AMD, Nike, Zillow among UBS stock picks with the 'highest conviction' for 2023
By Emily Bary
Bearish plays for the new year include Nordstrom, Shopify, and IBM
'Tis the season for 2023 stock picks, and UBS analysts are out with their favorites, which include chipmaker Advanced Micro Devices Inc., retailer Target Corp., and footwear powerhouse Nike Inc.
"We've focused on stocks where we believe our analysts have a differentiated view vs. consensus, and where we have interesting or proprietary data source," UBS strategist Keith Parker wrote in a note to clients highlighting the top picks. The names on UBS's list represent the "highest conviction" calls, the note stated.
AMD shares (AMD) have shed roughly half their value so far this year, but UBS analyst Timothy Arcuri sees better days ahead.
"We see AMD as poised for rebound in the near-term especially on the back of the peak PC digestion year in CY22," he wrote.
See also: Why Nvidia is this analyst's top stock pick for 2023
Arcuri also likes the broader setup for chip stocks, and AMD's place within it.
"A major buy signal has typically been when inventory growth peaks relative to revenue growth," he said. "Based on what companies have reported for CQ3, it is clear that this DELTA has peaked and it's most likely to compress from this point on as we have observed some inventory digestion taking place in certain pockets of the supply chain. In other words, this leading indicator is suggesting a positive green signal for semis stocks."
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In tabbing Nike (NKE), his colleague Jay Sole wrote of the company's potential to grow at a high-single-digit or low-double-digit annual rate, on the back of drivers like market-share gains and mix shifts in buying channels.
"We believe the market doesn't fully appreciate how Nike's investments in product innovation, supply chain, and e-commerce are working in concert to drive unit growth and ASP increases," Sole wrote, referring to the average selling price.
While the athleisure trend might be changing, he still sees growth in the industry, and views Nike as well positioned to capitalize on its evolution.
"Athleisure is still about comfortable and casual attire, but is moving away from 'performance' to more 'streetwear' styles," he wrote. "Fortunately for Nike, sneakers are at the center of streetwear culture and consumers accept it as a streetwear brand."
Fellow UBS analyst Michael Lasser likes Target (TGT), which has seen its stock slide by about a third this year amid an inventory glut. The company incurred about $2 billion to $3 billion in costs around markdowns, cancellation fees, excess storage, and other areas.
"We believe these costs were one-time in nature and barring any rapid change in the consumer landscape, we do not expect them to repeat next year," Lasser wrote. "This leaves a sizable margin recapture opportunity in CY'23 once the retailer anniversaries these expenses."
Lloyd Walmsley of UBS likes Zillow Group Inc. (Z) (Z), the online real-estate stock that's also had a tough 2022, falling about 40% so far on the year.
"We see multiple credible paths to meaningfully grow the number of Zillow-attributed transactions through '25," he wrote. "In touring, if Zillow can close half the gap on fulfilled tour requests, that alone could drive an 88% lift in transactions, by our math, and moving the touring mix of leads from 50% to 65% of leads could drive an additional 15% lift in transactions."
Others among the top 23 bullish picks include Allstate Corp. (ALL), Charles Schwab Corp. (SCHW), Gitlab Inc. (GTLB), and Yum! Brands Inc. (YUM)
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Not all UBS analysts went with bullish calls as they thought about their highest conviction picks. Ten tabbed bearish bets: Nordstrom Inc. (JWN), Vale SA (VALE3.BR), Kennametal Inc. (KMT), International Business Machines Corp. (IBM), Shopify Inc. (SHOP.T), Southern Copper Corp. (SCCO.VL), Teva Pharmaceutical Industries (TEVA.TV), Campbell Soup Co. (CPB), Western Union Co. (WU), and Williams-Sonoma Inc. (WSM)
(END) Dow Jones Newswires
December 14, 2022 11:22 ET (16:22 GMT)
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