Wall Street Just Upgraded These 3 Large Caps to ‘Buy’
Not even a pandemic could stop the U.S. stock market from finishing in the green last year. Stocks have built off 2020’s remarkable recovery this year and barring a disaster will finish higher for the third straight year.
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With the major indices setting fresh record highs seemingly at will, talk that some areas of the market are as frothy as a poorly dispensed beer have picked up in recent days. The technology sector, SPAC stocks, and recent IPOs are the main suspects.
With a growing list of highfliers out there, investors may start to look to underperforming names that have the makings of a comeback. A good place to find such stocks is to see what Wall Street analysts are recommending in this overheated market. Here are three large caps whose ratings were recently upgraded to ‘buy’.
How is Walmart Expected to Perform in Q4?
Walmart (NYSE:WMT) has been upgraded from neutral to buy at MKM Partners. The firm set a $166 target on the stock which after the recent dip represents 17% upside. MKM was one of few holdouts on the Street that hadn’t granted Walmart a buy rating. Last week, Goldman Sachs reiterated its Conviction Buy designation and gave the stock a wildly bullish $196 target.
Down 1.3% year-to-date, Walmart is in danger of repeating its pattern of two up years followed by a down year that began in 2016. How the stock starts the new year will largely depend how well Walmart does during the holiday shopping season. The world’s biggest retailer is already on its third Black Friday sale and is getting set to launch a major online sale on November 22nd with Walmart+ members enjoying a four-hour head start.
Last year Walmart fell short of fourth quarter earnings expectations and will have an even higher target of $1.49 per share to contend with this year. While much of the focus is on gift purchases, consumers willingness to pay more for Walmart’s usually low-priced groceries for holiday meals will be a major factor as well. Much is also riding on Walmart’s e-commerce business which has been growing like gangbusters. Some things like supply chain constraints will be out of Walmart’s control, but overall analysts are expecting a strong holiday quarter and a better 202.
What are the Growth Drivers at Tapestry?
Share of luxury goods maker Tapestry (NYSE:TPR) have bounced sharply off their pandemic bottom but remain a distance away from their days of trading in the $70’s. A return to that price level may not be that far away.
Argus Research moved its rating from hold to buy on Friday. The firm sees strong sales of Coach, Kate Spade, and Stuart Weitzman handbags and accessories ahead kickstarted by holiday gift givers. After a rough 2020 in which sales fell 18%, Tapestry’s top line rebounded 16% in fiscal 2021. Looking ahead to 2022, Argus expects improving sales and margin trends leading to 18% EPS growth.
The analyst sees several catalysts driving performance next year. Tapestry’s direct-to-consumer sales model, international expansion plans, and efforts to attract younger consumers are all expected to contribute to growth. The company’s increased reliance on data analytics to improve the effectiveness of marketing campaigns is also expected to lead to higher sales.
Like other high-end clothing and accessory retailers, Tapestry must continue to work through supply chain snags and higher input costs. Thus far consumers have been willing to absorb the price increases and Argus expects this pattern to continue. The stock’s 2.2% dividend yield and growth expectations have it looking like a fashionable investment heading into the new year.
Is Anheuser-Busch InBev Stock a Buy?
Anheuser-Busch InBev (NYSE:BUD) received an upgrade from neutral to buy at Redburn Partners. The brewing giant still has mixed reviews on the Street, but sentiment has improved in recent weeks. Even the most bearish sell-side firm, J.P. Morgan, has a price target that implies only 3% downside.
The risk-reward certainly appears to have shifted to favorable for AB InBev. After a dismal 2020 heavily impacted by restaurant and bar closures, the outlook has become brighter. On the heels of a strong third quarter in which sales were up 11%, management raised its full-year EBITDA growth forecast to 10% to 12%. That’s because with many reestablishments reopened sales volumes are on the rise as are prices.
AB InBev’s key three brands—Budweiser, Corona, and Stella Artois—are leading the charge, but are getting help from other product categories. An expanded lineup of non-beer beverages like canned wine and cocktails, hard seltzers, ciders, and flavored malts have gained traction in the market because people have become more interested in low- or no- alcohol options.
Analysts expect that sales and profit growth will continue in 2022 but remain short of pre-pandemic levels. The consensus estimate for next year’s EPS is $3.29 which means AB InBev shares can be had for a reasonable 18x forward earnings. That’s a price that may be worth paying for a better diversified beverage king riding the Clydesdales on a comeback trail.
