UBS Picks Amazon, Microsoft for 'All-Weather' Returns

Key Takeaway

• UBS identifies "compounder" stocks like Amazon, Microsoft, and Broadcom as resilient investments capable of thriving in any economic condition.
• The list includes high conviction picks across global markets, emphasizing sectors like AI, healthtech, and greentech for future growth.
• Notable tech advancements are expected from companies such as ASML and Baidu, driven by strong structural growth trends.

Inflation Concerns and Stock Selection

As inflation remains a significant concern for investors, UBS has identified a list of "compounder" stocks, described as all-weather stocks capable of growing through any economic cycle phase. Analyst Joseph Parkhill emphasized the importance of operational excellence and competitive advantages in achieving growth regardless of the economic environment. With the S&P 500 stocks trading near all-time high valuations, Parkhill advises selectivity, highlighting the elevated valuation of higher-growth stocks compared to historical norms. UBS's screening criteria focused on large-cap stocks with a history of EBITDA growth and the potential for accelerated growth in the coming years.

UBS Compounder Stock List Highlights

Among the 17 stocks UBS is monitoring, notable mentions include Amazon, Broadcom, Deckers Outdoor, Five Below, Microsoft, and Celsius Holdings. These companies are expected to leverage their competitive advantages to achieve significant growth. For instance, Amazon has seen a more than 20% increase in its stock price in 2024, with expectations of margin expansion and increased revenue from various segments. Deckers Outdoor, despite a recent sell-off, is anticipated to continue its strong performance, driven by its Hoka and UGG brands. UBS also highlights the potential in artificial intelligence with picks like Microsoft and Broadcom.

Global High Conviction Picks

UBS has also released high conviction buy ideas across Europe and Asia, including sectors like consumer services, transportation, semiconductors, pharmaceuticals, and more. The list features companies like Just Eat Takeaway, EasyJet, Infineon Technologies, GSK, and others, each with significant potential upside according to UBS's analysis. These picks are poised to captivate investors' portfolios with their high-quality value and potential for substantial profit growth.

The Next Big Thing in Tech

Looking towards the future, UBS predicts that the next significant advancements in technology will emerge from sectors like artificial intelligence, cybersecurity, healthtech, greentech, and fintech. The bank has selected 29 companies expected to deliver superior earnings growth due to positive, durable structural trends. Notable mentions include McKesson, Baidu, Stryker, ASML, and Broadcom, each leading in their respective fields and positioned to outperform the broader market due to strong structural growth drivers.

Street Views

• Joseph Parkhill, UBS (Neutral on S&P 500 stocks):

  "We define compounders as all-weather stocks that leverage operational excellence and competitive advantages to grow through any phase of the economic cycle... Digging in a little deeper, valuation of higher-growth stocks appears elevated versus history with a larger percentage of stocks trading above 20x PE than history. Therefore, we believe you have to be selective with compounders."

• Stephen Ju, UBS (Bullish on Amazon):

  "2024 should mark the first year since 2021 in which most if not all of the overhangs which beset AMZN shares will gradually lift, and all segments are moving in the same positive direction along the bull thesis... These factors should ultimately drive faster gross profit versus operating expense growth to drive double-digit EBITDA growth over the next several years."

• Jay Sole, UBS (Bullish on Deckers Outdoor):

  "Hoka is one of the world’s fastest growing footwear brands... We believe Hoka’s exceptional momentum with consumers continues and think this will lead to strong FY25 sales growth and stock-driving earnings beats."