The combination of falling earnings and a rising stock market in 2020 has driven the S&P 500's (.SPX) forward earnings multiple up to 22, about 42% higher than its 10-year average of 15.5, according to FactSet. If stocks are going to generate significant upside from their current valuations, they are likely going to need to grow their earnings rather than rely on further earnings multiple expansions. Despite the 2020 economic downturn, here are 10 S&P 500 CFRA stock picks that are projected to grow earnings per share by at least 10% this year.
Year after year, it seems nothing can stop the Amazon.com (AMZN) train. Even a global health crisis in 2020 somehow managed to drive even more customers to Amazon's online retail and cloud services businesses. Analyst Tuna Amobi says Amazon should continue to gain e-commerce market share and generate robust growth in its AWS cloud services segment. Amobi says Amazon's aggressive investment in one-day delivery services will also help increase the value of Prime subscriptions. CFRA is projecting 2020 earnings per share of $28.41, up 23.5% from 2019. CFRA has a "buy" rating and $3,600 price target for AMZN stock.
A shift in the global economy to more remote work has boosted demand for Microsoft's (MSFT) Azure cloud services. Analyst John Freeman says Microsoft's cloud-based businesses, including Office, SharePoint, Teams and Azure, are the centerpiece of his bullish thesis for the stock. In addition, Freeman is anticipating impressive long-term growth from LinkedIn, Bing and Xbox Live. Freeman is forecasting Microsoft's operating margins will expand from 37% in 2020 to 45% by 2023. CFRA is projecting $6.96 in fiscal 2021 EPS, up 20.8%. CFRA has a "strong buy" rating and $254 price target for MSFT stock.
Johnson & Johnson
Johnson & Johnson (JNJ) recently paused its coronavirus vaccine study due to an unexplained participant illness. Analyst Sel Hardy says AstraZeneca (AZN) issued a similar halt in its vaccine testing for similar reasons earlier this year, and the study resumed just a week later. Hardy says Johnson & Johnson's pharmaceuticals segment has the most promising outlook of all its businesses given strong performances of current drugs and the potential for 14 novel drug launches by the end of 2023. Hardy is projecting $8.03 in 2020 EPS, up 42.6%. CFRA has a "strong buy" rating and $164 price target for JNJ stock.
Nvidia (NVDA) has been one of the best-performing stocks of the past decade, and most of the company's long-term growth drivers remained intact in 2020. Analyst Angelo Zino is most bullish on Nvidia's data center and gaming segments. He says artificial intelligence-related demand from data center and autonomous vehicle customers will ramp up in coming years. Zino says Nvidia's recently announced $40 billion acquisition of Arm Holdings creates opportunities, but there are "significant risks" to the deal closing. CFRA is projecting $8.86 in 2021 EPS, up 96%. CFRA has a "buy" rating and $530 price target for NVDA stock.
UnitedHealth (UNH) is one of the world's largest managed care organizations. Not only is CFRA projecting 19% EPS growth from UnitedHealth in 2020, but Hardy also says the company's goal of sustained 13% to 19% annual EPS growth seems achievable. In the near term, Hardy says investors should monitor the impact of elevated U.S. unemployment and a shift in enrollment mix toward Medicaid and individual products. Hardy says UnitedHealth has a solid balance sheet, plenty of liquidity and a strong growth driver in its Optum business. CFRA has a "buy" rating and a $357 price target for UNH stock.
Home improvement retailer Home Depot (HD) has been a superstar performer in a struggling retail sector. Social distancing and a population shift from cities to suburbs have triggered a boom in home improvement project spending. Analyst Kenneth Leon says Home Depot is one of the best bets in the retail sector and is gaining U.S. household wallet share. Leon says Americans are shifting their budgets for restaurants, travel and live entertainment to home improvement projects. CFRA is projecting 10.7% EPS growth in fiscal 2021. CFRA has a "strong buy" rating and $319 price target for HD stock.
For years, Netflix (NFLX) was putting up impressive revenue growth and net income losses, but the Netflix growth story has finally started to shift into profitable territory. Amobi says Netflix still has a long runway of international subscriber growth, has been a beneficiary of social distancing and has an opportunity for sustainable low-double-digit return on invested capital. Netflix shares are up about 50% year to date. Amobi is projecting revenue growth will slow from 28% in 2019 to 23% in 2020, but EPS will jump 51.8% to $6.27. CFRA has a "buy" rating and $600 price target for NFLX stock.
Salesforce (CRM) provides on-demand customer relationship management services. Freeman says Salesforce is one of the most innovative disruptors in the entire software landscape. He estimates legacy client-server applications still represent 39% of the CRM market, creating plenty of opportunity for Salesforce to gain additional market share. Freeman says Salesforce's aggressive acquisition strategy over the past decade has allowed the company to assemble the most comprehensive and feature-rich CRM offering available. CFRA is projecting $3.88 in fiscal 2021 EPS, more than 25 times its 2020 EPS of 15 cents. CFRA has a "buy" rating and $302 price target for CRM stock.
Merck & Co.
Merck (MRK) is a diversified global pharmaceutical company. Hardy says the health crisis has been a headwind for Merck given social distancing has negatively impacted total doctor visits. However, Merck doesn't have any key brands facing generic competition until 2022. Merck's biggest revenue growth source is cancer immunotherapy drug Keytruda, which is on patent until 2028. CFRA is projecting $5.73 in 2020 EPS, up 50.4%. CFRA has a "strong buy" rating and $92 price target for MRK stock.
Nike (NKE) holds roughly a 30% share of the global athletic footwear market. Analyst Camilla Yanushevsky says investors thinking about buying Nike stock should "just do it." She says Nike has several bullish near-term catalysts, including the return of professional and amateur sports, a shift toward direct-to-consumer sales, and a strategy shift to prioritize growth opportunities, such as women's apparel and China. Nike nearly doubled analyst earnings expectations in its most recent quarter. CFRA is projecting $3.10 in 2021 EPS, up 93.7%. CFRA has a "strong buy" rating and $145 price target for NKE stock.
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