9 red-hot stocks with room to run

The party isn't over for these companies.

  • By Wayne Duggan,
  • U.S. News & World Report
  • – 07/02/2019
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The old Wall Street adage is to buy low and sell high, but sometimes it’s difficult to determine just how high a stock price can go. Stocks with strong underlying businesses or bullish momentum in the market can have more long-term upside than investors realize.

It may seem tempting to take profits on a stock that is on a six-month winning streak, but investors who sell too soon are leaving money on the table.

Here are nine stocks to buy that have gained at least 30% in the past six months that still have upside ahead, according to Morningstar.

American International Group

American International Group has come a long way from the brink of disaster during the financial crisis. With legacy credit default swap issues now largely resolved, AIG has shifted focus from growth to risk-adjusted returns and cost efficiencies. Analyst Brett Horn says the company finally has a management team that is consistently generating results, including a vastly improved underwriting business and 12% annualized adjusted return on equity in the first quarter. AIG stock is up 37% in the past six months, but Morningstar still has a “buy” rating and $76 fair value estimate for the stock.

Amazon.com

It’s no surprise to glance up at this time of the year and see Amazon stock up 30% over the past six months. However, just like in years past, analyst R.J. Hottovy says taking profits on Amazon now would be a mistake. Hottovy says investors are well aware of Amazon’s disruption in the retail industry, but there is still no other company that is threatening Amazon’s dominant e-commerce market position in the long term as the company ramps up its cash flow. Morningstar has a “buy” rating and $2,300 fair value estimate for AMZN stock.

Citigroup

After years of lagging the market, Citigroup has come alive in the past six months, gaining more than 34%. Analyst Eric Compton says Citigroup plans to aggressively return $60 billion in capital to its shareholders over a three-year stretch ending next year. Citigroup is combating persistently low interest rates by cutting $2.8 billion in costs and growing earnings per share in the double digits. Compton says if the bank can prove it can weather the next economic downturn, investor sentiment will improve. Morningstar has a “buy” rating and $83 fair value estimate for C stock.

ConAgra Brands

Vora says the ConAgra portfolio, which includes Banquet, Hunt’s, Slim Jim and Orville Redenbacher’s, makes the company a unique investment within the packaged foods group. ConAgra has refocused its business in recent years, selling off its private label and commercial businesses and acquiring Pinnacle Foods for $10.9 billion last year. Vora is projecting at least 1% organic sales growth in fiscal 2020. In the long term, Vora says the company’s innovation will create value for investors and drive upside for the stock. Morningstar has a “buy” rating and $35.50 fair value estimate for CAG stock.

Ford Motor Co.

Ford has been a market leader among major auto stocks in 2019, gaining 30 percent in the past six months. Analyst David Whiston says Ford made the right call by exiting most of its North American car segments to focus almost exclusively on high-margin trucks and crossovers. In addition, Ford is now investing heavily in electric and autonomous vehicle technology after falling behind competitors in updating its tech. Whiston says Ford’s 5.8% dividend is also reliable in a market downturn given projected cash flows. Morningstar has a “buy” rating and $12 price target for F stock.

General Mills

After a rough five-year stretch, General Mills has found its stride in 2019, gaining 36% in the past six months. Analyst Sonia Vora says General Mills has a wide competitive moat. Despite flat organic sales growth in 2018, profits got a boost from General Mills expanding operating margins by 0.3%. A more stable pricing environment, a revitalized set of brands and consistent low, single-digit sales growth should help provide solid returns for patient investors over time, Vora says. Morningstar has a “buy” rating and $57 fair value estimate for GIS stock.

Hanesbrands

Underwear and activewear giant Hanesbrands has gained 37% over the past six months, but analyst David Swartz says investors should think twice about cashing out. Despite a much larger-than-anticipated negative impact from foreign currency exchange last quarter, Hanesbrands exceeded Swartz’s sales and EPS expectations on the strength of 75% constant-currency revenue growth from the Champion brand. Recent acquisition Bras N Things is also performing well so far. Swartz says Hanesbrands is well-positioned to continue to capitalize on the casual athletic fashion trend. Morningstar has a “buy” rating and $27.40 fair value estimate for HBI stock.

Laboratory Corporation of America

Laboratory Corporation of America is the second-largest clinical laboratory in the U.S. Shares have rallied 37% in the past six months, and analyst Debbie Wang says secular growth trends in medical diagnostic techniques and identifiable genetic markers should serve as a long-term tailwind for LabCorp’s business and stock. Lower-cost labs like LabCorp have become increasingly popular as doctors and hospitals place more emphasis on pricing. Wang says LabCorp’s investments in efficiency, automation and information technology should pay dividends for investors over time. Morningstar has a “buy” rating and $184 fair value estimate for LH stock.

Wynn Resorts

With the drama surrounding the departure of former CEO Steve Wynn now squared away, Wynn Resorts investors are once again focusing on the gambling business. Despite concerns about the impact of the U.S. trade war with China, gross gaming revenue in Macao is down just 1.6% compared to a year ago. Analyst Dan Wasiolek says 2019 will be a difficult year for Wynn due to renovations at its Macao Peninsula property, but the investments are necessary to maintain its high-end clientele. Morningstar has a “buy” rating and $164 fair value estimate for WYNN stock.

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