Trading On margin

Buy stocks like Microsoft, Cisco and Take-Two Interactive

Ed Stack, CEO of Dick’s Sporting Goods.

David Orrell | CNBC

As the world heads into another pandemic year, investors must adapt to changing macroeconomic forces and trends.

Rising inflation, the Federal Reserve’s decision to cut monetary support, and a labor force disrupted by the current spike in coronavirus cases are all affecting daily stock price action.

TipRanks, a financial data aggregation website, provides investors with the data they need to navigate the market. Wall Street analysts highlight these five stocks, which they believe are sustainable.

Interactive Take-Two

Take-Two interactive software (TWO) announced on January 10 that it would buy FarmVille creator Zynga for $12.7 billion. The news rocked both companies’ stocks, with Zynga ending the day up 40% and Take-Two plummeting more than 13%. Investors appear divided on the deal, but one of Wall Street’s top analysts reiterated his bullish stance. (See interactive data on Take-Two earnings on TipRanks)

The analyst is Jefferies’ Andrew Uerkwitz, who attributed the sale to miscalculations over Zynga’s suitability for Take-Two and fears of a potential bidding war for the game developer. Regarding the merger itself, Uerkwitz said “no one is just doing the math.”

Uerkwitz priced the stock long and assigned a price target of $231.

The analyst argued that the recent weakness in TTWO’s share price provides an attractive long-term entry point for investors.

As for Take-Two’s core business, Uerkwitz is optimistic about the company’s robust pipeline and growing opportunities for mobile games, thanks in part to more capable hardware. The fact that “data speeds, screen refresh rates, battery life, [and] “chip speeds” are progressing so rapidly that more complex gaming systems can be developed for phones.

Meanwhile, those who play the games are more accustomed to using phone platforms than they ever were before.

On TipRanks, Uerkwitz is ranked #189 out of over 7,000 financial analysts. He has a 63% pass rate when picking stocks and averaged 31.8% on his grades.

Dick Sporting Goods

Consumer cyclicals can be drastically affected by global supply-side constraints, but companies that mitigate their impacts could see a huge upside once they calm down. One such company is Dick’s Sporting Goods (SDKs), which manages its inventory well and optimizes its supply chain. (See Dick’s Sporting Goods Insider Trading Activity on TipRanks)

Sam Poser of Williams Trading released a report on the stock. He noted that DKS has also experienced high levels of consumer engagement and placed a higher priority on maintaining strong supplier relationships with companies like Nike (NKE).

Poser priced the stock for buy and set a price target of $180.

The analyst also mentioned that Dick’s Sporting Goods has invested “in its people”. Additionally, vertically integrated initiatives like curbside pickup have increased operating margins and brought more convenience to customers.

So far, DKS sales have “got off to a good start,” thanks in part to the company’s strategic use of its customer data, according to Poser. In terms of its financial situation, the sporting goods retailer is approaching a potential earnings overrun from its fourth quarter guidance.

TipRanks rates over 7,000 analysts, and Poser currently holds a spot at No. 145. The analyst’s ratings were correct 54% of the time, and on average, they returned him 46.2%.

Cisco

The shift to digitization is proving to be a boon for companies like Cisco Systems (CSCO).

Ivan Feinseth of Tigress Financial Partners said Cisco is poised to maintain its “leading position as a global provider of IP-based connectivity and networking equipment.” The company benefited from an increase in enterprise spending on network infrastructure. (See Cisco risk factors on TipRanks)

Feinseth priced the stock long and declared a price target of $73.

Last fall, the tech company closed its deal to acquire cloud analytics platform Epsagon. Feinseth said the takeover is one of many strategic moves that demonstrate Cisco’s commitment to inorganic growth and the strength of its balance sheet.

In an age of increased video conferencing and the general need for higher networking speeds and capabilities, Cisco is poised to capitalize. If the company succeeds, so will its shareholders. The company has increased its dividend for a 10th consecutive year and is expected to do so again in February.

Feinseth tops the ranking of more than 7,000 analysts on TipRanks, at No. 89. He was successful 68% of the time when rating stocks and averaged returns of 18.1% on each.

Microsoft

While many tech companies have their cards in the cloud solutions game, not all are as well positioned to grow in 2022 as Microsoft (MSFT). The tech giant has made progress on the number of large transactions for its Azure cloud services, as well as its Office 365 bundle.

Wedbush Securities’ Dan Ives issued a bullish report on the stock, describing how strong Microsoft is after passing its December financial checks. He was encouraged by the company’s significant spending on the Azure cloud, and he said the company would soon “reach its next growth gear.” (See Microsoft Hedge Fund activity on TipRanks)

Ives priced the stock long and assigned a price target of $375.

The tech analyst said others have been conservative in their view of Microsoft’s outlook. He said Wall Street had yet to take the reality of remote work trends into account. Additionally, the number of enterprise-level deals, up more than 50%, is enough for Ives to project higher than its peers.

Noting that the total addressable market for remote cloud services could be worth up to $1 trillion, Ives sees Microsoft claiming market share gains from established players like AWS (AMZN). Additionally, he wrote that the recent price hike on Office 365 can be seen as a possible $5 billion “strategic poker move.” Ives believes the company is “on track to reach a market capitalization of $3 trillion over the next 12 months.”

Ives is ranked #81 out of over 7,000 professionals on TipRanks. He has been successful 70% of the time and his ratings have average returns of 44.6%.

Z-scale

Alex Henderson of Needham & Co sees cloud-based network and enterprise security company Zscaler (SZ) as a “unique investment vehicle with exceptional long-term value potential”.

He said the company has strengthened its sales capacity and increased customer conversion rates. (See Zscaler stock charts on TipRanks)

The analyst rated the stock as long and declared a price target of $418.

Basically, Zscaler is in a very advantageous position. The company has already increased its sales numbers, operating margin metrics and is expected to have considerable levels of free cash flow in the long term. Henderson isn’t concerned about the current wavering sentiment toward growth stocks, and he’s confident that Zscaler could beat the market even with rising interest rates.

Regarding the enhancement of its security capabilities, the analyst noted that “ZS is seeing continued awareness at the C-Suite, CIO, CTO level that the legacy perimeter defense and Client Server architecture of the 35 over the past 40 years must transition to a Cloud Direct Zero Trust design. We believe Zscaler is uniquely positioned to deliver this capability.”

Heading into future results, Henderson predicts a 5% to 10% overshoot of Wall Street consensus estimates on average revenue per user growth for the company.

Henderson is ranked No. 42 on a list of over 7,000 financial analysts. His stock quotes were successful 72% of the time, and they averaged a 42.3% return on each.