Volatility has made its way back to Wall Street. Over the last few weeks, the trading mania related to GameStop and AMC Entertainment has hogged headlines, after a group of retail investors banded together to bid up the share prices of these heavily shorted names, triggering the most extreme short squeeze witnessed in the last 25 years, according to Goldman Sachs.
"The passions being aroused by these events are also causing significant concerns about the wider implications about other areas of the market that might be overleveraged," chief market analyst at CMC Markets U.K., Michael Hewson, noted.
In these uncertain and volatile times, one approach to finding compelling investment opportunities is to follow the activity of the experts with a proven track record. TipRanks analyst forecasting service tracks financial analysts' ratings to find the pros with the highest success rate and average return per rating.
Here are the best-performing analysts' top stock picks amid this latest bout of volatility:
Video game maker Electronic Arts has gained 34% over the past year, and top analyst Laura Martin, of Needham, believes that there's more fuel left in the tank. To this end, she reiterated a Buy rating and $165 price target (17% upside potential) on February 3.
In its most recent quarter, EA reported GAAP net revenue of $1.67 billion, which reflected 5% year-over-year growth. Although GAAP EPS of $0.72 demonstrated a 39% decline year-over-year, the result beat Martin's estimate by 18%, primarily due to live services growth.
Most noteworthy for Martin was the fact that EA launched FIFA 21, Madden NFL 21, Medal of Honor: Above and Beyond, Need for Speed Hot Pursuit Remastered and NHL 21 during the quarter and paid subscribers hit 13 million, "representing an annuity revenue stream."
"We like EA's annual release schedule of FIFA and Madden sports games, which we believe is an annuity stream business with a well-established installed base of annual and predictable users. This annuity stream positioning lowers EA's risk compared with its hit-driven video game competitors," the analyst explained.
Looking ahead, management guided for $6.1 billion of net bookings for full year 2021, as well as year-over-year growth in full year 2022.
Martin highlights four growth drivers that could continue to fuel upside, including the 35 new games planned for FY22, Apex Legends as well as FIFA expansion and Sims and Madden.
As Martin has achieved a 70% success rate and 35.7% average return per rating, she lands among the top 50 analysts tracked by TipRanks.
The resurgence of demand witnessed by NXP Semiconductor has reaffirmed Needham analyst Rajvindra Gill's bullish thesis. As a result, the five-star analyst left his buy rating as is. In a further show of optimism, he bumped up the price target from $200 to $223. This puts the upside potential at 28%, with shares already up 39% over the last year.
Accelerating sequential demand in the automotive, IoT/industrial and communication infrastructure industries could lead to counter-seasonal strength, according to management.
"WiFi and China continue to drive IoT/Industrial and GaN products offer new potential for sales in 2H21, while mobile demand remains strong from mobile wallet and UWB," Gill wrote in a recent note.
That said, Gill acknowledges that NXPI has been hampered by supply chain constraints, with it experiencing limitations in terms of available foundry capacity as well as pricing increases in some areas.
"The semi industry experienced two abnormal years, first from the China Trade War and then COVID-19, which suppressed demand. Entering 2021, demand has come roaring back, causing supply constraint challenges. NXPI is aggressively expanding capacity to meet demand and supply conditions could abate as we enter 2022," Gill explained.
Summing it all up, Gill noted, "…we believe the inventory correction that affected the semi cycle since October 2018 is largely over and believe that we are approaching a bottom."
Currently, Gill is tracking a 65% success rate and 13.6% average return per rating.
According to Susquehanna analyst Christopher Rolland, semiconductor company Cirrus Logic also experienced some supply constraints in the most recent quarter. However, in spite of these obstacles, it offered "great results and guidance, as increasing content across the Apple lineup helped drive +30% year-over-year top-line growth."
This led Rolland to reiterate his Buy rating on February 2. Additionally, although shares have surged 43% since August 31, Rolland sees 33% upside potential in store, based on his Street-high price target of $115.
Cirrus has already seen "solid traction" for amplifiers, true-wireless codecs, and haptics into Android customers in 1H21, "perhaps signalling content increases for Samsung this spring," in Rolland's opinion.
"We were excited to see the company break out 'High Performance Mixed Signal Non-Audio' as 19% of revenue. We expect this segment to grow significantly faster than the overall company and may become the most important driver of growth at the margin over the next five years. We believe Cirrus may be transitioning from an audio company to a mixed-signal company, a thesis missed by most of the Street," the analyst added.
Citing the strengthening of its position in audio, diversification beyond smartphones and expansion of mixed-signal products for non-audio applications as growth vectors, Rolland thinks investors should "look past elevated near-term sentiment and the flawed bear thesis of customer concentration risks and lack of non-Apple growth longer term."
Further, the analyst sees the relationship with Apple as "high-value" and "growing," arguing that "a scenario exists in which the relationship between the two companies grows so large and so tight that it ultimately compels Apple to make a bid for Cirrus…"
With a 75% success rate and 22.3% average return per rating, Rolland earns the #71 spot on TipRanks' ranking.
UPS is among the key beneficiaries of the COVID-19 pandemic, with shares up 57% over the past year.
For Oppenheimer's Scott Schneeberger, UPS still has more room to grow. Based on his $186 price target, which was reiterated along with his Buy recommendation on February 2, the five-star analyst sees 16% upside potential.
In a report titled "Strong Finish to 2020 with Momentum into 2021," Schneeberger lays out his case for the parcel delivery company. Adjusted EPS for the fourth quarter of 2020 came in at $2.66, easily beating the analyst's $2.06 estimate. On top of this, total revenue grew 21% year-over-year, with operating income reaching a record high across the company's three segments.
All of this prompted Schneeberger to raise his estimate for 2021 adjusted EPS to $9.06 from $8.88 "primarily on UPS's sizable 4Q20 outperformance."
The analyst added, "We anticipate sustained B2C volume/pricing momentum, B2B rebound progression, elevated International activity/margin, and efficiency initiatives to benefit 2021E and 2022E, where our adjusted EPS updates to $9.66 (+7% y/y; from $9.50; $9.46 consensus)."
When it comes to the valuation, Schneeberger's price target represents 20.5x his 2021 adjusted EPS forecast, which is at the high end of UPS's 11x–22x five-year historical FTM EPS range. He argues this is justified as he expects "solid 2021E EPS growth from a 2020E COVID-19-driven lull via B2C volume/ pricing, B2B progression, and operating efficiency initiative benefits." The analyst also notes that he is "drawn to UPS's industry-leading ROIC/solid balance sheet/dividend yielding 2.5%."
As evidence of his stock picking skills, Schneeberger boasts a 63% success rate.
There was a lot to like in PayPal's fourth quarter earnings release, in BofA Securities analyst Jason Kupferberg's opinion. As such, the analyst reiterated a Buy rating on February 3. Despite the fact that shares are already up 116% over the past year, Kupferberg's $282 price target indicates an additional 12% upside potential.
Kupferberg wasn't "surprised" that PayPal shares got a boost on its better-than-expected print and "very positive initial data points around uptake of new growth initiatives, which along with momentum in the core business should offset the expected 4% eBay headwind in 2021."
According to management, initiatives like in-store/QR codes, crypto and Pay in 4, its buy-now pay later product in the U.S., have all exceeded expectations, with Pay in 4 doing particularly well. In its first quarter since the product was launched, Pay in 4 generated over $750 million of total payment volume.
On top of this, Kupferberg stated, "PayPal QR codes are now accepted at over 600,000 retail locations including chains such as CVS, Foot Locker, and Nike. Merchants accepting QR codes are experiencing double-digit increases in average basket sizes, while PYPL is seeing a 19% increase in TPV from consumers who use QR codes… Crypto trading is also off to a very strong start, with trading volumes greatly exceeding internal expectations."
With this in mind, PayPal released its initial 2021 outlook, which included organic nominal top-line growth of 19% and non-GAAP EPS of $4.54, landing in line with consensus estimates.
"Given management's typical conservatism, we see upside potential to the initial 2021 outlook. Based on year-over-year comps, revs/EPS growth will be highest in 1Q, followed by stable but more modest revenue growth in 2Q-4Q," Kupferberg said.
Kupferberg is ranked #157 on TipRanks' list of best-performing analysts, backed by a 71% success rate and 17.6% average return per rating.