Deep Dive: Analysts expect these large-cap U.S. stocks to rise at least 25% in 2018

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(This is the first in a three-part series on analysts’ favorite stocks for 2018. The series begins with large-cap stocks, below, and will continue with mid-cap and small-cap stories.)

About a year ago we listed analysts’ favorite large-cap stocks for 2017. We’re going to do the same for 2018, but first, let’s see how last year’s selections performed.

The list reflected data as of the market close on Dec. 5, 2016. There were 18 S&P 500  stocks with majority “buy” ratings that analysts expected to increase at least 30% over the subsequent 12 months, based on consensus price targets:

Company Ticker Closing price – Dec. 5, 2016 Consensus price target – Dec. 5, 2016 Implied 12-month upside potential as of Dec. 5, 2016 Closing price – Nov. 30, 2017 Price change – Dec. 5, 2016, through Nov. 30, 2017
Mallinkrodt PLC MNK, +1.70% $53.56 $83.33 56% $21.82 -59%
Endo International PLC ENDP, +2.15% $15.87 $24.05 52% $7.34 -54%
Hanesbrands Inc. HBI, +0.77% $22.95 $33.29 45% $20.89 -9%
Edwards Lifesciences Corp. EW, +0.84% $82.49 $119.00 44% $117.20 42%
Mylan N.V. MYL, +0.16% $35.65 $50.72 42% $36.53 2%
Allergan PLC AGN, +0.14% $191.18 $265.45 39% $173.83 -9%
Alexion Pharmaceuticals ALXN, +0.96% $124.93 $171.75 37% $109.81 -12%
Activision Blizzard Inc. ATVI, -0.94% $36.48 $49.09 35% $62.40 71%
Salesforce.com Inc. CRM, -0.78% $70.80 $95.14 34% $104.32 47%
NRG Energy Inc. NRG, -0.14% $11.71 $15.73 34% $27.65 136%
Centene Corp. CNC, +0.61% $56.96 $76.31 34% $102.09 79%
Gilead Sciences Inc. GILD, -0.32% $72.36 $96.59 33% $74.78 3%
Facebook Inc. Class A FB, +0.44% $117.43 $155.49 32% $177.18 51%
Boston Scientific Corp. BSX, -0.46% $20.71 $27.31 32% $26.28 27%
Pitney Bowes Inc. PBI, +1.07% $15.06 $19.83 32% $10.67 -29%
Molson Coors Brewing Co. Class B TAP, +0.56% $95.53 $124.60 30% $78.10 -18%
Newell Brands Inc. NWL, +1.79% $45.70 $59.53 30% $30.97 -32%
Zimmer Biomet Holdings Inc. ZBH, +0.66% $101.43 $131.48 30% $117.10 15%
Source: FactSet

From Dec. 5, 2016, through Nov. 30, 2017, the S&P 500 Index rose 20%. Of analysts’ 18 favorite large-cap stocks a year ago, only five — Activision Blizzard Inc. ATVI, -0.94% Salesforce.com Inc. CRM, -0.78% NRG Energy Inc. NRG, -0.14% Centene Corp. NRG, -0.14% and Facebook Inc. FB, +0.44% — had their shares rise as much as analysts expected, based on their year-ago consensus price targets.

• Eleven of the 18 stocks underperformed the S&P 500.

• Eight of the 18 stocks suffered price declines, with six dropping by double digits.

• The first two stocks on the list — for which analysts expected the greatest gains a year ago — dropped more than 50%.

So it wasn’t a particularly strong showing for the analysts. But what does that mean? For one thing, 12 months is not a particularly long time to hold a stock. Wall Street, the media and investors are fixated on this time period, and it seems most analysts have no choice — they need to pretend that a year is a long-term investment, when the stock market has shown over the decades that any 12-month period can bad for any stock or even for the entire market. It’s best not to invest in stocks unless you can commit for several years, at least.

Analysts are expected to be experts in the industries they cover, but “sell” ratings aren’t popular. In fact, among the S&P 500, there is not a single stock right now that a majority of analysts polled by FactSet recommends selling.

So it’s always interesting to see which stocks are favored by analysts. But you had better take a long, hard look if you are selecting individual stocks and form your own opinion about each company’s long-term viability. And a 12-month commitment probably won’t cut it. These are long-term investments, unless you are a professional day-trader.

The new list

Looking at the S&P 500 as of Nov. 30’s close, there were only seven stocks with majority “buy” ratings that analysts expected to rise at least 30% over the next 12 months, based on consensus price targets.

So we’re making a change to our criteria and listing the 17 S&P 500 stocks with majority “buy” ratings that analysts expect to rise at least 25% over next 12 months:

Company Ticker Industry Closing price – Nov. 30, 2017 Consensus price target Implied 12-month upside potential
Range Resources Corp. RRC, +0.08% Oil and Gas Production $18.02 $28.59 59%
Alexion Pharmaceuticals Inc. ALXN, +0.96% Biotechnology $109.81 $164.18 50%
Incyte Corp. INCY, +0.69% Biotechnology $98.99 $147.74 49%
Western Digital Corp. WDC, -0.64% Computer Peripherals $78.86 $113.37 44%
Noble Energy Inc. NBL, +0.43% Oil and Gas Production $26.30 $35.38 35%
Kinder Morgan Inc. Class P KMI, +0.34% Oil and Gas Pipelines $17.23 $23.11 34%
Allergan PLC AGN, +0.14% Pharmaceuticals $173.83 $231.86 33%
Anadarko Petroleum Corp. APC, +0.49% Oil and Gas Production $48.09 $62.18 29%
EQT Corp. EQT, +0.86% Oil and Gas Production $59.60 $76.75 29%
Applied Materials Inc. AMAT, -1.07% Electronic Production Equipment $52.77 $67.43 28%
Micron Technology Inc. MU, -0.07% Semiconductors $42.39 $53.96 27%
Hanesbrands Inc. HBI, +0.77% Apparel/ Footwear $20.89 $26.53 27%
Vertex Pharmaceuticals Inc. VRTX, +0.24% Biotechnology $144.29 $182.64 27%
CBS Corp. Class B CBS, +1.75% Broadcasting $56.06 $70.86 26%
Expedia Inc. EXPE, +1.48% Other Consumer Services $122.50 $154.66 26%
Halliburton Co. HAL, +1.95% Oilfield Services/ Equipment $41.78 $52.16 25%
CSRA Inc. CSRA, +1.05% Information Technology Services $28.93 $36.08 25%
Source: FactSet

Three of the companies on last year’s list are on this year’s, with both showing lower stock prices than a year ago: Alexion Pharmaceuticals Inc. ALXN, +0.96% Allergan PLC AGN, +0.14%  and Hanesbrands Inc. HBI, +0.77%  

All three have managed to increase their sales per share for the past 12 reported months by double digits from the year-earlier period, as you can see on the last table. This further emphasizes that even if you select a good company for a long-term investment, it might take longer than a year for the investment to perform well.

A third of the companies are involved with energy production. West Texas crude oil CL1, +1.52%  has been trading around $58 a barrel recently, and you can see on the chart that we’re still a far cry from the lofty levels of July 2014, but prices are at their highest level this year:

FactSet

Also see: Oil demand to top 100 million barrels a day in 2020, OPEC’s Barkindo says

Here are 2017 total returns for the group, along with summaries of analysts’ ratings:

Company Ticker Total return – 2017 through Nov. 30 Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings
Range Resources Corp. RRC, +0.08% -47% 68% 29% 3%
Alexion Pharmaceuticals Inc. ALXN, +0.96% -10% 83% 17% 0%
Incyte Corp. INCY, +0.69% -1% 82% 18% 0%
Western Digital Corp. WDC, -0.64% 18% 70% 30% 0%
Noble Energy Inc. NBL, +0.43% -30% 62% 38% 0%
Kinder Morgan Inc. Class P KMI, +0.34% -15% 57% 43% 0%
Allergan PLC AGN, +0.14% -16% 73% 27% 0%
Anadarko Petroleum Corp. APC, +0.49% -31% 73% 24% 3%
EQT Corp. EQT, +0.86% -9% 53% 47% 0%
Applied Materials Inc. AMAT, -1.07% 65% 87% 13% 0%
Micron Technology Inc. MU, -0.07% 93% 85% 15% 0%
Hanesbrands Inc. HBI, +0.77% 0% 59% 41% 0%
Vertex Pharmaceuticals Inc. VRTX, +0.24% 96% 82% 18% 0%
CBS Corp. Class B CBS, +1.75% -11% 76% 24% 0%
Expedia Inc. EXPE, +1.48% 9% 75% 25% 0%
Halliburton Co. HAL, +1.95% -22% 84% 13% 3%
CSRA Inc. CSRA, +1.05% -8% 77% 15% 8%
Source: FactSet

Here are how the companies fared, in terms of sales per share, over the past 12 months:

Company Ticker Sales per share – past 12 months Sales per share – year-earlier 12-month period Change in sales per share
Range Resources Corp. RRC, +0.08% $9.17 $6.69 37%
Alexion Pharmaceuticals Inc. ALXN, +0.96% $15.23 $12.81 19%
Incyte Corp. INCY, +0.69% $7.03 $5.29 33%
Western Digital Corp. WDC, -0.64% $65.19 $56.17 16%
Noble Energy Inc. NBL, +0.43% $8.58 $7.51 14%
Kinder Morgan Inc. Class P KMI, +0.34% $6.01 $5.91 2%
Allergan PLC AGN, +0.14% $45.54 $38.80 17%
Anadarko Petroleum Corp. APC, +0.49% $23.27 $15.47 50%
EQT Corp. EQT, +0.86% $15.09 $10.13 49%
Applied Materials Inc. AMAT, -1.07% $13.42 $9.74 38%
Micron Technology Inc. MU, -0.07% $17.55 $11.82 48%
Hanesbrands Inc. HBI, +0.77% $17.16 $15.15 13%
Vertex Pharmaceuticals Inc. VRTX, +0.24% $9.20 $6.81 35%
CBS Corp. Class B CBS, +1.75% $29.93 $31.38 -5%
Expedia Inc. EXPE, +1.48% $63.30 $56.30 12%
Halliburton Co. HAL, +1.95% $21.51 $19.73 9%
CSRA Inc. CSRA, +1.05% $30.17 $29.47 2%
Source: FactSet