Key Stocks Valuation Board
Summary
It’s not only about the “Magnificent 7”
In our previous article regarding market valuation, we’ve covered the most important stocks moving the S&P 500 (read it here). However, our holdings include a slate of promising stocks which also deserve to be valued separately as well. In this article, we shall cover:
Advanced Micro Devices Inc (AMD)
Zions Bancorporation NA (ZION)
ServiceNow Inc (NOW)
Fair Isaac Corp (FICO)
McDonald's Corp (MCD)
WW Grainger Inc (GWW)
Range Resources Corp (RRC)
Progress Software Corp (PRGS)
Amgen, Inc. (AMGN)
Exxon Mobil Corp (XOM)
While 2023 has clearly been the year to own mega-cap stocks (and avoid almost everything else), 2024 is shaping up to be a bifurcating year. Either we get a recession and an accompanying stock market downturn, or “the rest of the market” will surge and at least catch up with the performance posted by the “magnificent 7”.
In the latter scenario, investors will want to own the most promising names, from various industries, which are set to outperform. We’ll start this article series by looking at our current holdings. At the end of this article, we shall sum up their price targets and industry types into a comprehensive conclusion.
Full disclosure: we own all of these companies, but we will attempt a fair valuation in each case.
Analyst Price Targets and Statistics
First of all, let’s take a look at the combined capital appreciation potential, according to sell-side analysts. We can expect a 6.81% 1 year gain, assuming an equal weight distribution, similar to the top 10 companies in the S&P 500. Below, you can find our own models, constructed with the help of machine learning systems.
Models & Price Targets
Advanced Micro Devices Inc (AMD)
Signal Sigma PT: $140
Analyst PT: $130
Upside: 6.47%
Rating: HOLD
Assumptions:
16% Revenue Growth
45.8% Gross Margins
30% OpEx pct Sales
ServiceNow Inc (NOW)
Signal Sigma PT: $757
Analyst PT: $650
Upside: 13%
Rating: BUY
Assumptions:
23% Revenue Growth
79% Gross Margins
64% OpEx pct Sales
Fair Isaac Corp (FICO)
Signal Sigma PT: $1074
Analyst PT: $1029
Downside: -0.76%
Rating: BUY
Assumptions:
10% Revenue Growth
80% Gross Margins
31% OpEx pct Sales
McDonald's Corp (MCD)
Signal Sigma PT: $302
Analyst PT: $307
Upside: 7.15%
Rating: BUY
Assumptions:
5.6% Revenue Growth
66% Gross Margins
23% OpEx pct Sales
WW Grainger Inc (GWW)
Signal Sigma PT: $872
Analyst PT: $790
Upside: 11.8%
Rating: HOLD
Assumptions:
10% Revenue Growth
40% Gross Margins
24% OpEx pct Sales
Range Resources Corp (RRC)
Signal Sigma PT: $43
Analyst PT: $37
Upside: 32%
Rating: BUY
Assumptions:
2% Revenue Growth
58% Gross Margins
19% OpEx pct Sales
Progress Software Corp (PRGS)
Signal Sigma PT: $64
Analyst PT: $63
Upside: 18%
Rating: HOLD
Assumptions:
11% Revenue Growth
82% Gross Margins
67% OpEx pct Sales
Amgen, Inc. (AMGN)
Signal Sigma PT: $316
Analyst PT: $278
Upside: 18%
Rating: HOLD
Assumptions:
5.5% Revenue Growth
73% Gross Margins
40% OpEx pct Sales
Exxon Mobil Corp (XOM)
Signal Sigma PT: $148
Analyst PT: $128
Upside: 43%
Rating: HOLD
Assumptions:
2% Revenue Growth
35% Gross Margins
7% OpEx pct Sales
Conclusions
According to our Price Targets for this selection of stocks, the combined capital appreciation potential is above 15%. Of course, our models do not account for company specific catalysts, since they are mainly projected using machine learning techniques. But taken as a group, we believe this portfolio has good odds of generating outperformance. There are a couple of caveats to be taken into account at the next rebalancing session:
Like many software stocks, ServiceNow Inc (NOW) and Fair Isaac Corp (FICO) are almost priced to perfection and have little upside left; we will need to reduce or sell these positions entirely;
The stocks with the largest potential price appreciation (RRC and XOM) are both energy companies; should commodities trade poorly in 2024, they will underperform; they do represent a hedge against inflation, however;
From a risk-reward perspective (using our CAGR adjusted charts), the most attractive stocks are AMGN, PRGS and XOM; they are trading near the lower channel trend-line, a technical place that signifies we are getting a good deal if our assumptions prove to be correct; however, we would be hesitant to add to these positions right now, since they have not participated in the latest market rally; if they couldn’t get sufficient bids with the market trading near the highs, it’s unlikely they will outperform in a downturn
We’ll keep you posted with our rebalancing process for 2024. As always, you can request new tickers for analysis using this page. All of the analyzed stocks with price targets and models are available on the Dashboard / Stock Ratings section.
Andrei Sota