Right now, Apple (NASDAQ: AAPL.US), BAE Systems (LSE: BA) and International Consolidated Airlines (LSE: IAG) are among the favoured stocks of professional analysts.
Apple
Societe Generale upgraded Apple to Buy from Hold on Monday, saying: “Given the recent weakness in Apple’s share price, we are now just above our target of a 15% total shareholder return over 12 months”.
Over 70% of analysts are positive on the stock, and SocGen’s price target ($140) is below the consensus of $150 and an implied upside of 25%. Like others in the bull camp, SocGen is not currently factoring in the possibility of a slowdown in the Chinese economy, and an adverse impact on Apple’s sales (30% of iPhone sales are now reckoned to come from the People’s Republic).
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King of the Apple bulls Cantor Fitzgerald also released a note on Monday, reiterating a Buy recommendation and $195 target (potential upside 56%). Cantor expect Apple’s strengthening relationship with China Mobile and China’s growing 4G network to continue supplying momentum for the US group. Indeed, Cantor said: “We believe Apple’s future prospects have never been brighter and the stock is trading at just 9.8x our CY:16 EPS projection (ex-cash)”. If Cantor are on the money, Apple is a bargain, but the stock still looks cheap on less exuberant consensus numbers.
BAE Systems
BAE Systems has been winning plenty of new friends in the City in recent weeks. UBS has upgraded the stock to Buy from Neutral (510p price target) Morgan Stanley has moved to Overweight from Equalweight (570p target) and Berenberg to Buy from Hold (also 570p target).
Analysts reckon various market concerns about the company are overdone. For example, Morgan Stanley was not alone in suggesting that “defence spending reviews in the UK and US should hold no fears for BAE”. Uncertainty around the future of the Williamstown shipyard and the Eurofighter Typhoon programme also came in for mention as having led to an overly pessimistic market view on BAE. At the same time, Berenberg suggested “significant aftermarket upside” in Saudi Arabia has been overlooked.
As well as the appeal of BAE’s valuation — currently an undemanding 12.5x consensus forecast 2015 earnings — the analysts extolled the virtues of the company’s defensive qualities, summed up by UBS: “In times of uncertainty we find BAE’s independence from the economic cycle attractive”.
International Consolidated Airlines
UBS has moved into bull class aboard International Consolidated Airlines (IAG), joining the overwhelming majority of City analysts (83%) who are positive on the owner of British Airways and Iberia, and owner-in-waiting of Aer Lingus. In its note on Monday, UBS pointed out that IAG’s shares had fallen almost 20% from their high of 617p in April, and were now at a good entry point. The analysts at the Swiss bank upgraded the stock from Neutral to Buy and ramped up their target price from 580p to 700p.
IAG already trades on a modest earnings rating with a consensus for strong growth, and the UBS analysts reckon there is potential for upgrades to forecasts from restructuring gains and possible further falls in the oil price. They also note the attraction of IAG being set to pay a first dividend this year.
UBS’s target price implies 27% upside for the shares from current levels. The most bullish analysts are looking for 36%.
