Buy/Sell: Wall Street’s top 10 stock calls this week

Wall Street experts reveal the five stocks to buy, five stocks to sell this week

What has Wall Street been buzzing about this week? Here are the top 5 Buy calls and the top 5 Sell calls made by Wall Street’s best analysts during the week of January 3-6, 2023.
 
Top 5 Buy calls:

Amazon (AMZN), Alphabet (GOOGL), and Meta (META) – New Street starts coverage of mega-cap tech stocks with Buy

On January 4, New Street analyst Dan Salmon initiated coverage of Amazon.com with a Buy rating and $130 price target, calling it his Top Pick across the U.S. Internet sector. The analyst sees Amazon beginning to gain e-commerce share again as it takes advantage of a "massive" expansion of logistics and fulfillment investment from 2019-2022. He also expects higher operating leverage and margin upside to be supported by a continued revenue mix shift to higher margin businesses lead by Amazon Web Services and advertising, Salmon said.

The analyst also started coverage of Alphabet with a Buy rating and $118 price target. The "basic ‘FANG trade’ may be dead," but he believes many U.S. Internet stocks offer attractive valuation entry points, Salmon tells investors. Alphabet offers the most stable profit growth profile in the group and he thinks both Search and YouTube revenue growth can rebound in the face of investor concerns about competition, he adds.

Additionally, Salmon initiated coverage of Meta Platforms with a Buy rating and $145 price target. While noting Meta is "still likely the most controversial name in the coverage," he has conviction that near-term operating expense and capital expenditure growth will ease and thinks Meta’s ad revenue can outperform near-term, Salmon said.

Microsoft (MSFT) – DA Davidson starts coverage with a Buy, $270 price target

On January 4, DA Davidson analyst Gil Luria initiated coverage of Microsoft (MSFT) with a Buy rating and $270 price target. The stock warrants a premium valuation as the company should be resilient heading into a potential global economic downturn, the analyst tells investors in a research note. Luria adds that in the short term, the unprecedented activity in OpenAI’s ChatGPT is translating to incremental volumes for Azure. Longer term, incorporating ChatGPT capabilities into Bing may provide Microsoft with a once-a-decade opportunity to unseat Google’s Search dominance, the analyst adds.

PayPal (PYPL) – Truist upgrades stock to Buy, raises price target to $95

On January 3, Truist analyst Andrew Jeffrey upgraded PayPal to Buy from Hold with a price target of $95, up from $75. The analyst contends that investors have been "too negative" on the stock given the company’s "durable" long-term organic revenue growth. Jeffrey adds that PayPal’s first-mover advantage, 400 million users, and superior merchant value proposition position the company to keep pace with the market despite some branded share loss. The analyst also notes that his upgrade reflects his view that consensus revenue estimates are now "reasonable.

Block (SQ) – Baird upgrades stock to Outperform, raises price target to $78

On January 3, Baird analyst David Koning upgraded Block to Outperform from Neutral with a price target of $78, up from $62. Block is a "premier large-cap growth franchise with both profitability and net cash," Koning tells investors in a research note. The analyst believes the company will benefit from macro trends such as rising interest rates and inflation. After the shares declined down 61% in 2022, the analyst thinks sentiment can improve as Block’s growth "should remain good in 2023 and margins ramp."

Etsy (ETSY) – Needham upgrades Etsy to Buy, raises price target to $160

On January 4, Needham analyst Anna Andreeva upgraded Etsy to Buy from Hold with a $160 price target. The stock underperformed in 2022 as multiples contracted, but the company’s operating model is proving to be "sticky" exiting the pandemic, the analyst tells investors in a research note. Andreeva adds that with pandemic demand having been mostly lapped and sell side estimates being "in a good place," Etsy’s positive earnings revisions and multiple expansion should drive share upside from here.

Top 5 Sell calls:

Hershey (HSY) – Wells Fargo starts coverage of chocolate maker with an Underweight

On January 3, Wells Fargo analyst Chris Carey initiated coverage of Hershey with an Underweight rating. Execution at Hershey has been solid but valuation is near all-time highs, and the analyst doesn’t think its EPS algorithm has step-changed. Indeed, after years of tightly managing costs and likely normalization ahead in high-margin Confectionery, Carey is "struggling" to get to profit algorithm in 2024.

Victoria’s Secret (VSCO) and Gap (GPS) – UBS downgrades both retailers’ stocks to Sell from Neutral

On January 5, UBS analyst Jay Sole downgraded Victoria’s Secret and Gap to Sell from Neutral with price targets of $27 and $7, down from $43 and $12, respectively, as part of a broader research note into U.S. Softlines Retail. The analyst warns that the market is underestimating the pressure that industry sales face from the expected recession while overestimating the margin benefits from the easing supply chain constraints. Retail industry earnings outlook will deteriorate throughout the year, leading to "persistent" downward revisions in earnings and pressure on Softline price-to-earnings multiples, Sole tells investors in a research note.

Capital One (COF) and American Express (AXP) – Stephens cuts targets, downgrades stocks to Underweight

On January 5, Stephens analyst Vincent Caintic downgraded Capital One (COF) to Underweight from Equal Weight with a price target of $79, down from $140, citing worries about credit losses and net interest margin in Capital One’s auto lending business. While Capital One could try to maintain margin and credit, then auto origination volumes will collapse and "either scenario makes us cautious," Caintic tells investors. Ally Financial’s (ALLY) valuation has declined on these same concerns, but he thinks the market has not priced in auto margin downside for Capital One although he thinks the same pressure facing Ally will also hit Capital One, the analyst explained. After cutting his Capital One 2023 EPS forecast by 25% his view is now 2% below consensus, the analyst added.

Caintic also downgraded American Express to Underweight from Equal Weight with a price target of $134, down from $146. American Express has been the investor safe haven of choice among credit cards, but given that Amex experienced the fastest loan growth among cards through the pandemic, has large commercial exposures and increased millennial concentrations, he thinks Amex is "more sensitive to a downturn than peers," Caintic tells investors. The combination of having the lowest credit reserves and second lowest capital ratio makes him worried about Amex’s cushion heading into a recession, added the analyst, who notes that his 2023 EPS forecast is now 4% below consensus.

Molson Coors (TAP) – Wells Fargo downgrades to Underweight, lowers price target to $45

On January 3, Wells Fargo analyst Chris Carey downgraded Molson Coors to Underweight from Equal Weight with a price target of $45, down from $52. The analyst sees significant downside to Street estimates in 2023, and potential valuation reverts to the low-end of historical ranges. He also added Molson Coors to the Wells Fargo tactical ideas list for Q1 2023.

Fox Corp. (FOXA) and Lionsgate (LGF.B) – Wolfe downgrades pair of media stocks to Underperform

On January 3, Wolfe Research analyst Peter Supino downgraded Fox Corp. to Underperform from Peer Perform with a $28 price target. Fox Corp.’s 2023 catalysts are essentially priced into the stock and consensus estimates, leaving room to the downside given that 43% of revenue is exposed to TV advertising, which is deteriorating, and is now entering a less familiar streaming world plus the tougher macro, Supino tells investors in a research note.
The analyst also downgraded Lionsgate to Underperform from Peer Perform with a $5 price target. Supino is concerned about a deceleration in content spend as streaming shifts out of landgrab mode and faces a possible recession, which, along with increased intercompany deals and extreme leverage, make the stock challenging, the analyst tells investors in a research note.

Keywords: Wall Street, Buy, Sell, stocks, analyst, analyst calls, upgrades, downgrades, initiations, research