Retail investors can have a significant advantage over others by following Wall Street analysts' trends, especially in the way they shift their ratings and price targets for certain stocks. Today, three names give investors an opportunity to reverse engineer some of the recent analyst upgrades to determine whether they are Buys across the board.
It turns out that these analysts might be spot on this time around, as the stocks they selected to boost valuations and ratings carry several tailwinds and bullish factors with them. This is especially the case as the United States is under threat of an inflation resurgence, suggested by the signal some markets are sending based on their current behavior relative to each other.
These stocks are inflation-friendly names, some in the consumer discretionary sector and others in the technology and energy sector, but at the end of the day, they all have a double-digit upside, as reiterated by analysts today. Shares of Roku Inc. (NASDAQ: ROKU), Wingstop Inc. (NASDAQ: WING), and even First Solar Inc. (NASDAQ: FSLR) are the top choices for Wall Street analysts today as they earned their bullish sentiment.
Why Wall Street Analysts Are Growing More Optimistic on Roku Stock
Inflation could hurt many businesses as they aren’t able to pass down the increased costs that the market is going to hit them with. However, there are other business models that do a better job of diversifying. Some of these are subscription-based businesses, and that’s where Roku stock comes into play.
The company has two tailwinds running in its favor. The first is the high-margin nature of technology and software stocks, as seen in the 44.5% gross profit margin in the company’s financial statements. This low-cost setup allows the company to escape most of the inflation pressures that may come from the overall economy.
The second tailwind is the ability to pass down any cost increase through the subscription model. Users will likely keep making room in their monthly budgets so as not to lose the streaming service. More than that, a mid-single-digit increase in subscription prices isn’t something that will break the bank for most customers.
With these factors at play, analysts at Needham & Company decided to reiterate their Buy rating on Roku stock, which came with a $100 a share price target. Roku stock would have to rally by as much as 50% from where it trades today to prove these analysts right.
Analysts See Wingstop’s Operational Efficiencies, Making It a Strong Buy
This is not typical for the retail sector, much less for consumer discretionary names. Still, Wingstop derives up to 70% of its sales from digital channels. This has a similar effect on the company as Roku’s, keeping Wingstop’s margins at the upper range of industry standards.
More profitability calls for bigger earnings per share (EPS) figures in the coming months, which Wall Street analysts agree with. For the next 12 months, analysts think Wingstop could see up to $1.16 in EPS, a significant increase of 32% from today’s $0.88 level.
With inflation making Wingstop a better choice in the industry, price targets, and valuations also reflect this trend. Those at Stephens decided to keep their Overweight rating on Wingstop stock, this time with a price target of up to $468 a share. Compared to today’s price, the stock would have to rally by as much as 60%, a fact that investors need to watch out for.
One last thing investors should keep in mind is the recent rate of institutional buying in Wingstop stock, especially from those at Assetmark, which recently boosted their holdings by 9.6%, bringing their position to a high of $3.8 million today.
Double-Digit Upside Could Await Investors Willing to Buy First Solar Stock
The inflation theme could raise oil prices, something that even Warren Buffett is betting on after he bought up to 29% of Occidental Petroleum Co. (NYSE: OXY). The problem is that if oil prices go higher, so does the cost of most fuel sources.
Alternative energy sources, such as solar and wind, could become more attractive to users and investors. This is where First Solar stock comes into play. Analysts know this, particularly those at Guggenheim, after they kept their Buy rating on the stock, alongside a price target of up to $335 a share, calling for as much as 55% upside from where it trades today.
Knowing that the economy's trends could help these stocks, Wall Street analysts have projected up to $5.6 in EPS for the next 12 months, a massive jump of 92% from today’s $2.91, to justify all the upside that’s inherent in the stock today.
