Investing in growing companies is the key to generating substantial long-term returns. A "strong buy" rating from analysts indicates confidence in the company's fundamentals and its long-term growth prospects. Let's look at three deserving stocks to buy now that are trading below their all-time highs.
#1. Amazon
A "strong buy" consensus rating for Amazon (AMZN) is not surprising. After dominating the e-commerce market, the company is now establishing a strong presence in the broader technology sector. It has expanded its operations into cloud computing (Amazon Web Services, or AWS), artificial intelligence (AI) (Alexa) and entertainment (Prime Video).
Valued at $1.9 trillion, Amazon’s stock has gained 19.6% YTD, compared to the S&P 500 Index’s ($SPX) gain of 14%.
Aside from its already successful e-commerce business, AWS continues to be a key growth driver, benefiting from the growing adoption of cloud services across a variety of industries. AWS has a 31% market share in the global cloud computing market. Amazon's advertising business is also expanding rapidly. In the first quarter, total revenue increased by 13%, while earnings increased by a staggering 216% year over year.
Furthermore, the company is looking into growth opportunities to expand its business beyond e-commerce and cloud computing. New initiatives such as Amazon Go (cashier-less stores), Amazon Fresh (grocery delivery), and investments in healthcare and entertainment will continue to boost the company's earnings. Amazon recently announced a collaboration with GE Healthcare (GEHC) on generative AI, leveraging patient data to improve care.
This week, Amazon will release its second-quarter results on Thursday, August 1. Analysts expect a 10.6% increase in revenue to $148.6 billion, with earnings rising 56.9% to $1.02 per share.
More broadly, analysts expect that revenue and earnings will grow by 11.1% and 57.7%, respectively, in 2024. In 2025, revenue and earnings are expected to increase by 11.15% and 26.3%, respectively.
Amazon's strong financial performance, diverse revenue streams, and strategic growth initiatives make it an attractive growth stock to buy right now.
Out of 45 analysts covering the stock, 42 have a “strong buy” rating, while three have a “moderate buy” rating. Its mean target price is $227.58, which implies an upside potential of 25.2% from current levels.
Plus, its high target price of $250 suggests that the stock could rise as high as 37.6% over the next 12 months.
#2. General Dynamics Corporation
General Dynamics (GD) is an aerospace and defense company. It operates in four business segments: aerospace, combat systems, marine systems, and technologies. The company's revenue is primarily driven by long-term defense contracts and increasing demand in the aerospace sector.
Valued at $79.4 billion, GD stock has surged 12.8% YTD, roughly in line with the broader market's gain.
GD's differentiated business segments enable it to mitigate the risks associated with a single business line. This diversified portfolio includes aerospace, combat systems, marine systems, and information technology solutions.
In the second quarter of 2024, total revenue increased 18% year on year to $12 billion, while earnings per share increased 20.7% from the prior-year quarter. It has a company-wide backlog of $91.3 billion, meaning revenue to be recognized in the future.
The Marine Systems and Combat Systems segments make significant contributions to the company's overall profitability. The Aerospace segment, primarily driven by Gulfstream business jets, is experiencing significant growth, with 37 aircraft delivered in the second quarter.
General Dynamics is also a Dividend Aristocrat, having increased dividends for 33 consecutive years. It pays a forward dividend yield of 1.9%, which is higher than the industrial sector average of 2.3%.
Out of 20 analysts covering GD stock, 15 have a “strong buy” rating, one has a “moderate buy” rating, and four rate it a “hold.” Its mean target price is $318.11, which implies an upside potential of 8.5% from current levels. Plus, its Street-high estimate of $348 suggests that the stock could rise as high as 18.7% over the next 12 months.
GD's diverse business model, strong defense contracts, and commitment to technological innovation with the help of AI position the company for long-term success. Analysts covering the stock expect its earnings to increase by 20.8% in 2024, further rising by 13% in 2025.
#3. Ovid Therapeutics
Ovid Therapeutics (OVID) is a promising biopharmaceutical company that focuses on developing treatments for rare epilepsy and seizure-related disorders.
Valued at $74.5 million, Ovid’s stock has dipped 67.6% YTD, lagging the overall market.
The company's pipeline includes OV329, a next-generation GABA aminotransferase inhibitor for refractory seizures. The company intends to conduct two development programs (oral and intravenous) to test the product's potential as a treatment for chronic and acute seizures.
Furthermore, Soticlestat is being developed in collaboration with Takeda (TAK) for rare epileptic conditions. Ovid reported in Q1 that Takeda had completed two Phase 3 trials to investigate "soticlestat as a treatment for Lennox Gastaut syndrome (LGS) and Dravet syndrome (DS)." Takeda will release topline data for both trials before September 2024.
The company earned $148,000 in revenue from royalty and licensing agreements in the first quarter. Its cash, cash equivalents, and marketable securities totaled $90.3 million. Management believes that will be sufficient to support its clinical development programs into the first half of 2026.
While its innovative pipeline, strategic partnerships, and emphasis on orphan drug markets position it for a bright future, there are some risks involved. Ovid is a penny biotech stock that is still in the clinical stage and has yet to launch a successful product.
The success of Ovid Therapeutics as a company is dependent on positive clinical trial results and regulatory approval. Failures or delays in trials or getting approval can hamper the company’s long-term prospects and stock price. While Wall Street believes it is a strong buy, investors should do their due diligence.
Out of nine analysts covering OVID stock, seven have a “strong buy” rating, and two have a “hold” rating. Its mean target price is $3.12, which implies an upside potential of 198.5% from current levels.
Plus, its Street-high estimate of $5 suggests that the stock could rise as high as 378.5% over the next 12 months.
