What are we looking for?
Wall Street darlings.
When it comes to Twitter's stock, analysts are all over the map. After the company this week released its first quarterly earnings report since its initial public offering, some analysts increased their targets, some lowered them and some stayed pat.
For investors who might not have the iron stomach required to invest in stocks as speculative as Twitter, we went looking for companies for which analysts put up something of a united front.
How we did it
The first requirement is a very high average analyst recommendation. We then weeded out the stocks that are too small for comfort as well as those that are thinly covered by analysts. Next we screened for stocks that have relatively attractive valuations in addition to decent revenue growth. Here are our specific criteria:
- U.S.-listed companies must have a market capitalization of at least $2-billion (U.S.).
- Eligible companies must be followed by a minimum of 10 analysts. And their average recommendation must be at least 4.5. (Bloomberg calculates a rating for each stock based on the proportion of buy, hold and sell recommendations. On a scale of one to five, the higher scores reflect greater analyst support. Twitter, for example, now has a 2.44 consensus recommendation – meaning a small majority of analysts have a negative view of the stock.)
- The stocks we considered also needed to be trading at a price-to-earnings ratio of 20 at the most.
- Finally, year-over-year revenue growth in the most recent quarter must have been at least 7 per cent.
What we found
The resulting list is composed of large companies with near-unanimous analyst support. The companies represent some of the top analyst picks across a broad range of sectors including resources, real estate, pharmaceuticals, retail, financials, tech and industrials. These are generally well-regarded companies with good recent earnings history, favourable multiples and good prospects.
One sector that is over-represented on our list is oil and gas. QEP Resources Inc., Gran Tierra Energy Inc., Oasis Petroleum Inc., Anadarko Petroleum Corp., Marathon Petroleum Corp. and Whiting Petroleum Corp., as well as one pipeline company – Plains All American Pipeline LP – all have the overwhelming favour of energy analysts. One key risk to that sector, of course, is if economic growth were to sputter.
This list of Wall Street favourites might prove a good starting point, but, as always, investors should do their own research.