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Disney, Amazon Make Wells Fargo List of Top Picks

The bank made a list of 'signature picks, an eclectic portfolio culled from our research department's highest-conviction ideas.'
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With the S&P 500 having dropped 17% so far this year, now may represent a good time to pick up quality stocks on the cheap.

Wells Fargo has created a list of “signature picks, an eclectic portfolio culled from our research department's highest-conviction ideas,” its analysts wrote in a commentary.

“While it is a diverse group, there are several common portfolio themes, such as higher Covid beta (bias toward the reopening trade), a smaller-cap tilt, and higher price momentum.”

The list includes:

· Disney  (DIS) - Get The Walt Disney Company Report

· Amazon  (AMZN) - Get Amazon.com Inc. Report

· Constellation Brands  (STZ) - Get Constellation Brands Inc. Report, an alcoholic beverage company

· Devon Energy  (DVN) - Get Devon Energy Corporation Report, an oil producer

· Bank of America  (BAC) - Get Bank of America Corporation Report

· AbbVie  (ABBV) - Get AbbVie Inc. Report, a giant pharmaceutical company

· Norfolk Southern  (NSC) - Get Norfolk Southern Corporation Report, a top railroad company

· Apple  (AAPL) - Get Apple Inc. Report

· Dow  (DOW) - Get Dow Inc. Report, a chemical company

· NextEra Energy  (NEE) - Get NextEra Energy Inc. Report, a major utility

· Disney

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TheStreet Recommends

Morningstar analyst Neil Macker likes the company, assigning it a wide moat. He puts fair value for the stock at $170, compared to a recent quote of $102.

“We believe Disney is successfully transforming its business to deal with the ongoing evolution of the media industry,” Macker said.

“The firm’s direct-to-consumer efforts, Disney+, Hotstar, Hulu, and ESPN+ are taking over as the drivers of long-term growth as the firm transitions to a streaming future.”

Further, “streaming will benefit from the new content being created at Disney and Fox television and film studios as well as the deep libraries at the studios,” Macker said. “We expect that Disney+ will continue to leverage this content to create a large, valuable subscriber base.”

Amazon

Morningstar analyst Dan Romanoff is bullish on the company, assigning it a wide moat. He puts fair value at $3,850, compared to a recent quote of $2,134. But he lowered that estimate from $4,100, after Amazon’s first-quarter earnings report in April.

Results were mixed, and second-quarter guidance was worse than expected. “The highlight of results was strength in Amazon Web Services, which continues to benefit from the ongoing shift of enterprise workloads to the cloud,” Romanoff said.

“While revenue was ahead of the guidance midpoint, first-party sales suffered its second straight quarter of year-over-year contraction…. Operating margin was a concern, as inflation, excess labor, and excess capacity ate into profitability.”

Constellation

Morningstar analyst Jaime Katz likes the company, assigning it a wide moat. She puts fair value for the stock at $262, compared to a recent quote of $242.

Several factors underpin the potential for improving profits, she said. That includes:

· “Additional capacity coming online from the Veracruz brewery, which … should allow the firm to meet growing consumer demand.

· “Innovation stemming from the Fresca Mixed collaboration with Coca Cola  (KO) - Get Coca-Cola Company (The) Report should allow Constellation to gain further exposure to [the] spirit-based ready-to-drink market…”

· “The continued consumer shift toward premium offerings should help gross margins, given that the higher price points in Constellation’s premium portfolio render higher margins than its traditional portfolio.”

As a result, “we are maintaining our forecast of 5% sales growth and a 53.5% gross margin on average over the next 10 years,” Katz said.

The author of this story owns shares of Amazon, AbbVie, Apple and Coca Cola.