The U.S. stock market continues to be volatile due to the uncertainty surrounding when the Federal Reserve will start to lower interest rates, and how many times. Despite the highest level of rates in a generation, and a tough macroeconomic backdrop, several companies have been delivering strong performances, reflecting the resilience of their business models.
To select the stocks of such companies that have attractive growth potential, investors can track the recommendations of Wall Street’s experts.
Here are three stocks favored by the Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.
First up is the cloud-based workflow management platform ServiceNow (NOW). The company recently announced upbeat results for the fourth quarter of 2023 and raised its 2024 subscription revenue and operating margin guidance.
Following the results, Baird analyst Robert Oliver reiterated a buy rating on NOW stock and boosted his price target to $870 from $780. The analyst noted that all key financial metrics were above expectations in Q4 2023.
ServiceNow’s cRPO (current remaining performance obligations) that will be recognized as revenue over the next 12 months grew 23% on a constant currency basis. The Baird analyst highlighted that while this growth rate marked a slight deceleration from the 24% growth in the previous quarter, it surpassed the firm’s own guidance of more than 21% growth.
Oliver explained that the upside in cRPO was fueled by net new ACV (annual contract value) and higher early renewals. He also noted the strength of ServiceNow’s public sector business and the traction in its generative AI (artificial intelligence) products.
The Baird analyst said that his revised price target for NOW reflects a reasonable valuation of 44x his 2025 FCF (free cash flow) estimate, given its “1) above-average growth profile, 2) strong competitive positioning, 3) large TAM [total addressable market], and 4) top-decile FCF margin.”
Oliver ranks No. 367 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 58% of the time, with each delivering an average return of 11.5%. (See ServiceNow Financial Statements on TipRanks)
Streaming giant Netflix (NFLX) impressed investors with stellar fourth-quarter results. The company added 13.1 million subscribers in the final quarter of 2023, helping the stock to a 16% gain so far in 2024.
DBS analyst Sachin Mittal noted that the company’s crackdown on password sharing in more than 100 markets since May 2023 drove the robust subscriber additions in Q4 2023. He added that ad membership increased 70% sequentially in the fourth quarter and now represents 40% of all new sign-ups in the company’s 12 ad markets.
“Overall, we believe that paid sharing and advertising would help re-accelerate subscriber and revenue growth while driving high-margin incremental revenue,” said Mittal.
The analyst also highlighted that while Netflix saw a sixth consecutive quarter of subscriber growth, rival Disney’s (DIS) subscriber base has declined for three straight quarters. Wall Street expects Netflix’s subscriber base to grow at a faster rate than Disney, reflecting a diminished competitive threat from Bob Iger’s theme park operator.
Mittal reaffirmed a buy rating on Netflix and increased the price target to $580 from $540. He believes that NFLX deserves a premium valuation compared to peers due to faster earnings growth, supported by its dominance in streaming, and increased value from its ad-supported tier and paid sharing efforts.
Mittal holds the 334th rank among more than 8,600 analysts tracked by TipRanks. His ratings have been successful 79% of the time, with each generating an average return of 22.8%. (See Netflix Hedge Fund Activity on TipRanks)
This week’s third stock pick is electric vehicle maker Rivian (RIVN). In early January, the company reported 13,972 deliveries in the fourth quarter of 2023. Overall, Rivian delivered 50,122 EVs in 2023.
Recently, Tigress Financial analyst Ivan Feinseth reiterated a buy rating on RIVN stock with a price target of $36. Feinseth thinks that the pullback in the stock offers a good opportunity to gain exposure to the emerging EV player. Rivian is down 33.5% in 2024.
Feinseth is bullish on RIVN citing multiple catalysts, including, “ongoing production ramp-up, expanded commercial vehicle opportunities, new lease programs and the upcoming introduction of its R2 platform.”
The analyst noted that the company continues to see solid demand for its pick-up trucks and SUVs, and he also expects Rivian to benefit from increasing demand for its commercial vans, given the company’s expansion an existing partnership with Amazon (AMZN).
In particular, Feinseth highlighted Rivian’s recently announced deal with AT&T (T), under which the telecom provider agreed to purchase commercial vans and R1 electric vehicles to reduce its carbon footprint.
Feinseth is optimistic about Rivian, saying it has a total addressable market (TAM) of $9 trillion and a service addressable market of more than $1 trillion over the next three years. The analyst believes that Rivian has a significant first-mover advantage as the leading manufacturer of electric pick-up trucks and SUVs.
Feinseth ranks No. 235 among more than 8,600 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, with each delivering an average return of 11.4%. (See Rivian Insider Trading Activity on TipRanks)