Top Wall Street analysts bet on these stocks to brace for a sharp downturn

Investors’ attention has returned to the Federal Reserve after a hot November jobs report last week.

That’s because even though the central bank has pushed interest rates higher, the economy continues to add jobs and wages keep rising. Friday’s report on last month’s payrolls surprised investors and chilled sentiment.

Nevertheless, investors need to keep a longer-term outlook as they decide how to best position their portfolios. To that end, here are five stocks chosen by Wall Street’s top pros, according to TipRanks, a service that ranks analysts based on their track record.

While software company VMware (VMW) reeled from lackluster quarterly results, Monness Crespi Hardt analyst Brian White maintained his positive conviction on the stock.

Importantly, the company will soon be acquired by Broadcom (AVGO). According to the agreement between the companies, VMware shareholders can either cash in their shares at $142.50 per share or choose to exchange their holdings for 0.2520 shares of Broadcom for each share of VMware. However, in all probability, shareholders may end up with a 50-50 split between cash and stock.

This is important, as this deal has enabled VMware to “dodge the 2022 tech apocalypse,” in White’s words, with the stock up 4% in 2022.

Given the pending acquisition, VMware did not issue any guidance. However, White remains bullish on the basis of the shareholder benefit as well as the stable position of VMware in the tech sector.

“VMware’s earnings remain depressed after aggressive investment initiatives and a model transition. At the same time, the current economic and geopolitical environment is daunting, resulting in a more uncertain future, creating a greater allure for large, well-managed, stable, tech companies with benefit from digital transformation, such as VMware,” White theorized.

White is ranked No. 697 among more than 8,000 analysts tracked on TipRanks. The analyst has a record of 55% successful ratings in the past year, with each rating generating average returns of about 8.7%.

Oil and natural gas exploration company Diamondback Energy (FANG) has gained the attention of RBC Capital Markets analyst Scott Hanold after making two significant strategic acquisitions recently. The analyst expects the acquisitions to be accretive to his earnings per share estimates for 2023 and 2024 by 7% to 9%.

Importantly, at a time when almost every company has worrisome near-term prospects, Hanold sees a solid upside to Diamondback’s near-term free cash flows, thanks to its latest acquisition of Permian Basin assets from Lario. (See Diamondback Dividend Date & History on TipRanks)

The analyst is also upbeat about Diamondback’s asset monetization plan, and believes that it will help the company maintain a clean balance sheet even after the two recent acquisitions. “We think FANG will still maintain an adjusted leverage ratio below 1.0x following the close of the two transactions. However, we think the company will progress more to exceed its $500 million asset monetization target with a focus on midstream assets that trade at more robust values in the market,” said Hanold, who reiterated a buy rating and $182 price target on the stock.

Impressively, Hanold holds the 8th position among more than 8,000 analysts on TipRanks, and boasts a 70% success rate. Each of his ratings has generated average returns of 33.7%.

The next stock on our list is Microchip (MCHP), a leading manufacturer of embedded control solutions. The company’s exposure to secular growth trends in the end-markets of 5G, artificial intelligence/machine learning, Internet of Things (IoT), advanced driver assistance systems (ADAS), and electric vehicles bode well for the company in the long run.

Recently, Stifel analyst Tore Svanberg recently reiterated a buy rating on MCHP stock and even increased the price target to $80 from $77. (See Microchip Stock Chart on TipRanks)

The analyst believes that Microchip is well positioned to “manage a softer landing relative to peers during broader industry correction,” on the basis of solid near-term backlog visibility, defensive end-market exposure, resilient pricing of proprietary products, etc.

Svanberg stands at No. 41 among more than 8,000 analysts followed and ranked on TipRanks. The analyst also has a solid track record of 65% profitable ratings and average returns of 20.4% for each.

Analog Devices (ADI) is another stock on Tore Svanberg’s buy list. The manufacturer of high-performance analog, mixed-signal and digital signal processing integrated circuits holds the biggest shares of the data converter and amplifier markets.

“We believe ADI is a formidable high-performance analog/mixed-signal powerhouse with pro forma CY21A revenue of (nearly) $10 billion, and the leading challenger to the current industry heavyweight, TXN (Texas Instruments),” said Svanberg.

Analog Devices also has strong cash flow generating capabilities, which kept Svanberg bullish: The company has generated $3.50 billion in the past 12 months. (See Analog Devices Hedge Fund Trading Activity on TipRanks)

The analyst sees Analog Devices outperforming its peers in the present challenging macroeconomic environment. Based on his observations, Svanberg increased his price target to $195 from $190.

A leading name in the cybersecurity space, CrowdStrike (CRWD) disappointed investors and analysts alike recently with weaker-than-expected guidance. This underscored the vulnerability of the software sector to macroeconomic forces.

Nonetheless, Deutsche Bank analyst Brad Zelnick remained focused on the longer-term prospects of CrowdStrike, calling it one of the three best-positioned security companies to overcome the strong headwinds. (See CrowdStrike Holdings Financial Statements on TipRanks)

Zelnick observed solid traction in large deals and a strong existing customer base, which can support the company through challenging times.

The analyst also observed that despite not being able to deliver on the top-line part of the business, CrowdStrike was consistent in maintaining solid margins, reflecting “the flex/leverage in the business model.”

Although Zelnick lowered the price target to $150 from $230 to account for his lower estimates, the analyst maintained a buy rating after looking beyond the storm.

Interestingly, among more than 8,000 analysts on TipRanks, Zelnick is ranked 128th, having delivered successful ratings 67% of the time in the past year. Moreover, each of his ratings has garnered average returns of 15.10%.