We are in full swing during the earnings season, with again many mixed results around earnings and guidance. This past week many names came out with decent earnings but poor guidance stating that some of the lower income brackets have slowed spending dramatically.
Current market conditions echo the volatility seen before historic crashes like in 1987, driven by rising bond yields and economic uncertainties, urging investors to focus on long-term strategies rather than reactionary trading.
Broadcom stock still looks very cheap, given its free cash flow and related FCF margins. AVGO stock could be worth over 22% more at $1,626 per share using its existing FCF margins and a 3% FCF yield metric.
Sometimes the blue-chip stocks really are the best place to turn for solid investment returns. These are well-known companies with long records of achievement, companies that have become household names – and offer investors the advantages of a known position and a reputation for reliability.
But even with the blue-chips, finding just the right stock can still be a challenge. The markets generate a vast flow of information, and that flood of info can be an intimidating barrier to making profitable stock picks. But that’s where the TipRanks
Smart Score comes in.
The Smart Score is a sophisticated, AI-driven data tool designed to help investors make sense of the market’s raw data. The automated tool uses an algorithm based on natural language processing to gather, collate, and crunch the various indicators put up by millions of daily stock transactions – and then assigns each stock a simple score, on a scale of 1 to 10, to give investors a clear sign as to the stock’s likely forward course. The Score is calculated based on a comparison of each stock’s performance with eight factors known to correlate with future share price gains. A ‘Perfect 10,’ the best possible Smart Score, shows a stock that is primed for outperformance.
We’ve used the
TipRanks platform to pull up a couple of Perfect 10s from the blue-chip universe; these are two names that tick all the right boxes – and that have earned solid recommendations from the Wall Street analysts. Here are the details.
The Walt Disney Company
(
DIS
)
We’ll start with one of the entertainment industry’s biggest names, Walt Disney. Really, does the Mouse need any introduction? Disney was founded in 1923, and was quickly recognized as a leading innovator in animation, creating cartoons that children loved – as well as their parents. The company transitioned from silent films to ‘talkies’ in the late 1920s, releasing its first film with a soundtrack in 1928 – and that film, Steamboat Willie, also brought us Mickey Mouse. The rest is history.
That history has encompassed the company’s development of one of the entertainment world’s largest portfolios of assets and attractions. The company operates through three main segments, Disney Entertainment, ESPN, and Disney Parks, Experiences, and Products. All three are well-known, and iconic in their own right.
Disney Entertainment includes the company’s content and media businesses – Disney Studios, Disney Streaming, Disney Platform Distribution, and what is probably the company’s single largest and best-known asset, the full library of Disney-owned films, everything from early animation dating to the 1920s to the more recent acquisitions such as the Star Wars, Marvel, and Indiana Jones film franchises. Disney’s movie library is widely considered to be the world’s single greatest such archive, at a level that few companies anywhere can even come close to matching. In addition to all of this, the company’s Entertainment segment is also the holding entity for Disney’s iconic characters and songs, and controls the associated marketing and spin-off products.
The company’s ESPN division comprises sports content and sports-related experiences, while Disney Parks, Experiences, and Products controls the eponymous theme parks, in Florida and California as well as internationally, along with the Disney cruise line plus assorted consumer products such as games and publications.
These business divisions are tied together by some of Disney’s strongest, and most intangible, assets – the company’s name and reputation. Few companies have reached Disney’s level of name recognition and branding success, making the name ‘Disney’ an asset that cannot be measured in purely fiscal terms.
Nevertheless, the stock has been under pressure recently on account of a mixed fiscal 2Q24 earnings report. Overall, Disney brought in $22.1 billion in revenue during the quarter, for a modest 1.3% year-over-year increase – but just sliding under the forecast by $50 million. The company’s bottom line earnings came to $1.21 per share by non-GAAP measures, a full dime better than the estimates.
However, despite streaming showing a solidly favorable shift in FQ2, the company provided a lukewarm forecast regarding streaming subscriber growth in the ongoing quarter and anticipated a slowdown in park visitations vs. the highest levels seen post-Covid, leaving investors disappointed with the print.
That said, in the eyes of Morgan Stanley analyst Benjamin Swinburne, Disney’s performance in Q2 bodes well for the future, and he says of the company, “Disney has the most direct consumer exposure among our large cap coverage group, primarily a function of its Experiences segment. We continue to see this business as uniquely valuable given its scale, growth, and ROIC characteristics… We remain optimistic that Disney can deliver nearly $1.5bn in DTC OI in FY25, ahead of consensus. The F2Q OI represented Disney’s first quarter of DTC profitability. We remain bullish with respect to its global pricing power, ability to manage expense growth, and benefit from password-sharing monetization.”
Swinburne goes on to rate DIS shares as Overweight (i.e. Buy), with a $130 price target (lowered from $135) that indicates potential for 23% growth on the one-year horizon. (To watch Swinburne’s track record,
click here)
The rest of the Street agrees with the MS take. This old-name blue-chip has 23 recent analyst reviews on record, including 22 to Buy against a single Hold, for a Strong Buy consensus rating. The stock has a trading price of $105.79, and its $134.81 average price target suggests a potential one-year upside of 27.5%. (See
DIS stock forecast
)
AT&T
(
T
)
Next on our list is AT&T, another of the world’s iconic brands. This company is one of the most venerable telecom firms operating in the US communications market. AT&T boasts a market cap of $123 billion and generated over $122 billion in revenue last year. By market cap, AT&T is the fifth largest telecom firm globally, and fourth in the US; by revenue, the company ranks third globally and second in the US.
The telecom firm has reached this scale by building itself up as the largest wireless service provider in the US. In addition to wireless networking and cell phone services, AT&T also offers internet services, digital television, and even landline telephone services.
This company has been closely connected to the national rollout of the new 5G networks, and has used the new wireless tech, and its own network, to introduce its Internet Air service. This is billed as reliable wireless internet coverage, delivered over the 5G network, with simple pricing plans, easy home network management, and internet security options available to protect customers’ systems. The company has also adapted Internet Air for the business customers, featuring low monthly rates, a reliable 5G connection network, and no speed caps or data caps.
All of AT&T’s business activity generated just over $30 billion in revenue for the company during 1Q24, a result that came in just under the prior-year value. The top line missed the analyst expectations by $510 million. At the bottom line, AT&T saw a GAAP EPS of 47 cents per share, 2 cents lower than had been anticipated. On a more positive note, AT&T showed solid cash generation during Q1, reporting $7.5 billion in cash from operating activities, up $900 million year-over-year, and a quarterly free cash flow of $3.1 billion, for an impressive $2.1 billion y/y increase.
The company’s cash flow, along with the sound portfolio of services, brought this stock to the attention of Ivan Feinseth, 5-star analyst from Tigress Financial. Feinseth takes an upbeat view of this telecom giant, writing, “AT&T continues to build out an advanced diversified connectivity portfolio of increasingly resilient businesses and drive long-term growth. AT&T is experiencing early success with its recently introduced AT&T Internet Air, its targeted fixed wireless service, as it ramps up network coverage and rolls out its Internet Air for Business… We believe significant upside exists from current levels…”
For Feinseth, these comments back up a Buy rating on T, and his $29 price target implies that the shares will appreciate by 69% over the coming year. (To watch Feinseth’s track record,
click here)
AT&T holds a Strong Buy rating from the analyst consensus, based on 11 recent recommendations that break down to 9 Buys and 2 Holds. The shares are currently priced at $17.17 and their $21.05 average price target suggests that T will gain 22.5% in the months ahead. (See
AT&T’s stock forecast
)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’
Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The First Trust RBA American Industrial Renaissance ETF (
NASDAQ:AIRR
) is a truly differentiated ETF that stands out in a world with no shortage of cookie-cutter ETFs that seem like they all own the same stocks. Plus, the ETF is posting stellar long-term returns.
AIRR is an interesting ETF with a unique theme and group of holdings. I’m bullish on this smaller, off-the-beaten-path ETF based on its differentiated strategy, highly-rated group of under-the-radar holdings, and quietly outstanding performance over the long term. Let’s take a look.
What Is the AIRR ETF’s Strategy?
According to First Trust, AIRR “is designed to measure the performance of small- and mid-cap U.S. companies in the industrial and community banking sectors.”
As the fund’s name suggests, the rationale for these types of stocks is that they will be key to any American “industrial renaissance,” in which U.S. companies bring more manufacturing jobs back to the country.
The industrials are the companies that will be doing the manufacturing, and the community banks are the companies that will be lending to them. This is an interesting combination, as many ETFs either invest in a broad market or in one specific theme or sector, not two distinct sectors.
AIRR starts with the investment universe of the Russell 2500 and then removes companies that are not industrials or banks. It only selects banking stocks that are based in what it calls “traditional manufacturing hubs,” or essentially the Rust Belt states.
Additionally, companies deriving over 25% of their revenue outside the United States are excluded. To be included, companies must also have a positive mean 12-month forward consensus earnings estimate. The fund is rebalanced and reconstituted quarterly.
The Rationale for Reshoring
Why is the idea of reshoring and this potential industrial renaissance a compelling theme to invest in? The fund’s index provider, Richard Bernstein Advisors (RBA), “believes there is increasing reason to expect that the United States may regain industrial market share, based on a number of factors, including access to competitively-priced energy sources; the relative stability of the U.S. market compared to many emerging markets; and availability of bank financing for manufacturers.”
These reasons all make sense, and RBA also explains that there are additional benefits to reshoring: “…Many companies are continuing to bring their manufacturing back to the U.S. for the potential advantages of higher product quality, shorter delivery times, rising offshore wages, lower inventory, advanced technology, pro-business policies, and the ability to be more responsive to change in customer demands.”
RBA believes this trend can be a boon for smaller and community banks as “manufacturing is a capital-intensive business that requires equipment, tooling and raw materials which may provide a growth opportunity for smaller U.S. banks.” RBA says that these smaller banks can benefit from fueling this growth without having to take on “massive trading infrastructures” or “unnecessary” global risk to profit.
Further, RBA finds that reshoring brings about synergies. They state, “Some companies that have already begun to reshore have cited the benefits of having designers, engineers, and salespeople at the same facility rather than oceans apart.” They also note that there are time and cost savings to be had by avoiding international shipping. As the attacks on shipping in the Red Sea showed this past fall, there’s significant merit to this idea.
There has been plenty of discussion about onshoring and reshoring jobs to the U.S. in the wake of the COVID-era supply chain disruptions, and the theme is also sure to be a topic of discussion in the upcoming U.S. Presidential elections. Whether there ends up being a broader wave of onshoring or not, the fund is already producing excellent returns.
Excellent Long-Term Performance
AIRR’s long-term performance has been nothing short of outstanding. The ETF has made noise with a scorching gain of 47.3% over the past year (note that we
last covered AIRR 10 months ago, making it a well-timed call).
Looking out over a three-year timeframe, AIRR has posted an impressive annual return of 15.7% (as of April 30). This nearly doubles the performance of the S&P 500 (
SPX
), as represented by the Vanguard S&P 500 ETF (
NYSEARCA:VOO
), which returned 8.0% over the same time horizon.
Over a five-year time horizon, AIRR has posted an excellent annualized return of 19.9%, handily beating VOO’s still-impressive return of 13.2% (as of April 30).
Over the past decade, AIRR has generated a 13.0% annualized return (as of April 30), beating VOO’s return of 12.4%.
AIRR has beaten the S&P 500 over the past three, five, and 10 years, making it one of the few funds that can say it has beaten the broader market over each time frame. This is an impressive feat, especially given that the broader market has set a high bar to clear over the past decade.
While past performance is never a guarantee of future results, this exceptional long-term performance gives me confidence in AIRR’s future prospects.
AIRR’s Holdings
AIRR owns 45 stocks, and its top 10 holdings account for 40.5% of assets. You can check out a snapshot of
AIRR’s top 10 holdings below using TipRanks’ holdings tool.
I like the fact that AIRR is going well beyond the typical “
Magnificent Seven” names and turning over stones to find some real diamonds in the rough. Stocks like Powell Industries (
NASDAQ:POWL
), Sterling Construction (
NASDAQ:STRL
), and Comfort Systems USA (
NYSE:FIX
) are hardly household names, but they’ve accumulated massive gains of 220.0%, 191.6%, and 132.1%, respectively, over the past year.
Collectively, AIRR’s largest holdings feature some top-notch Smart Scores. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
An impressive seven of AIRR’s top 10 holdings feature Outperform-equivalent Smart Scores, and three, Mastec (
NYSE:MTZ
), DyCom (
NYSE:DY
), and EMCOR Group (
NYSE:EME
) score ‘Perfect 10’ ratings.
The One Drawback
The one blemish on AIRR’s otherwise stellar profile is its steep expense ratio of 0.70%. This means that an investor putting $10,000 into AIRR will pay $70 in fees annually, which is certainly on the high side. If the ETF keeps generating the type of outstanding results it has been, few investors will mind paying this premium, but if its performance stalls, this is a relatively high fee to stomach.
Is AIRR Stock a Buy, According to Analysts?
Turning to Wall Street, AIRR earns a Moderate Buy consensus rating based on 33 Buys, 13 Holds, and zero Sell ratings assigned in the past three months. The
average AIRR stock price target of $73.83 implies 5.1% upside potential.
The Takeaway: An Outstanding ETF
AIRR is a unique, underappreciated ETF that travels well off of the beaten path for the construction of its portfolio. You won’t find these holdings in many other places. I’m bullish on the fund based on this differentiated theme and portfolio, the high Smart Scores for its underrated holdings, and its exceptional performance over the past three, five, and 10 years.
Disclosure
Amid healthcare’s enduring importance and increasing demand for its products and services, here are five dividend-paying healthcare stocks to consider now.
Realty Income Corporation’s (
NYSE:O
) year-over-year slump echoes the systematic headwinds embedded in its asset class. The real estate investment trust (REIT) has shed approximately 10% of its market value in the past year, which goes against the grain of its “throughout the cycle” business model. At first glance, key metrics suggest that Realty Income is unlikely to recover its recent losses. However, Realty Income released a splendid bit of news earlier this week, revealing a stellar first-quarter earnings report in which it surpassed its revenue target by $160 million.
Naturally, the question now becomes, will Realty Income’s latest financial results lead to a pivotal point? After examining a broad range of in-depth variables, I decided that I’m neutral about Realty Income’s prospects, as its fundamental metrics and its recent capital structure decisions outweigh the positives shared via its first-quarter earnings report. Let’s examine Realty Income in further detail.
O stock has fallen by 6.2% in the past year.
Making Sense of O Stock’s Recent Performance
For those unaware, Realty Income Corporation primarily functions as a triple-net retail REIT. The fund’s portfolio spans more than 15,450 properties, has an occupancy rate of 98.6%, and typically maintains a cash capitalization rate above 7%. Moreover, Realty Income Corporation is dubbed the monthly dividend company due to its reliable monthly dividend payouts. So, in essence, this REIT is considered a powerhouse.
As mentioned in the introduction, systematic headwinds have contributed to Realty Income’s recent slump. For example, a higher-for-longer interest rate environment has compressed commercial real estate valuations. Moreover, the uncertain economic climate has contributed to higher real estate risk premiums, concurrently downgrading REIT valuations.
Furthermore, idiosyncratic concerns likely contributed to Realty Income’s sluggish performance. For instance, Realty Income resumed its capital roadmap. It raised approximately $1.8 billion in debt and equity combined during its first quarter, which raises eyebrows, given the high cost of capital environment. Although some of the proceeds were used to repay debt and accretive investment opportunities exist, a need for external liquidity paired with an uncertain economic climate likely attaches headwinds to Realty Income’s market price.
Realty Income Reports Strong Q1 Earnings
Realty Income Corporation’s first-quarter earnings report provides key talking points. The company’s adjusted funds from operations settled at $862.9 million, while its net income reached $129.7 million.
Although its headline results are telling, the focal point of its report includes news regarding its Spirit Realty acquisition. Realty Income Corporation acquired Spirit Realty in a stock-for-stock deal worth approximately $9.3 billion, which adds to Realty Income’s single-tenants triple-net portfolio. The acquisition onboards noteworthy synergies. However, whether it will be accretive remains to be seen.
Furthermore, Realty Income completed direct acquisitions during its first quarter. The fund invested $598 million at a going-in cash yield of 7.8%, conveying a series of tactical bets.
Lastly, Realty Income guided towards same-store rental growth of 1% for the remainder of its fiscal year, which, if unabated, provides its investors with much to cheer about, considering the challenges within the current real estate market.
Key Fundamental and Valuation Metrics Cast Doubt
A juxtaposition exists between Realty Income Corporations’ qualitative headwinds, lending the opportunity to examine its fundamental metrics to establish ground truth.
Upon further examination, it is revealed that Realty Income likely doesn’t present fundamental value. For example, its rents-to-average-gross-properties ratio of 11.86% is below the sector median of 12.96%, indicating a lack of property-specific gross yield. Furthermore, Realty Income’s price-to-funds-from-operations ratio of 13.8x is in line with the sector median of 13.0x, while its
forward dividend yield of 5.6% isn’t drastically higher than the sector median of 4.67%.
In a nutshell, a relative analysis of its fundamental metrics paired with the aforementioned qualitative factors shows that Realty Income is likely what’s called a market perform asset instead of a market outperform asset.
A Technical Analysis of Realty Income Paints Two Pictures
Assessing factors such as market sentiment and investor psychology has gained prominence among astute investors. Therefore, observing technical indicators is essential to a holistic investment analysis.
Realty Income Corporation’s standout technical indicator is its simple moving average. The REIT recently
breached its 10-, 50-, 100-, and 200-day moving averages, suggesting a momentum trend has shaped. Additionally, Realty Income’s Put/Call ratio of 0.69 reflects optimism from short-term traders.
It is critical to note that momentum trends and options activity can be countercyclical. As such, looking for structural breaks would be wise, especially as Realty Income’s fundamentals are on a knife’s edge.
Is O Stock a Buy, According to Analysts?
Turning to Wall Street, Realty Income Corporation earns a Moderate Buy consensus rating based on three Buys and five Holds assigned in the past three months. The average
O stock price target of $58.75 implies 6.8% upside potential.
Concluding Thoughts
A closer look at Realty Income Corporation’s first-quarter earnings report suggests that its operations are robust. However, systematic headwinds paired with questionable fundamental metrics question whether the REIT will garner noteworthy support from investors in the coming quarters. As such, it is unlikely that Realty Income Corporation will recover from its year-over-year slump anytime soon, especially considering its moderate Wall Street price target.
Disclosure