Investors seem to be welcoming the latest earnings season with fresh optimism despite nagging concerns about inflation, recession and rising interest rates.
Indeed, strong quarterly results from a number of key companies have helped power the major stock averages to weekly gains.
That being said, identifying the right investment opportunities requires more than just watching how a stock moves. Investors with a long-term perspective have to look past the immediate noise.
Here are five companies that top Wall Street pros have picked for long-term value creation, according to TipRanks, which ranks analysts based on their performance.
Trucking company Knight-Swift Transportation (KNX) is no stranger to the supply chain congestion that has plagued industries since the pandemic began. This was reflected in its recently released second-quarter results as well. Weakness in network fluidity kept its intermodal business — which involves freight transport via the rail in containers and other trailing equipment — under pressure.
Nonetheless, Cowen analyst Jason Seidl expects intermodal volumes to recover in the second half of this year, going by what was stated by Knight peers J.B. Hunt (JBHT) and CSX (CSX). (See Knight Transportation Hedge Fund Trading Activity on TipRanks)
Moreover, its other operating segments, namely its truckload (TL) and less-than-truckload (LTL) businesses, showed immense resilience and strength. Seidl highlighted the solid outperformance of both segments, despite the truckload business’s spot rates. These are payments made by a shipper to move shipment at freight market price.
Knight’s less-than-truckload business, which gathered more strength with its acquisitions of AAA Cooper and Midwest Motor Express last year, particularly buoyed Seidl’s confidence in the company. “KNX expects LTL demand to remain strong with yields improving nicely as well, which should help offset weakness in TL. Confidence in LTL is met with continued terminal expansion, with KNX’s door count now over 4,300,” Seidl said.
The analyst, who is ranked No. 4 among the almost 8,000 analysts followed on TipRanks, maintained a buy rating on Knight, with a price target of $55. “We see the diversity of KNX’s business easing pressure on anticipated TL weakness in ’23,” he said.
Seidl has made successful stock ratings 73% of the time, with each rating bringing in an average return of 26.1%.
Truist Financial (TFC) is the sixth largest commercial bank in the U.S., formed after the merger of two major banks, BB&T and SunTrust, in 2019. Truist is skillfully integrating the assets of the two banks while bringing value to shareholders. Moreover, the higher interest rate environment is proving to be beneficial for Truist in the form of higher interest income.
RBC Capital Markets analyst Gerard Cassidy thinks that Truist will be able to completely focus on taking the bank to greater heights once the entire integration process is over. “Furthermore, when the merger is completed and TFC is firing on eight cylinders its 20+% ROTCE (Return on Tangible Common Equity) target should be attainable on a consistent basis,” the analyst said. (See Truist Financial Dividend Date & History on TipRanks)
The bank’s recently released second-quarter results reflected strong benefits from sequentially higher insurance income, along with robust revenues from higher card and payment-related fees. However, a decline in residential mortgage income was a dampener.
That said, Cassidy recognized that Truist’s strong underwriting standards and high credit quality will help its credit metrics to “outperform its peer group over the next 24 months.”
Cassidy reiterated a buy rating on Truist with a price target of $70. Ranked No. 26 among nearly 8,000 analysts followed on TipRanks, Cassidy’s ratings have a 68% success rate and a 22.5% average return per rating.
Bank of America
Another one of Cassidy’s favorite stock picks is the financial services behemoth Bank of America (BAC), whose diversified business is helping it hold ground in rocky times. Needless to say, the firm is thriving in the higher interest rate environment.
The firm’s second-quarter results showed that rising interest rates drove the growth in its net interest margin. Moreover, credit quality continues to remain strong, which is another factor that prompted Cassidy to maintain a buy rating on BAC stock.
However, the analyst anticipates a lower volume of share buybacks in the forthcoming quarters. Therefore, he trimmed the price target to $40 from $45. (See Bank of America Stock Investors on TipRanks)
Nonetheless, Cassidy is upbeat about the growth in BAC’s deposits. Notably, total deposits reached $1.98 trillion in the second quarter. The analyst predicts the firm will outperform its peers during the present downturn, in terms of credit quality and profitability. “We anticipate the transformed and ‘de-risked’ BAC will weather any economic storm that comes its way over the next 12-24 months significantly better than the financial crisis,” said Cassidy.
Moreover, the analyst spotlighted the firm’s mobile offerings. “Additionally, we believe the company’s mobile offerings are among the best in the industry, and as usage increases, we expect BAC to see an increase in its profitability and earnings growth,” said Cassidy.
Semiconductor foundry GlobalFoundries (GFS) has not been sheltered from the global supply chain issues. Nonetheless, the burgeoning demand for chips is expected to continue to drive business for the company. (See Global Foundries Stock Chart on TipRanks)
Recently, Deutsche Bank analyst Ross Seymore said he believes that the entire semiconductor industry is going through a “purgatory” phase during this earnings season, in which investors prefer to stay on the sidelines despite an expectation of fundamental strength in revenues and per-share earnings metrics.
The analyst expects the company to be among the ones that are likely to benefit from an easing of the supply chain bottlenecks. However, the supply-side benefits are expected to be balanced by a slowdown in demand for the rest of 2022, prompting Seymore to cut his price target for Global Foundries to $55 from $70.
However, Seymore believes that GlobalFoundries and its peers are expected to be able to meet the “still strong demand” from the improvement in supply, “providing a tailwind for 2Q22 growth while still signaling an equilibrium may be on the horizon.”
Seymore reiterated a buy rating on GFS stock, keeping its strong longer-term prospects in mind. The analyst holds the No. 16 position among almost 8,000 analysts on the TipRanks database. He has been successful on 74% of his ratings, generating a 24% return per rating on average.
Another one on Ross Seymore’s top picks list is Marvell Technology (MRVL), a semiconductor company specializing in the production of analog, mixed, and digital signal processing products and integrated circuits.
The company has significant secular growth opportunities like global 5G infrastructure developments, bandwidth upgrade cycle in data centers, and higher demand for faster Ethernet from the emerging market of autonomous and electric vehicles. (See Marvell Insider Trading Activity on TipRanks)
Nonetheless, Seymore warns of a softening of demand in the end markets, despite semiconductor companies having undisputed fundamental strength. As a result, the analyst recommended investors remain selective when picking semi stocks to invest in.
Keeping these near-term headwinds in mind, the analyst reduced the price target on MRVL to $65 from $75. Nonetheless, according to Seymore, Marvell has several underappreciated growth drivers that will help tide over near-term concerns and generate longer-term value, making it one of his top defensive picks.