Stock market volatility has caused our stomachs to churn for nearly a full year. Though there’s no telling when the bear market will return to its cave, many don’t think the bear will hibernate until inflation does. Nonetheless, this piece will use TipRanks’ Comparison Tool to take a glimpse at three intriguing companies — HD, PLD, and AMT — each of which sports Strong or Moderate Buy consensus ratings from Wall Street analysts. Further, each stock also commands either a ‘perfect 10’ or 9 out of 10 TipRanks Smart Score and a dividend yield north of 2.5%.
With the Federal Reserve fully focused on cooling inflation with rate hikes, there’s concern that a Fed-mandated recession could cause stocks to backtrack further.
Undoubtedly, investing ahead of a recession is hard. As earnings begin to descend, popular valuation metrics (think the price-to-earnings ratio) tend to be less telling of a stock’s intrinsic value. As profits go down, the ratio goes up. In the face of an economic slowdown, it gets harder to tell the difference between a value trap and an attractively-priced investment.
With so much confidence in the following names, I’d argue that each beaten-down stock is likelier to be of great value rather than being a trap, even as the economy looks to drag its feet over the next year or so.
Home Depot (NYSE: HD)
Home Depot is a home-improvement retailer with a stock that tends to feel the impact of economic recessions much harder. The cyclical nature of renovations and other home-improvement projects works against Home Depot stock at the first signs of economic recession.
Though the labor market remains steady, there’s concern that tighter monetary policy and weakness in broader markets (stocks and bonds) could make many consumers feel that much poorer.
Though next year’s recession could prove mild, it’s tough to give consumer sentiment a jolt until the Federal Reserve adopts a more dovish tone. Until inflation backs off, it will be hard for the discretionary (or nice-to-have) retailers to make up for lost time.
Home Depot stock has now shed more than 33% of its value, and it’s through no fault of management. They’ve done a spectacular job of moving through macro headwinds.
Recently, Cowen praised Home Depot as its preferred play in the home improvement space, citing management-led initiatives that should pay off in time. Specifically, Cowen noted an opportunity to improve “productivity and EBIT margin expansion.”
Undoubtedly, Home Depot’s doing a great job of what it can control. Once the macro tides shift, HD stock may be the quickest of the batch to bounce.
At writing, the stock trades at 16.9x trailing earnings. Indeed, investors are bracing for a bit of a recession-related impact on sales. Just how much of an impact remains to be seen. Regardless, HD stock seems like a great pick for those looking for an industry leader that will live to see better days.
What is the Price Target for HD Stock?
Wall Street still strongly favors Home Depot, with a “Strong Buy” rating based on 16 Buys and three Hold ratings. The average HD stock price target of $360.17 implies 30.7% gains over the next year. Home Depot is a wonderful company, and many of the external headwinds weighing down the stock may be overblown.
Prologis (NYSE: PLD)
Prologis is a warehouse real estate investment trust that stands to benefit from the continued rise of digital shopping. Though a recession could curb e-commerce sales trends for some unknown period, logistics real estate demand will likely continue to surge through the next decade.
The stock is down about 40% from its all-time high, near $175 per share. Undoubtedly, the company’s softer-than-expected full-year guidance for core FFO (funds from operations) was slightly discouraging. Regardless, Prologis shares are incredibly cheap at just 2.1x book value, well below the REIT industry average of 4.2x.
Looking ahead, recession worries and weakness in logistics firms could continue to weigh down shares of PLD. In any case, investors should look to the 3.1% yield as an incentive to brave the rough waters in shares of a company whose long-term fundamentals are still intact.
Even as consumption hits a roadblock in 2023, there’s likely to be a bit of an inventory glut that could call for greater industrial storage demand. That would ultimately work in Prologis’ favor, especially if firms become reluctant to heavily discount goods to clear up space.
What is the Price Target for PLD Stock?
Despite headwinds, Prologis is a “Strong Buy,” according to Wall Street analysts, with 14 unanimous Buy ratings. The average PLD stock price target of $134.62 suggests a whopping 30.6% worth of gains to be had from these depths.
American Tower (NYSE: AMT)
American Tower is another REIT that Wall Street continues to stand by amid mounting macro woes. The company is looking to grow its tower portfolio at the international level. Undoubtedly, the 5G data trend could help American Tower continue raking in ample cash flows as the world’s appetite for speedy mobile data continues to rise with time.
With a global recession likely ahead, the appetite for such data could hit a bit of a road bump as consumers become less willing to pay for more data consumption. Undoubtedly, such a pullback in appetite should be short-lived. Once the economy heats up again, it could be tough to stop the firm from powering its impressive payout (yielding 3.1% currently).
Just a few weeks ago, American Tower hiked its quarterly dividend by around $0.04 per share or around 4%. That’s a modest hike but one that’s respectable, given mounting macro concerns. After the September-October pullback, shares are currently off around 36% from their highs.
What is the Price Target for AMT Stock?
Wall Street is bullish on American Tower, but price target downgrades have come flowing in of late. The average AMT stock price target of $255.55 suggests 36.25% upside potential from current prices.
Last week, Morgan Stanley cut its price target from $257 to $209 while maintaining a neutral stance.
Conclusion: Wall Street Sees Highest Upside Potential from AMT Stock
HD, PLD, and AMT stocks are under pressure but have all the traits of wonderful companies well-equipped to move past recent recessionary worries. Of the three securities, Wall Street expects the most gains from American Tower. It is noteworthy that the stock no longer commands the “Strong Buy” rating it commanded more than a week ago.
