Analysts expect these large-cap U.S. stocks to rise at least 25% in 2018

About a year ago we listed analysts’ favorite large-cap stocks for 2017. We’re going to do the same for 2018, but first, let’s see how last year’s selections performed.

The list reflected data as of the market close on Dec. 5, 2016. There were 18 S&P 500 stocks with majority “buy” ratings that analysts expected to increase at least 30% over the subsequent 12 months, based on consensus price targets:

From Dec. 5, 2016, through Nov. 30, 2017, the S&P 500 Index rose 20%. Of analysts’ 18 favorite large-cap stocks a year ago, only five — Activision Blizzard Inc. ATVI, +2.02% Salesforce.com Inc. CRM, +2.21% NRG Energy Inc. NRG, -0.11% Centene Corp. NRG, -0.11% and Facebook Inc. FB, +1.87% — had their shares rise as much as analysts expected, based on their year-ago consensus price targets.

• Eleven of the 18 stocks underperformed the S&P 500.

• Eight of the 18 stocks suffered price declines, with six dropping by double digits.

• The first two stocks on the list — for which analysts expected the greatest gains a year ago — dropped more than 50%.

So it wasn’t a particularly strong showing for the analysts. But what does that mean? For one thing, 12 months is not a particularly long time to hold a stock. Wall Street, the media and investors are fixated on this time period, and it seems most analysts have no choice — they need to pretend that a year is a long-term investment, when the stock market has shown over the decades that any 12-month period can bad for any stock or even for the entire market. It’s best not to invest in stocks unless you can commit for several years, at least.

Looking at the S&P 500 as of Nov. 30’s close, there were only seven stocks with majority “buy” ratings that analysts expected to rise at least 30% over the next 12 months, based on consensus price targets.

Three of the companies on last year’s list are on this year’s, with both showing lower stock prices than a year ago: Alexion Pharmaceuticals Inc. ALXN, +0.48% Allergan PLC AGN, +1.17% and Hanesbrands Inc. HBI, -0.68%

All three have managed to increase their sales per share for the past 12 reported months by double digits from the year-earlier period, as you can see on the last table. This further emphasizes that even if you select a good company for a long-term investment, it might take longer than a year for the investment to perform well.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

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