According to Mizuho Securities, contrarian investors can generate additional income (alpha) even in the current bull market. Stocks have been soaring recently, with all three major indexes hitting new records in May. The Dow Jones Industrial Average closed above 40,000 points, and the Nasdaq Composite Index surpassed 17,000 points. However, Mizuho says that investors who prefer to go against the wind can still find investment opportunities in stocks that are unpopular with Wall Street analysts. In a recent note, Mizuho published a list of top stocks with analyst price targets that are more than 10% above the average analyst estimate. Of these seven stocks, Mizuho said that investment ratings for Lowe’s and PayPal are also above Wall Street expectations. Home improvement giant Lowe’s shares have fallen 2% so far this year. Mizuho Securities analyst David Bellinger has a price target of $280, which could be up 29% from Monday’s closing price. “We see Lowe’s as critically well-positioned to capitalize on a rebound in home improvement demand and a strong double-digit margin expansion in the process,” the analyst wrote. Meanwhile, Mizuho Securities named Lowe’s its top pick, given its outlook for positive same-store sales by the end of the year and the company’s exposure to the DIY market. Additionally, Lowe’s is currently trading at a discount to both the overall market and rival Home Depot, Bellinger wrote. Similarly, financial technology platform PayPal has risen just 4% this year and is “attractively valued” at current shares, according to Mizuho Securities analyst Dan Drev. PayPal is currently trading below its historical spread to peers, and Drev believes upcoming opportunities such as Fastlane services should allow the stock to sell at a “modest premium.” “Our proprietary analysis of PYPL’s newly introduced guest checkout solution, Fastlane, indicates a potential for $1-1.5 billion in incremental transaction margin dollars (a key argument) over the medium term, given the $1.43 trillion in annual e-commerce spending that Fastlane believes it can address,” Dolev wrote. Dolev’s $90 price target is 42% above the current share price. Another company on Mizuho’s list was database management provider Oracle. Oracle has risen 14% this year, lagging other tech giants such as Nvidia and Amazon, but analyst Siti Panigrahi’s $160 price target suggests the stock could rise another 34%. The analyst pointed to the company’s cloud computing service, Oracle Cloud Infrastructure (OCI), as a catalyst. “We believe many investors continue to underestimate the attractiveness of Oracle’s OCI services, both on price and performance (ORCL is about 33% cheaper than AWS for basic computing services),” Panigrahi wrote. In fact, Oracle appears to be well-positioned to grow its cloud business due to its low penetration in the industry, the analyst argued. Panigrahi added that he believes Oracle can expand its operating margins to 45% by 2026. — CNBC’s Michael Bloom contributed to this report.
Mizuho’s top contrarian stocks for June are more bullish than Wall Street
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