Buy/Sell: Wall Street’s top 10 stock calls 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 8-12.
 
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Top 5 Buy Calls:

1. Alphabet initiated with an Outperform at BMO Capital

BMO Capital initiated coverage of Alphabet (GOOGL) with an Outperform rating and $170 price target, calling it the firm’s 2024 Top Pick in Internet. Google has integrated machine learning into its core products since 2000 and the firm cites its leading position in AI in the U.S. and globally for its bullish view on the shares. In addition, YouTube Ads with 2.5B users “remain under-monetized,” BMO argues.

2. Amazon initiated with an Outperform at BMO Capital

BMO Capital initiated coverage of Amazon.com (AMZN) with an Outperform rating and $200 price target. AWS will “lead the foundational and middle layer of the gen AI/ML stack,” while secular Cloud tailwinds will continue in 2024 and beyond, the firm tells investors. On the retail side of the business, Amazon is positioned to invest in smaller same -day buildings with lower capex needs while improving customer experience levels unlocks free cash flow, BMO added.

3. AMD upgraded to Buy at Melius Research on AI “halo effect”

Melius Research upgraded AMD (AMD) to Buy from Hold with a price target of $188, up from $125. The firm believes Generative AI is poised to deliver its “Halo Effect” on IT spending, starting in 2024, and also thinks that outperformers from 2023 can continue. Both AMD and Arista Networks (ANET) could have huge ramps for AI equipment later in 2024 and especially in 2025, contends Melius Research, which sees “meaningful upside to consensus” for the pair.

4. Netflix initiated with an Outperform at BMO Capital

BMO Capital initiated coverage of Netflix (NFLX) with an Outperform rating and $566 price target. The “visionary” co-CEOs Ted Sarandos and Greg Peters position Netflix well for “the next evolution of content creation and advertising growth” while $17B of content investment this year will position it well for continued market share gains relative to traditional linear TV, the firm tells investors.

5. BMO also starts DoorDash at Outperform

BMO Capital initiated coverage of DoorDash (DASH) with an Outperform rating and $120 price target. DoorDash is a category leader with a large growing market opportunity that is global in nature, the firm notes. BMO Capital currently models quarterly GAAP profitability sometime in 2024, largely in line with consensus.

Top 5 Sell Calls:

1. Southwest downgraded to Underperform at Bernstein

Bernstein downgraded Southwest Airlines (LUV) to Underperform from Market Perform with a $24 price target. The company’s discount airline model is disadvantaged in the new world of airline marketing, and it faces both secular and idiosyncratic cost pressures that will keep earnings power well below pre-pandemic levels near term, the firm tells investors in a research note. Bernstein notes Southwest’s 2023 “was a mess,” while 2024 is setting up to be a transitional year.

2. Revolve Group initiated with a Sell at Goldman Sachs

Goldman Sachs initiated coverage of Revolve Group (RVLV) with a Sell rating and $12 price target. Revolve is an online fashion retailer that primarily targets Millennial and Gen Z female consumers across the premium and luxury segments through its two digital platforms. The firm sees a less attractive 12-month risk/reward, saying the pressure seen across the high-end online apparel industry could persist and lead to further downward revisions to Street estimates.

3. American Express downgraded to Underperform on credit concerns at BMO Capital

BMO Capital downgraded American Express (AXP) to Underperform from Market Perform with a $157 price target. The downgrade is based on concerns regarding credit quality, loan loss reserve adequacy, decelerating spending growth, rising consumer engagement costs, and valuation, the firm tells investors in a research note. BMO worries that fast growth in American Express’ restructured loan balance – to levels almost double that reported pre-pandemic – could portend higher loan losses for the company than would have been expected by investors monitoring delinquencies and net charge-offs exclusively.

4. Illinois Tool Works downgraded to Underperform at BofA

BofA downgraded Illinois Tool Works (ITW) to Underperform from Neutral with a price target of $235, down from $260. The firm thinks the company is likely to miss consensus 2024 EPS forecasts on lower-than-expected margins and sees risk of a multiple de-rating as 2024 is likely to be another year of below-average growth. BofA maintains a slight premium to the industrial group multiple for Illinois given its above-average EBITDA margins.

5. Paramount downgraded to Sell at Redburn Atlantic

Redburn Atlantic downgraded Paramount (PARA) to Sell from Neutral with a price target of $11, down from $17. Linear advertising is at a “negative tipping point” and consensus estimates do not adequately forecast declines across the media group, Redburn tells investors in a research note. The firm sees the most downside at Paramount, which it downgraded to Sell, with material downside at Warner Bros. Discovery (WBD), which it downgraded to Neutral. Redburn’s analysis also underlines the potential for downside to Disney (DIS) consensus and reinforces a Sell rating.