer group in the past year, but Arya says the stock had been trading in line with its 2018 peak despite strong execution, market share gains and a compelling valuation. In addition, he says the company's product portfolio breadth mitigates risk and its free cash flow is impressive. Bank of America has a "buy" rating and $80 price target for AMAT stock.
Lam Research Corp. (LRCX)
Lam Research is a wafer fabrication equipment supplier for global semiconductor manufacturers. The stock is up 75% in the past year, but Arya says it is showing no signs of slowing down. He says the company's January guidance of 20% wafer fabrication equipment sales growth this year was well above Bank of America's 7% growth forecast. Arya says Lam's impressive free cash flow and earnings numbers in a brutal year for semiconductor equipment makers demonstrates the management team's experience and skill. Bank of America has a "buy" rating and $380 price target for LRCX stock.
MercadoLibre is the largest e-commerce marketplace in Latin America and operates in 20 countries, including Brazil, Argentina and Mexico. The stock is up 102% in the past year, and analyst Robert Ford Aguilar says the company has a long list of additional bullish catalysts ahead. Ford Aguilar says MercadoLibre is early in its growth stage. Losses in Mexico should moderate this year, while the addition of new categories, improved logistics and increased payment capabilities should all drive upside. Bank of America has a "buy" rating and $770 price target for MELI stock.
STMicroelectronics is a logic and analog semiconductor manufacturer with high exposure to the industrial, auto and smartphone markets. Analyst Adithya Metuk says management's recent commentary that channel inventory and auto market demand have stabilized is a positive indicator. Even after the stock's 83% gain in the past year, Metuk said STM has valuation upside if it focuses on stickier, longer-cycle products within the auto and industrial markets. Near-term weakness related to Apple demand and/or coronavirus fears could be a buying opportunity. Bank of America has a "buy" rating and $32.80 price target for STM stock.
Sea Ltd. (SE)
Sea is a mobile and PC gaming platform and e-commerce marketplace operator in Southeast Asia. Sea shares have more than tripled in the past year, gaining 228%. But analyst Paul Dewberry says the company has yet to hit its high-water mark. Dewberry says higher e-commerce take rates and gross merchandise volume growth will more than offset weaker gaming growth. As a result, he says net losses will fall this year, and Sea will reach profitability in 2021. Bank of America has a "buy" rating and $55 price target for SE stock.
Outperforming stocks to buy with fuel in the tank:
-- Nvidia Corp. (NVDA)
-- Qualcomm (QCOM)
-- Advanced Micro Devices (AMD)
-- Applied Materials (AMAT)
-- Lam Research Corp. (LRCX)
-- MercadoLibre (MELI)
-- STMicroelectronics (STM)
-- Sea Ltd. (SE)
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