Right now, ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US), Prudential (LSE: PRU) (NYSE: PUK.US) and Just Eat (LSE: JE) are among the favoured stocks of professional analysts.
Prudential
Prudential is the biggest of the three companies, and the top insurer in the FTSE 100. Earlier this month, JP Morgan Cazenove upgraded the stock from “underweight” to “neutral”, leaving no analyst with a negative view that I can see.
Cazenove said its previous concerns about Prudential’s exposure to Asian regulatory risk and US variable annuities had both receded. The broker lifted its target price on the company to 1,380p. Meanwhile, the three out of every four analysts who rate Prudential as a “buy” or “overweight” have targets in the 1,700p to 1,800p area.
At a current price of 1,600p, Prudential trades on 14.5 times forecast 12-month earnings. With double-digit earnings growth expected both this year and next, the shares look reasonable, if not outstanding, value to me.
ARM Holdings
Microchip designer ARM has almost as much analyst support as Prudential. Last month, Citigroup moved ARM from “neutral” to “buy”, citing a number of reasons, including “improving earnings momentum” and the analysts’ “increased conviction in the firm’s ability to compete and maintain its dominant share in mobile”.
Citigroup reiterated its position after ARM reported strong results last week, while Goldman Sachs maintained a “conviction buy” rating, referring to the company’s “structural multi-year royalty growth opportunity”.
At a current price of 1,061p, ARM trades on 33.7 times forecast 12-month earnings. That may seem high, but this is a quality growth business, and you’re doing quite well if you can pick the shares up at under 35 times earnings.
Just Eat
If ARM’s earnings valuation lifted your eyebrows, prepare for them to fly clean off your head when I tell you Just Eat’s rating! The online takeaway ordering platform, which joined the stock market last April at 260p a share, has seen its shares rise to a current 370p — or 64 times forecast 12-month earnings.
Despite the stratospheric valuation, the City is bullish on the company’s prospects, and an increasing number of analysts are covering the stock. Citigroup initiated coverage in December with a “buy” rating, and Canaccord Genuity joined the party earlier this month, also with a “buy”.
The Canaccord analysts believe Just Eat demonstrated the popularity of its service and strength of its systems over the festive period, and said: “We see scope for further returns, premised on rapid earnings growth and potential catalysts in the form of acquisitions”.
Just Eat isn’t my kind of investment, but it looks one of the more promising of a clutch of recently floated high-growth companies that includes AO World.