I follow this website called TipRanks from time to time when I am running dry of stock ideas. TipRanks is a fintech website that tracks and measures the performance of the stock rating issues by over 6,000 Wall Street Analysts.
According to their records, the 25 best performing analysts had a success rate of 67.6 per cent, with their average returns beating the index by 21 per cent in the previous decade.
With that in mind, TipRanks composed a list of the last decade's Top 5 analysts by the success rate and average return per rating, along with their most successful pick and how that particular stock might still fare in today's context.
It is not surprising that 4 out of the 5 analysts are Tech analysts while the "odd-one-out" is a financial analyst, a sector that has done pretty well post the GFC "massacre".
Here are the results:
JOSEPH FORESI, CANTOR FITZGERALD
Taking home the top honour of best analyst of the decade is Joseph Foresi from Cantor Fitzgerald. He was able to achieve a success rate of 89 per cent with his calls generating an average return of 24.3 per cent.
Topping his list of successful stock picks is fintech company, Square Inc (SQ). This counter generated an impressive return of 231.6 per cent from Sep 2017 to Sep 2018. The performance of the counter in 2019 has however trailed the broader market, returning approx. 10 per cent last year vs. Nasdaq >30 per cent appreciation.
The top competitor to PayPal in the online payment environment, Square offers online financial services and mobile payments or merchants and vendors. the company's Square Reader allows any smartphone to read and scan a credit card.
The company also offers the Square Cash App, the combination payment transfer service/social network. Foresi believes that Cash App is Square's entrance into a consumer money management platform and see this business segment generating 30 per cent plus growth with long-term margin potential.
Cash App is also the leader in P2P bitcoin trading and that there is a high potential for the app to tap into SQ's merchant network as a user base for Bitcoin trading.
Overall, Foresi rates SQ stock an Overweight along with a US$91 (S$122.66) price target. Foresi believes the counter deserves a premium to its peer group for its well-above industry growth rates and potential for further margin expansion.
With SQ trading at a price of US$68/share, this represents approx 34 per cent upside from the current price level.
RICHARD DAVIS, CANACCORD GENUITY
Coming in second place is veteran analyst Richard Davis with an 87 per cent success rate and an amazing average return of 45.3 per cent for his call. As the global head of enterprise software companies at his firm, the analysts meets and build relationship with top enterprise software companies.
While his overall performance is remarkable, a particular recommendation stands out. Back in Jan 2017, Davis upgraded his rating on Twilio Inc (TWLO), a cloud-based communication platform from a Hold to a Buy.
His call was a little early as Twilio remained stuck in the doldrums for the whole of 2017. 2018 was, however, a different story altogether, with the stock appreciating from US$24 to US$86 over the course of the year.
2019 saw a roller-coaster performance, with the stock hitting a high of US$150 in July 2019 before collapsing to around US$93 by Nov 2019. The counter has, however, staged a strong rebound since the start of 2020, appreciating by 17 per cent thus far.
While revenue base for the last quarter fell below expectations, the company stated that demand remains strong, with the platform boasting 7 million registered accounts, up from 6 million in the previous few months.
Davis commented that the company signed new or expansion agreements with more than 50 of the Global 2000. This speaks volumes of the strength seen with its Enterprise customers.
Davis, however, lowered his target price from US$155 to US$125. With the stock currently trading at US$120, that leaves only a potential upside of 4 per cent from the current level.
GLENN GREENE, OPPENHEIMER
Coming in third on TipRanks' list is Glenn Greene who has served as a managing director and senior analyst at investing firm Oppenheimer since 2007.
At 86 per cent success rate, Greene's performance is as good as Davis, with a respectable average return of 22.1 per cent.
His most profitable rating was for another payment giant PayPal (PYPL). For disclosure purposes, this is a stock that I hold in my portfolio.
From Jan 2017 to Jan 2018, the return on this Buy rating landed at 101 per cent. While PayPal's about 31 per cent return in 2019, Greene believes there is more upside to come in 2020 after a meeting with management that has renewed his confidence in the company's growth and profitability prospect.
Greene sees PayPal maintaining various levers to grow through the eBay conversion and appears quite comfortable with its profitability outlook through the transition.
The Honey Science acquisition should improve consumer/merchant engagement and be accretive to its bottom-line in FY20/21. Davis believes the acquisition is a great fit for PayPal, given Honey Science strong value proposition of being the key bridge linking both consumers and merchants through its unique rebates/discount platform.
Another point of growth is that of Venmo. Similar to Square's Cash App, Venmo offer cards linked to users' app account and provide the ability to transfer money to other users and bank accounts and receive payments and cash checks.
Venmo is the current market leader in this arena, with 40 million users vs. Cash App's 7 million users.
With an Outperform rating and target price of US$125, PayPal still has approx 9 per cent upside from the current US$115 price level.
BRIAN SCHWARTZ, OPPENHEIMER
At fourth position is Brian Schwartz, a fellow colleague to Greene at Oppenheimer and has over 20 years of experience covering the SaaS/applications software space.
On average, Schwartz's calls return 28.7 per cent, with a success rate of 77 per cent. Out of all his recommendations, his Trade Desk (TTD), another stock in my portfolio, notched an impressive 269 per cent return from May 2018 to 2019.
Schwartz believes the company's long-term growth prospects remain in-tact despite a deceleration across some metrics in its latest third-quarter results which sounded alarm bells.
Schwartz believes there are numerous drivers that position TTD for strong revenue growth and EBITDA generation in 2020 and over the medium term, including a secular shift to the data-driven programmatic advertisement, ConnectedTV, and International.
TTD is a pure-play on digital ad spending growth and is the largest aggregator of ad unit purchasing power in the open internet outside of Facebook, Google, and Amazon walled garden.
eMarketer forecasts US digital ad spending will rise to US$172 billion by 2021 from US$129 billion in 2019. TTD gets a 20 per cent revenue share of ad dollars on its platform and will be a huge beneficiary of the growing digital ad spending trend.
With the counter strongly outperforming the market since its recent bottom in Oct 2019, TTD's price of $288 is now trading above the average consensus target price of $254
Schwartz himself has reduced his target price on the counter from $290 to $260 while maintaining his bullish call.
GERARD CASSIDY, RBC CAPITAL
Rounding up the list of the Top 5 analysts of the decade is Gerard Cassidy of RBC Capital. RBC Capital is also TipRanks' top-rated research firm. Cassidy has worked for the firm for 21 years covering the US banking space and is best known for inventing the Texas Ratio, an analytical tool now used by regulators and bank management to figure out the likelihood of a bank's failure.
Cassidy's calls returned 28.9 per cent on average with his success rate at 84 per cent.
His most profitable call over the last 10 years was Comerica Inc (CMA) which saw a 114 per cent gain in the 12 months after Feb 2016. However, CMA shares have not performed since peaking in Aug 2018, returning a marginal price gain for the whole of 2019. YTD20, the counter is down 4 per cent.
Cassidy noted that despite rate headwinds, overall trends remain steady. These include stable average loan balances, moderating share repurchase activity and some downward deposit repricing tailwinds.
Cassidy believes that the bank's strong capital position, manageable credit outlook, and commercial lending platform put the company in a strong financial and operational position.
The banking sector will be one of the major beneficiaries of a "value comeback".
A sudden rise in inflation might, however, result in the central bank increasing interest rates again which would negatively affect the net interest margins of banks and bite into their revenue.
Cassidy has an Outperform call on Comerica and a target price of US$74/share, implying an upside of 3 per cent from the current level.
This article was first published in New Academy of Finance. All content is displayed for general information purposes only and does not constitute professional financial advice.