In a market where stocks are reaching new all-time highs, many investors are hesitant to swim against the tide. However, according to Mizuho Securities, contrarian investors can still find opportunities to generate extra returns, or alpha, by looking for stocks that have fallen out of favor with Wall Street analysts. Despite the recent bullish sentiment driving major indexes to record levels, Mizuho believes that there are still undervalued stocks that have the potential to outperform in the current market environment.
Mizuho recently shared a list of top stock picks where its analysts’ price targets are at least 10% higher than the average analyst consensus. Among these picks are companies like Lowe’s and PayPal, which have been overlooked by many investors despite their strong growth prospects. For example, Lowe’s, a home improvement retailer, has seen its shares slip 2% so far this year. However, Mizuho analyst David Bellinger believes that Lowe’s is well-positioned to benefit from the recovering home improvement demand, leading to double-digit earnings expansion. With a $280 price target, Bellinger sees a potential 29% rally in the stock.
Similarly, financial technology platform PayPal has only risen about 4% this year, making its valuation “compelling” at current prices. Analyst Dan Dolev points to upcoming opportunities such as its Fastlane service as potential catalysts for future growth. With a $90 price target, Dolev expects a 42% increase in PayPal’s stock price. The introduction of Fastlane could generate significant transaction margin dollar lift over the medium-term, tapping into the massive e-commerce market.
Another company on Mizuho’s list is database management provider Oracle, which has lagged behind other tech giants like Nvidia and Amazon in terms of stock performance this year. However, analyst Siti Panigrahi sees Oracle’s cloud computing service, Oracle Cloud Infrastructure (OCI), as a key driver of future growth. Panigrahi’s $160 price target implies a 34% potential upside for Oracle’s stock. With an under-penetrated cloud business and the potential to expand operating margins to 45% by 2026, Oracle is seen as an undervalued player in the tech industry.
While the current market environment may seem overwhelmingly bullish, there are still opportunities for contrarian investors to find alpha by investing in undervalued stocks with strong growth potential. Companies like Lowe’s, PayPal, and Oracle offer compelling investment opportunities for those willing to swim against the tide and look beyond the popular market trends. By conducting thorough research and analysis, investors can uncover hidden gems in the market and potentially generate extra returns in the current bull market.