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Philip van Doorn

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Sept. 8, 2021, 7:01 a.m. EDT

Wall Street sees as much as 56% upside for its 20 favorite stocks

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By Philip van Doorn

As the stock market reopens following Labor Day weekend, there is no shortage of warnings that a correction is due — which would be a pullback of at least 10% for the benchmark S&P 500 following a gain of 21% so far this year.

But there still may be catalysts for stock prices as the economy rebounds and interest rates remain low. A list of favorite S&P 500 /zigman2/quotes/210599714/realtime SPX -0.11% stocks among Wall Street analysts is below.

In Monday’s Need to Know column , Barbara Kollmeyer cites Matt Maley, chief market strategist at Miller Tabak + Co., who sees parallels between current market conditions and those of 2007, 1999 and 1929 that preceded three crashes.

Then again, John Buckingham, editor of the Prudent Speculator newsletter, shared this chart, which shows how the market recovered after declines brought about by 20 “frightening events” going back to 2010:

An investor with a crystal ball might time the market perfectly, selling everything at a market top and buying at the bottom. But the human tendency, even for an investor who “gets out in time,” is to buy back in too late and miss the rebound. For the vast majority of long-term investors, waiting out a bear market (one with a decline of at least 20%) tends to work out well if one can stay in for three years. If your investment horizon is shorter than that, stocks might not be for you.

Buckingham’s chart, above, shows how well the S&P 500 has performed since the COVID-19 crisis began. But here’s another way of illustrating how quickly the market can recover, especially when supported by government stimulus and Federal Reserve policy — the S&P 500’s price movement since the end of 2019:

From an intraday peak Feb. 10, 2020, through the pandemic trough March 23, 2020, the S&P 500 dropped 35%. It has gained 107% since that bottom. But if you look more closely, you can see significant pullbacks (based on intraday prices) of 11% between Sept. 2, 2020, and Sept. 24, 2020, and 9% between Oct. 10, 2020, and Oct. 30, 2020. Those weren’t fun periods for investors, but in hindsight they were blips. Investors fare best when they held on.

Valuations and relative bargains

Federal stimulus and central-bank easy-money policies have made interest rates so low that some investors who would traditionally lean toward bonds and preferred stocks for income turned toward common stocks. So the forward price-to-earnings (P/E) ratio for the S&P 500 is now 21.4, based on consensus estimates among analysts polled by FactSet, compared to a 10-year average valuation of 16.5.

The 11 sectors of the S&P 500 tend to trade higher or lower than the full index on a P/E basis. Here are the sectors’ relative valuations to the full index and how those compare to average valuations:

S&P 500 sector Forward P/E Average forward P/E – 10 years P/E to full index P/E Average P/E to average full index P/E Relative premium or discount
Energy 13.2 15.3 62% 93% -31%
Materials 17.2 15.8 80% 95% -15%
Industrials 22.5 16.7 105% 101% 4%
Consumer Discretionary 31.5 22.1 148% 134% 14%
Consumer Staples 20.8 18.5 97% 112% -15%
Health Care 17.7 15.5 83% 94% -11%
Financials 14.4 12.2 67% 74% -7%
Real Estate 23.3 18.6 109% 112% -3%
Information Technology 26.6 16.8 125% 102% 23%
Communication Services 22.7 18.6 106% 113% -6%
Utilities 20.0 16.7 94% 101% -7%
S&P 500 21.4 16.5
Source: FactSet

It probably isn’t a surprise to see that the information technology sector, dominated by rapidly growing tech giants (in an index weighted by market capitalization) trades much higher relative to the full index than it did five years ago, or that the energy sector trades much lower.

But it is worth noting that several sectors still trade lower than usual, relative to the full index, even in a market that has lifted 88% of the S&P 500 this year. These include health care, which is up 20% in 2021, and the financial sector, up 29%.

Wall Street’s favorites among the S&P 500

Analysts who work for brokerage firms tend to shy away from negative ratings. Among the S&P 500, there are no companies with majority “sell” or equivalent ratings. But the analysts still have clear preferences for some stocks over others. Here are 20 stocks in the benchmark index with at least 75% “buy” or equivalent ratings, with the most upside implied for the next year, based on consensus price targets:

Company Share “buy” ratings Closing price – Sept. 3 Consensus price target Implied 12-month upside potential
Micron Technology Inc. /zigman2/quotes/205710729/composite MU 88% $73.81 $114.96 56%
Diamondback Energy Inc. /zigman2/quotes/201200230/composite FANG 91% $75.56 $113.52 50%
General Motors Co. /zigman2/quotes/205226835/composite GM 92% $48.82 $72.16 48%
News Corp. Class A /zigman2/quotes/201755982/composite NWSA 80% $22.56 $32.74 45%
Global Payments Inc. /zigman2/quotes/201234787/composite GPN 81% $158.01 $228.69 45%
Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI 91% $81.18 $116.04 43%
Alaska Air Group Inc. /zigman2/quotes/200972303/composite ALK 93% $57.11 $80.00 40%
Pioneer Natural Resources Co. /zigman2/quotes/206736173/composite PXD 81% $149.88 $207.09 38%
Southwest Airlines Co. /zigman2/quotes/201071949/composite LUV 82% $48.86 $66.24 36%
Lamb Weston Holdings Inc. /zigman2/quotes/205501174/composite LW 78% $63.58 $85.43 34%
ConocoPhillips /zigman2/quotes/207605056/composite COP 97% $56.24 $75.52 34%
Centene Corp. /zigman2/quotes/208900023/composite CNC 85% $64.37 $85.47 33%
Vertex Pharmaceuticals Inc. /zigman2/quotes/202259802/composite VRTX 78% $198.05 $262.14 32%
FedEx Corp. /zigman2/quotes/203047719/composite FDX 78% $266.04 $349.48 31%
Devon Energy Corp. /zigman2/quotes/209479244/composite DVN 85% $29.17 $38.19 31%
Valero Energy Corp. /zigman2/quotes/200735463/composite VLO 85% $64.70 $84.06 30%
Mastercard Inc. Class A /zigman2/quotes/207581792/composite MA 84% $340.23 $439.16 29%
Zimmer Biomet Holdings Inc. /zigman2/quotes/205473073/composite ZBH 79% $146.74 $187.58 28%
Schlumberger Ltd. /zigman2/quotes/201012972/composite SLB 79% $28.09 $35.56 27%
T-Mobile US Inc. /zigman2/quotes/204659678/composite TMUS 87% $136.00 $172.00 26%
Source: FactSet

Click on the tickers for more about each company.

If you see any stocks of interest, you should do your own research and form your own opinion about how likely a company is to remain competitive over the next decade. Tomi Kilgore has just written a detailed guide to the information available on MarketWatch’s quote page . That’s a great way to begin digging into any stock.

Don’t miss: 14 dividend stocks from a winning value manager as the broader market hits record highs

/zigman2/quotes/210599714/realtime
US : S&P US
4,544.90
-4.88 -0.11%
Volume: 1.82B
Oct. 22, 2021 5:04p
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/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 67.51
-1.13 -1.65%
Volume: 17.89M
Oct. 22, 2021 4:00p
P/E Ratio
13.13
Dividend Yield
0.59%
Market Cap
$75.52 billion
Rev. per Employee
$644,302
loading...
/zigman2/quotes/201200230/composite
US : U.S.: Nasdaq
$ 109.33
+0.40 +0.37%
Volume: 2.18M
Oct. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
1.65%
Market Cap
$19.79 billion
Rev. per Employee
$3.84M
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/zigman2/quotes/205226835/composite
US : U.S.: NYSE
$ 57.77
-0.64 -1.10%
Volume: 11.08M
Oct. 22, 2021 4:00p
P/E Ratio
6.68
Dividend Yield
0.00%
Market Cap
$83.87 billion
Rev. per Employee
$790,226
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/zigman2/quotes/201755982/composite
US : U.S.: Nasdaq
$ 24.07
+0.25 +1.05%
Volume: 1.80M
Oct. 22, 2021 4:00p
P/E Ratio
43.24
Dividend Yield
0.83%
Market Cap
$14.28 billion
Rev. per Employee
$389,917
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/zigman2/quotes/201234787/composite
US : U.S.: NYSE
$ 158.00
-1.99 -1.24%
Volume: 1.09M
Oct. 22, 2021 4:00p
P/E Ratio
54.60
Dividend Yield
0.63%
Market Cap
$46.41 billion
Rev. per Employee
$309,315
loading...
/zigman2/quotes/200717283/composite
US : U.S.: Nasdaq
$ 79.27
+0.57 +0.72%
Volume: 6.96M
Oct. 22, 2021 4:00p
P/E Ratio
23.76
Dividend Yield
0.59%
Market Cap
$61.65 billion
Rev. per Employee
$851,474
loading...
/zigman2/quotes/200972303/composite
US : U.S.: NYSE
$ 53.81
-2.39 -4.25%
Volume: 3.09M
Oct. 22, 2021 4:00p
P/E Ratio
387.12
Dividend Yield
0.00%
Market Cap
$6.74 billion
Rev. per Employee
$162,113
loading...
/zigman2/quotes/206736173/composite
US : U.S.: NYSE
$ 191.62
+2.94 +1.56%
Volume: 1.66M
Oct. 22, 2021 4:00p
P/E Ratio
142.52
Dividend Yield
1.17%
Market Cap
$46.75 billion
Rev. per Employee
$3.79M
loading...
/zigman2/quotes/201071949/composite
US : U.S.: NYSE
$ 47.63
-1.03 -2.12%
Volume: 7.62M
Oct. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$28.18 billion
Rev. per Employee
$160,142
loading...
/zigman2/quotes/205501174/composite
US : U.S.: NYSE
$ 59.09
+1.85 +3.23%
Volume: 1.76M
Oct. 22, 2021 4:03p
P/E Ratio
33.65
Dividend Yield
1.59%
Market Cap
$8.63 billion
Rev. per Employee
$470,628
loading...
/zigman2/quotes/207605056/composite
US : U.S.: NYSE
$ 75.72
+1.13 +1.51%
Volume: 7.17M
Oct. 22, 2021 4:00p
P/E Ratio
65.15
Dividend Yield
2.43%
Market Cap
$101.40 billion
Rev. per Employee
$1.93M
loading...
/zigman2/quotes/208900023/composite
US : U.S.: NYSE
$ 69.24
+0.25 +0.36%
Volume: 3.00M
Oct. 22, 2021 4:02p
P/E Ratio
57.06
Dividend Yield
N/A
Market Cap
$40.37 billion
Rev. per Employee
$1.56M
loading...
/zigman2/quotes/202259802/composite
US : U.S.: Nasdaq
$ 183.52
-3.57 -1.91%
Volume: 1.95M
Oct. 22, 2021 4:00p
P/E Ratio
24.23
Dividend Yield
N/A
Market Cap
$47.61 billion
Rev. per Employee
$1.83M
loading...
/zigman2/quotes/203047719/composite
US : U.S.: NYSE
$ 232.98
+0.14 +0.06%
Volume: 2.58M
Oct. 22, 2021 4:00p
P/E Ratio
15.35
Dividend Yield
1.29%
Market Cap
$61.89 billion
Rev. per Employee
$289,945
loading...
/zigman2/quotes/209479244/composite
US : U.S.: NYSE
$ 40.44
+0.74 +1.86%
Volume: 7.33M
Oct. 22, 2021 4:00p
P/E Ratio
212.62
Dividend Yield
3.07%
Market Cap
$27.38 billion
Rev. per Employee
$3.34M
loading...
/zigman2/quotes/200735463/composite
US : U.S.: NYSE
$ 80.99
-1.01 -1.23%
Volume: 3.92M
Oct. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
4.84%
Market Cap
$33.11 billion
Rev. per Employee
$6.51M
loading...
/zigman2/quotes/207581792/composite
US : U.S.: NYSE
$ 358.67
+2.46 +0.69%
Volume: 2.77M
Oct. 22, 2021 4:00p
P/E Ratio
49.82
Dividend Yield
0.49%
Market Cap
$353.93 billion
Rev. per Employee
$728,619
loading...
/zigman2/quotes/205473073/composite
US : U.S.: NYSE
$ 150.42
-0.39 -0.26%
Volume: 320,772
Oct. 22, 2021 4:03p
P/E Ratio
34.40
Dividend Yield
0.64%
Market Cap
$31.41 billion
Rev. per Employee
$351,225
loading...
/zigman2/quotes/201012972/composite
US : U.S.: NYSE
$ 33.91
-0.39 -1.14%
Volume: 12.08M
Oct. 22, 2021 4:00p
P/E Ratio
47.09
Dividend Yield
1.47%
Market Cap
$47.42 billion
Rev. per Employee
$274,430
loading...
/zigman2/quotes/204659678/composite
US : U.S.: Nasdaq
$ 116.87
+0.02 +0.02%
Volume: 5.21M
Oct. 22, 2021 4:00p
P/E Ratio
37.38
Dividend Yield
N/A
Market Cap
$145.85 billion
Rev. per Employee
$911,960
loading...

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