Wall Street analysts bullish on Alphabet and Microsoft
A man walks past Alphabet Inc’s Google brand logo outside his office in Beijing, China, August 8, 2018.
Thomas Stone | Reuters
Earnings season can bring increased volatility to the markets, and this time it shows no signs of slowing down.
In these tumultuous times, short-term betting can be dangerous. Instead, investors might better weather the turbulence by taking a long-term perspective.
According to TipRanks, which tracks top-performing analysts, some of Wall Street’s top pros shrugged off the noise and picked five stocks as ideal long-term investments.
Here are five companies that analysts expect to do well going forward despite the current macroeconomic headwinds.
Instantaneous (INSTANTANEOUS) is the social media company behind photo-sharing app Snapchat, which has over 330 million daily active users. It recently released results for the first quarter, a “challenging” time for the company, according to CEO Evan Spiegel. (See Snap Hedge Funds Holdings on TipRanks)
Brian Fitzgerald of Wells Fargo Securities believes Snap has a bright future ahead of it. In a recent report, the analyst noted continued growth in Snap’s viewership, engagement, and monetization. He sees growth accelerating as the macro environment improves.
Fitzgerald priced the stock as a buy with a price target of $48.
The analyst said Snap’s Conversion API and privacy tools contribute to a better return on ad spend, which means the company is impressing its customers. Additionally, Fitzgerald observed that Snap manages its content and infrastructure costs well, explaining that these are some of the fruits of parent Snapchat’s cloud computing deals with Amazon (AMZN) and Google (GOOGL).
Fitzgerald is ranked 78th out of nearly 8,000 analysts on TipRanks. The analyst’s stock ratings were correct 60% of the time, with an average return of 23.7% per rating.
Microsoft (MSFT) released strong quarterly results, fueled by strong performance in the cloud computing sector. The Windows software maker then provided an upbeat outlook for the current quarter and fiscal year as it expects its cloud business to continue to perform well. (See Microsoft News Sentiment on TipRanks)
Wedbush’s Dan Ives agrees Microsoft’s cloud business will continue to shine. In a recent report, the analyst pointed out that the company expects to report cloud revenue of up to $21.35 billion in the current quarter, compared to the Wall Street consensus estimate of 20. $89 billion.
Ives priced the stock as a buy with a price target of $340.
The cloud services that Microsoft and others provide help businesses modernize their systems so they can operate more efficiently. According to Ives, businesses will continue to invest in their digital transformation despite Federal Reserve rate hikes and inflation concerns that will likely slow the economy. As a result, cloud spending will only accelerate and Microsoft is well positioned to take advantage of this. Additionally, the analyst noted that Microsoft’s other businesses are also doing well.
Of nearly 8,000 analysts in the TipRanks database, Ives is ranked No. 119. The analyst’s stock ratings were accurate 61% of the time, with an average return of 21.6% per rating.
alphabetical (GOOG) stock fell after the company released quarterly results that showed YouTube advertising revenue growth fell short of expectations. Google’s parent company derives most of its revenue from advertising, and YouTube is one of its most important assets in this sector. (See Alphabet Blogger Sentiment on TipRanks)
While a YouTube slowdown could be a problem for investors, Raymond James analyst Aaron Kessler thinks there’s a lot to like about GOOGL stock. First, Alphabet management explained that the problem with YouTube was the direct-response ad type, which faced a tough comparison to the same quarter a year earlier. However, the company believes there is still a big opportunity in the direct response category.
Kessler priced the stock as a buy with a price target of $3,180.
The analyst sees long-term growth potential for Google Search, although the war in Ukraine could reduce advertising spending in Europe. In a recent report, he pointed out that the recovery in retail and travel will continue to drive gains in Google’s search business. Even at YouTube, the strong growth in YouTube Shorts user engagement is positive, Kessler said. YouTube Shorts receives over 30 billion daily views.
Kessler also observed that the cloud business is also a major bright spot for Alphabet, noting that the business is gaining momentum. According to the analyst, Alphabet’s Other Bets, which includes standalone unit Waymo, also has a promising future.
Alphabet’s $70 billion increase in its stock buyback program also caught Kessler’s attention. The new plan is in addition to some $4 billion remaining under its previous buyback program, the analyst noted.
Kessler is ranked 88th out of nearly 8,000 analysts in the TipRanks database. Its stock quotes have been correct 65% of the time, with an average return of 19% per quote.
The Visa payment network (V) posted a strong second fiscal quarter, despite the suspension of its operations in Russia. Although Visa expects the exit from Russia to reduce its fiscal second half net revenue by 4%, the business is generally doing well. Management expects growth elsewhere to offset the loss of Russian revenue within a year. (See Visa Hedge Funds Holdings on TipRanks)
Wedbush analyst Moshe Katri agrees Visa’s business can continue to thrive despite the Russian headwind. The analyst rated Visa stock as a buy with a price target of $270.
The global travel recovery is a boon for Visa. In a recent report, Katri noted that Visa’s cross-border travel volumes are improving, adding that this is a high-margin business for the company. Additionally, while inflation can be a blow to many businesses, Katri pointed out that this is actually a tailwind for Visa as it means high average ticket prices.
It also serves Visa well that spending by affluent consumers is back in force in areas such as travel, dining and entertainment, as management explained. Pandemic shutdowns stopped affluent consumers from spending because they couldn’t go out, but now they’re back as vaccines give people more confidence to venture outdoors.
Out of nearly 8,000 analysts on TipRanks, Katri ranks 335th. Analyst stock ratings were successful 72% of the time, with an average return of 16.8% per rating.
Juniper Networks (JNPR) manufactures networking products and also offers cybersecurity solutions. Although the company reported exceeding quarterly revenue estimates, JNPR stock sold off after management lowered the gross margin outlook for full year 2022. (See Juniper Networks Retail Investors on TipRanks)
However, Needham analyst Alex Henderson said in a recent report that the gross margin adjustment was a minor issue. The analyst said Juniper’s underlying fundamentals appear strong and management execution is also likely to be better than comparable companies.
Supply chain disruption, particularly resulting from lockdowns in China due to the resurgence of Covid-19, has been a major concern for investors. While that could be a problem, Henderson said Juniper has diversified its supply chain and is now less dependent on China than in the past.
Henderson priced the stock as a buy with a price target of $38.
Additionally, the analyst pointed out that Juniper’s $730 million software business is on track to more than double over the next three years. The strength of the software division is also driving gains in the company’s other businesses, such as switching, routing and security.
Finally, Henderson said Juniper’s acquisitions of Mist, Apstra, 128 Technology and Netrounds should help accelerate growth across the company’s portfolio.
Henderson is ranked 71st out of nearly 8,000 analysts on TipRanks. His stock quotes were accurate 59% of the time, with an average return per quote of 23.7%.