There is security in numbers.
From an investment perspective, this is exemplified by the theory that you should get into rising stocks. These are the stocks that interest the most people. And as more people like them, there is more demand for them. This creates an upward price momentum.
The concept can be extended to stocks recommended by brokers. Because when brokers recommend a stock, many people are likely to buy it. This is likely to create demand for the stock and lead to resistance on the downside.
The most obvious reason also works – that is, brokers are likely to recommend stocks that have a better chance of doing well at any given time. And that opinion is derived from a careful study of the factors that determine a company’s operations and its stock price performance. It is therefore likely to be correct.
It should also be noted that our best estimate of what is likely to happen over the next year is based on the estimates provided by these analysts/brokers. Therefore, it makes sense to place broker recommendations at the center of any investment strategy we pursue.
Taking this as the main basis for selecting stocks, we can also consider recent company results, the trend of valuation revisions and long-term growth potential. To be on the safe side, it’s best to stick to large-cap stocks.
Let’s see some examples:
CrowdStrike Holdings, Inc. CRWD
The average broker rating on CrowdStrike stock is 1.05, which translates to a Strong Buy recommendation. Additionally, all 20 brokers covering the stock have a strong buy or buy rating.
A leading provider of next-generation endpoint protection, threat intelligence and cyberattack response services, Crowdstrike delivered strong results last quarter, beating Zacks’ consensus estimate by 34.8%. The average surprise over four quarters is 44.3%. Over the past 30 days, estimates for 2022 and 2023 have been raised by 9.8% and 6.1% respectively.
Analysts currently expect Crowdstrike to grow its revenue and profit in 2022 by 52.0% and 83.6% respectively and its revenue and profit in 2023 by 37.1% and 42.4% respectively. Over the long term, they expect earnings growth of 38.4%.
Carlisle Companies Inc. CSL
Carlisle Companies has an average broker rating of 1.00 which is a strong buy. Brokers unanimously drove the rankings on these stocks. After its surprise results of +67.7% in the first quarter (average over four quarters +23.0%), they raised their estimates. As a result, over a 60-day period, we see a 22.8% increase in the 2022 estimate and a 20.7% increase in the 2023 estimate.
Overall, revenue is expected to rise 31.1% this year and 6.2% next, while profits will rise 86.9% this year and 10.6% next. This supplier of a wide range of roofing and waterproofing products, engineered products and finishing equipment is expected to grow by 17.0% in the long term.
Cheniere Energy, Inc. LNG
Cheniere Energy has an average broker rating of 1.14, also a strong buy. All 11 analysts covering the stock agree that this liquefied natural gas (LNG) supplier has strong growth prospects. Last quarter, it reversed a trend of negative surprises to beat Zacks’ consensus estimate of 120.1%.
Analysts quickly raised their estimates: by 39.5% for 2022 and 31.8% for 2023. They now expect its revenue and profits to increase by 81.3% and 267.5% in 2022. While current estimates point to a decline in 2023, the numbers are well above 2021 levels, and rising. Over the long term, analysts expect Cheniere to rise 54.6%.
MPWR monolithic power systems
Monolithic Power has an average broker rating of 1.20. This also translates to a Strong Buy recommendation. Supplier of high-performance analog and mixed-signal ICs has analysts excited. Accordingly, all recommend actions.
The company’s recent performance has boosted their confidence. Monolithic Power beat expectations by 8.4% last quarter and also in each of the last four quarters at an average rate of 8.0%. As you might expect, the past 60 days have seen analysts raise their estimates for 2022 by 20.6%.
Estimates for 2023 are also up an average of 22.6%. Analysts currently expect revenue growth of 43.3% and 19.4% in 2022 and 2023, respectively. Their earnings growth forecasts for the two years are 55.8% and 17.4%, respectively. In the long term, they currently expect earnings growth of 25.0%.
One month price performance
Image source: Zacks Investment Research
5 shares ready to double
Each was handpicked by a Zacks expert as the #1 preferred stock to earn +100% or more in 2021. Previous recommendations have skyrocketed +143.0%, +175.9%, + 498.3% and +673.0%.
Most of the stocks in this report fly under the radar on Wall Street, which provides a great opportunity to get in on the ground floor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.