Alphabet and 7 More Stocks Wall Street Loves That Aren’t Too Pricey

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Investors usually have to pay up to get high-quality stocks, but it isn’t always the case.

Barron’s latest investing screen, looking for the best-loved stocks in the

S&P 500
that offer significant potential gains based on the average of analysts’ price targets, yielded a surprise. Six of the eight of the companies we found were trading at valuations like that of the overall market, or better.

A screen, of course, is only a starting point, a part of the process of investment research, but this one offered a special message. The quality companies aren’t particularly expensive.

The list, in no particular order, includes

Amazon.com

(ticker: AMZN),

Alphabet

(GOOGL), energy service firms

Baker Hughes

(BKR) and

Schlumberger

(SLB),

Signature Bank

(SBNY),

Alaska Air

(ALK),

Generac

(GNRC), and

Alexandria Real Estate Equities

(ARE).

Company / Ticker	Buy Ratio	Upside	2023E PE	Market Cap, Bil
Alphabet / GOOGL	94%	21%	18.0	$1,537.2
Amazon.com / AMZN	95	22	41.2	1,434.4
Schlumberger / SLB	96	46	12.3	49.0
Alexandria / ARE	92	24	30.3	26.1
Baker Hughes / BKR	91	49	14.2	24.5
Generac / GRNC	91	37	17.6	15.8
Signature Bank / SBNY	100	43	7.6	11.8
Alaska Air / ALK	91	41	8.6	5.9

Source: Bloomberg

We defined the best-loved stocks as those with Buy-rating ratios of more than 90%, compared with the average for companies in the S&P 500 of about 58%. It is worth asking if Buy ratings are a good indicator of whether a stock is likely to rise, but researchers have found that Buy-rated stocks do a little better than those rated at Sell.

That makes some sense. Analysts are paid to understand industries and pick companies they believe are better positioned than others.

Each of the stocks also had to have the potential to rise more than 20% based on analysts’ average price targets. The average upside for stocks in the S&P 500, by that measure, is about 15% today. Analysts’ price targets can represent the level a stock will attain over the coming 12 months, or they can indicate a “fair” price to pay for a stock to earn a fair return in the future.

Six of the eight stocks trade for less than 18 times the per-share earnings the companies are expected to produce in 2023. The S&P 500, meanwhile, trades for about 17 times earnings.

The exceptions are Amazon and Alexandria. They trade for about 41 and 30 times estimated 2023 earnings, respectively. Still, Alexandria is a classified as a real estate investment trust, or REIT. REITs in the S&P 500 trade for about 37 times estimated 2023 earnings, meaning Alexandria is cheap relative to its peers.

Signature Bank

is trading for about eight times estimated 2023 earnings. Banks in the S&P 500 are trading for about nine times.

Baker Hughes

and

Schlumberger

trade for about 14 and 12 times estimated 2022 earnings, respectively. That isn’t too expensive on an absolute basis, but energy-services companies in the S&P 500 trade for closer than 10 times. They are a little more expensive than average.

Overall, the eight are down about 16% on average so far in 2022. Schlumberger is the only stock up substantially, with a gain of about 16%. Signature Bank stock has done the worse, falling more than 40%.

Excluding Amazon and Alexandria, the remaining six trade for about 13 times estimated 2023 earnings, on average.

Write to Al Root at [email protected]