1. Advanced Micro Devices Inc (AMD)
Highlights
- High EPS growth estimates
- Competitive, in demand products
- High analyst price targets
- ROI of major AI players in question
- Missed 3 of their last 4 earnings calls
- High valuation
AMD has a lot of great things going for it right now on the demand side, namely thanks to the immense build out AI infrastructure by major tech companies. And while substantial, it’s no surprise this has been propping up analyst earnings estimates and supporting its massive 81 Price to Earnings ratio. However, some are beginning to call into question the sustainability of this AI spending given a likely decrease in demand once the original build out of data centres is complete – which does introduce the risk of valuation contraction should earnings revisions turn negative. Additionally, the ROI of these AI products is also unclear, increasing the risk that major tech players could reduce spending in the future. Risks aside, consensus among reviewers seems to be that AMD has a good product with a competitive edge; and given strong industry growth forecasts it’s clear the potential for growth is still there despite the $348B market cap. We put this as a medium risk, high reward.
WSX Rating: STRONG BUY
2. Starbucks Corp (SBUX)
Highlights
- Strong revenue growth estimates
- Good, sustainable dividend around 4%
- Strong brand loyalty
- Fair analyst price targets
- Missed their last 2 earnings calls
- High valuation
- EPS declined to “Turnaround” period
Checking Reddit might have you convinced Starbucks is in a downward spiral, and indeed their EPS has taken a hit given their investments in their latest “turnaround” where the are making massive investments that aim to improve customer experience and implement efficiencies. However, while there is certainly some risk associated with these changes; Starbucks still clearly benefits from extreme brand loyalty and is forecasted to continue making steady improvements to their top line revenue. This, in addition to their maturing dividend history is what makes Starbucks a Strong Buy for us at this time – even if it relies heavily on the payoff of this transition/investment period. We have put this as medium risk, medium reward.
WSX Rating: STRONG BUY
3. Verizon Communications Inc (VZ)
Highlights
- Steady revenue growth
- Impressive dividend history
- High analyst ratings
- Beat 3 of their last 4 earnings calls
- Low valuation
- Flat EPS growth
- Flat customer base
Verizon offers a world class dividend with a long history at a solid valuation. As you might expect though, it does come with minimal EPS growth with some risk around future profitability. That said, growth in their top line revenue has been steady and they have been beating earnings calls – and with a valuation like an 11 PE it doesn’t take a major earnings revision to see massive compounding effects in valuation which could send the price soaring. And with not a lot of great options to park cash these days, in our opinion Verizon and its stable dividend offer a great haven for investors that can hang on long term. We put this as medium risk, high reward and have rated it a BUY.
WSX Rating: BUY
