Seeing which stocks Wall Street is buying isn’t a foolproof investment strategy.
Still, retail investors should carefully watch how top analysts and “smart money” stakeholders navigate the current economic landscape. Despite technically being at the tail end of a bull market, growing concerns over higher interest rates and the overconcentration in Magnificent Seven stocks suggest a broader bearish sentiment among analysts.
Investors should pay attention when analysts offer stock upgrades or Wall Street buys specific stocks in these conditions. While upgrades are straightforward in a “stocks only go up” environment, they become more challenging to defend amid tightening margins and declining profitability in growth sectors. Moreover, analysts issuing upgrades now are likely exercising more thorough due diligence than before, lending more weight to their positive outlooks based on robust fundamentals rather than mere speculative fervor.
Hertz (HTZ)
After years of institutional scorn, Hertz (NASDAQ:HTZ) may be poised for a turnaround as it has become one of the stocks Wall Street is buying, as implied by recent Morgan Stanley upgrades.
Morgan Stanley set Hertz’s target per-share price at $15, nearly triple its current trading value. They attribute their newly-optimistic valuation to Hertz’s strategic decision to sell off a portion of its electric vehicle fleet, which they view as financially prudent over the long term.
Hertz chose to reduce its EV fleet due to the high maintenance and repair costs and waning customer interest in renting EVs. Although this decision may necessitate significant write-downs of its remaining fleet value, the sale will provide Hertz with crucial cash as it plots its future course.
Better yet, for its long-term prospects, the Wall Street analysts at Morgan Stanley pointed to wider strengthening travel trends, predicting a robust vehicle rental market in late 2024. Better travel opportunities, of course, could significantly boost Hertz’s prospects.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) seems to be cycling back into Wall Street’s favor after its last earnings report highlighted management’s significant growth and strategic positioning in response to evolving consumer preferences. After the report, the count of bullish analysts tracked by research firm EquitySet surged from 14 to 21, with only one recommending a sell.
The report excelled on all fronts: Netflix beat revenue expectations and saw subscription rates rise. At the same time, income climbed higher to boot. Netflix also looks forward to new market opportunities, as evidenced by its partnership with TKO Group Holdings (NYSE:TKO) to introduce live-streamed wrestling. The move reinforces its role as an entertainment hub rather than a sports broadcaster, aligning with the partnership’s ethos even as signs suggest a more extensive move towards sports content could be in the works.
Echoing this potential shift, Morgan Stanley analysts anticipated Netflix’s entry into live sports broadcasting. They noted, “Eventually we expect Netflix to move into live sports, particularly as it scales in [free cash flow] generation and has the ability to invest in major sports rights around the world. In addition, as its advertising capabilities scale, we think live sports will fit well into its content offering.”
Steelcase (SCS)
Despite the work-from-home trends pressuring certain sectors like commercial real estate, high-end office furniture manufacturer Steelcase (NYSE:SCS) is thriving in this new landscape. The company’s recent increase in dividend, now offering a 2.88% yield, confirms its success.
Steelcase swiftly recovered from the post-pandemic supply chain disruptions and reduced corporate furniture spending. Its latest quarterly earnings disclosed a net income of $30.8 million, marking a significant rise from the previous year. The company has also sustained steady sales of around $800 million over the past five quarters, demonstrating its ability to enhance profit margins without sacrificing quality.
Adapting to the work-from-home trend, Steelcase aims for a 5-7% annual sales increase and targets a 5% free cash flow margin relative to its revenue over the next five years. Furthermore, the company has aggressively reduced its debt due to rising interest rates, enhancing its liquidity and reducing interest costs. These strategic financial moves establish Steelcase as one of the best value stocks Wall Street is buying now.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.