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Inflation worries and concerns around the timing of the Federal Reserve’s rate cuts have shaken the market, but attractive stocks are available if you know where to look.
Wall Street analysts are ignoring the short-term noise to focus on picking stocks with strong fundamentals and long-term growth potential.
Here are three stocks favored by the Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their past performance.
Chipotle Mexican Grill
We start with fast-casual restaurant chain Chipotle Mexican Grill (CMG). The company recently reported better-than-expected fourth-quarter results, as customer traffic at its restaurants maintained its momentum despite ongoing macro pressures.
In reaction to the upbeat results, Baird analyst David Tarantino reiterated a buy rating on CMG stock and boosted the price target to $2,850 from $2,650. The analyst noted the company’s robust transaction momentum in the fourth quarter, driven by factors like better unit-level execution, enhanced menu promotion and robust marketing efforts.
The analyst thinks that these factors can continue to drive healthy sales for CMG in 2024 and beyond, with management focusing on growing average unit volumes to more than $4 million in the long term, compared to $3 million in 2023.
Tarantino noted that CMG aims to ramp up its unit growth to about 10% annually by 2025. He thinks that this pace of unit growth, coupled with mid-single-digit comps, would help the company “sustain scarce top-line growth characteristics for many years to come.”
Tarantino ranks No. 321 among more than 8,700 analysts tracked by TipRanks. His ratings have been profitable 65% of the time, with each delivering an average return of 10.8%. (See CMG Financial Statements on TipRanks)
Meta Platforms
Next up is social media giant Meta Platforms (META). The company’s earnings per share more than tripled in the fourth quarter of 2023 and bolstered investor sentiment for the stock. Moreover, Meta announced its first-ever dividend, backed by its splendid performance and strong cash flows.
Impressed by Meta’s results, Monness analyst Brian White reaffirmed a buy rating on the stock and significantly raised the price target to $540 from $370. The analyst highlighted the company’s accelerated revenue growth, solid operating margin, dividend initiation and $50 billion stock repurchase plan.
While regulatory headwinds persist, White is bullish on Meta as he believes that the company is “well positioned to benefit from the digital ad trend, innovate with AI, and leverage a leaner cost structure.”
The analyst noted that the company is much more efficient now, with its leaner cost structure and efficiency measures expected to continue this year. That said, the company is committed to investing in innovative products and services, while enhancing its platform with generative artificial intelligence capabilities, White added.
The analyst cautioned that macroeconomic uncertainties and geopolitical tensions might impact ad spending in the upcoming quarters. Nonetheless, he thinks that Meta deserves to trade at a premium to the market and tech sector in the long term, given its impressive sales growth and operating margin.
White holds the 28th position among more than 8,700 analysts tracked by TipRanks. His ratings have been profitable 68% of the time, with each delivering an average return of 21.5%. (See Meta Hedge Fund Trading Activity on TipRanks)
Costco Wholesale
Membership warehouse chain Costco Wholesale (COST) is this week’s third pick. Earlier this month, the company announced a 4.5% rise in its sales for the January retail month, ended Feb. 4. Total comparable sales growth came in at 2.7%, with e-commerce comps rising 21%.
Baird analyst Peter Benedict noted that the calendar-adjusted core comps of nearly 6.7% in January showed improvement when compared to December’s 5.1% growth, despite steep multi-year comparisons. He added that comps accelerated across all regions — U.S., Canada, and other international markets — and merchandise categories, thanks to a rise in transactions.
The analyst also highlighted the acceleration in e-commerce sales and the impressive traffic trends. Overall, Benedict thinks that Costco’s premium valuation is justified due to multiple strengths, including its sticky membership model and strong balance sheet.
He reiterated a buy rating on Costco stock and increased the price target to $775 from $700, saying, “Valuation is steep, but accelerating comp momentum, easing compares and a potential membership fee increase lend an upward bias to estimates in coming quarters.”
Benedict ranks No.71 among more than 8,700 analysts tracked by TipRanks. His ratings have been profitable 70% of the time, with each delivering an average return of 14.6%. (See COST Stock Analysis on TipRanks)