Goldman Sachs has just released a report highlighting key stocks set to beat the market as wages rise. These are stocks with particularly low labor costs right now as a proportion of their revenue. Already multiple companies have passed the new tax savings on to workers- including Starbucks, Home Depot and American Airlines- which should put pressure on other companies to follow suit. However, for companies that already pay out high wages relative to revenue these hikes could damage bottom lines. For the companies listed below, Goldman Sachs reassures us that this won’t be a problem.
From the firm’s report, we pinpointed these five hot stocks which all share a bullish outlook from the Street in general. Indeed, as you will see from the screenshots below, these are the only stocks on the list which have a ‘Strong Buy’ analyst consensus right now. TipRanks’ algorithms track and rank almost 5,000 Wall Street analysts. This allows us to: 1) see the overall analyst consensus on any stock based on the last three months of ratings and 2) extract stock insights from only the best-performing analysts on Wall Street. This means that- as we will see below- you can immediately get the full picture on any stock mentioned in any financial report.
So with this in mind, let’s dive in now:
1. Skyworks Solutions (NASDAQ:SWKS)- implied labor cost 0% of revenue
This top US semiconductor stock has a bright outlook according to the Street. The company, which supplies chips for Apple iPhones (among other things), has received 9 recent buy ratings vs just 1 hold rating. These analysts see the stock spiking over 25% in the coming months.
Five-star Canaccord Genuity analyst Michael Walkley is not overly disturbed by reports of iPhone X sales peaking earlier than expected- although he does lower his price target from $125 to $115 (18% upside).
He sees other growth catalysts offsetting this loss and says: “We believe Skyworks is well positioned with leading smartphone manufacturers Samsung, Huawei, and other leading Chinese smartphone OEMs. We believe the $9 in content for the Huawei Mate 10 is a benchmark goal for Skyworks with premium tier Chinese smartphones.”
2. Broadcom (NASDAQ:AVGO)- implied labor cost 1% of revenue
If there is one stock that has consistent support from the Street, its Broadcom. In fact, in the last three months, no less than 22 analysts have published buy ratings on the stock. No hold or sell ratings here. Meanwhile the $321 average analyst price target suggests big upside potential of 28% from the current share price.
Top Oppenheimer analyst Rick Schafer is a big fan of AVGO whether or not it succeeds in its hostile takeover of Qualcomm. He says: “AVGO remains our top pick for 2018 with or without QCOM as management executes its virtuous cycle of growing margins, free cash flows and capital returns. Recent revenue growth >5% long-term target is icing on the cake.”
If the deal went ahead it would be the largest transaction in tech history and would require approval from regulators around the world. Qualcomm has already told shareholders that: “electing Broadcom’s nominees makes no sense for Qualcomm stockholders and puts your Company at risk of significant value loss in the likely case the deal is not approved.”
3. AmerisourceBergen Corp (NYSE:ABC)- implied labor cost 1% of revenue
AmerisourceBergen is a huge US drug wholesale company. If we look at the screenshot below we can see that 6 out of 7 analysts are bullish on ABC. Interestingly if we shift to only top analysts then actually 100% of top analysts rate the stock a ‘buy’.
For example, Needham’s Kevin Caliendo is also optimistic about the impact of the US tax reforms on the stock. He says that he had forecast for 4%-5% in benefits, but that a meeting with management convinced him to considerably up his targets. Now he believes the positive impact could be closer to 6%-7%. As a result, Caliendo ramped his price target of $88 to $108 on January 23.
4. Lam Research (NASDAQ:LRCX)- implied labor cost 1% of revenue
Chip equipment maker Lam Research has just released very impressive beat-and-raise results for the fiscal Q2 quarter. However, shares subsequently plunged due to an unexpected bout of profit-taking by investors. Nonetheless, analysts are firmly upbeat on the stock. LRCX has received 12 recent buy ratings with an average analyst price target of $255. This indicates big upside potential of over 25%.
Top Needham analyst Edwin Mok is even more bullish than consensus. He sees LRCX hitting $270 (33% upside). He says: “Given the strong strong operating performance, we expect LRCX’s Analyst Event in March to come with a longer-term updated target model with earnings in the $20-handle, supporting a higher share price.” Plus, he believes that “LRCX’s robust F3Q18 guidance and upbeat outlook for CY18 should justify the high hurdles set by investors.”
Note that Mok has a very successful track record so far on LRCX stock specifically. Across his 25 stock ratings, he boasts an 88% success rate and 35% average return.
5. Host Hotels & Resorts (NYSE:HST)- implied labor cost 0% of revenue
Last, we have Host Hotels which is actually a real estate investment trust (REIT) that owns almost 100 luxury hotels. These include the Ritz-Carlton Golf Resort in Naples and the iconic Don CeSar in Florida. However, even though this is a ‘Strong Buy’ stock the average analyst price target suggests only marginal upside potential from the current share price. For example, top Raymond James analyst William Crow recently upgraded his HST rating to buy with a $22 price target (3.6% upside). He believes the company’s very strong balance sheet could be used for more aggressive acquisitions or buybacks.
Here we looked at stocks highlighted by just one firm, Goldman Sachs. But the Trending Stocks tool enables you to find your own best-rated ‘Strong Buy’ stocks by factoring in all the top analyst ratings over three different time periods.