We recently compiled a list of the 8 Best Communication Stocks To Buy According to Analysts. In this article, we are going to take a look at where Pinterest, Inc. (NYSE:PINS) stands against the other communication stocks.
The communication sector seems to be performing well through this year as the sector ETFs are slightly outperforming the broader market. While XLC and VOX are up over 25% year-to-date as of October 17, the S&P has gained slightly over 23%. Chris Grisanti, chief market strategist at MAI Capital Management also sees significant opportunities in the tech and communications sector despite him being a value investor.
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He told CNBC on October 17 that the economy appears to be in very strong shape, with positive earnings reports from financial companies. Economic indicators are looking solid, and the upcoming election could have a positive effect regardless of the outcome. Moving forward, the strongest earnings are likely to come from technology and communication stocks, despite them typically being outside value-focused investments.
Adapting to Consumer Behavior in Media and Telecom
According to PwC’s Media and Telecommunications: US Deals 2024 Midyear Outlook, media and telecommunications deal activity remained subdued due to high interest rates and uncertain regulations, with deal volumes declining despite a slight rebound in values in 1H 2024. Consumer preferences are shifting towards short-form, user-generated content platforms like TikTok, where influencers play a significant role in attracting brand partnerships. Streaming platforms are evolving through bundling and partnerships to manage rising content costs while improving subscriber retention.
AI, especially generative AI, is increasingly influencing content creation and ad tech, which are making campaigns more efficient and optimizing ad spending. Private equity investors are showing renewed interest, especially in consumer-focused deals, although regulatory obstacles and privacy concerns continue to complicate the market. As companies navigate these challenges, maintaining a strong consumer value proposition is crucial to retaining subscribers and driving growth.
Our Methodology
For this article, we identified over 40 communications services stocks with a market cap above $10 billion through the Finviz stock screener. Next, we narrowed our list to 8 stocks most favored by analysts. We listed the stocks in ascending order of their average price target upside as of October 17. We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A young, stylish woman using her smartphone to find inspiration for her latest DIY project.
Pinterest, Inc. (NYSE:PINS)
Average Price Target Upside: 33.58%
Number of Hedge Fund Holders: 61
The fourth best communication stock to buy on our list is Pinterest, Inc. (NYSE:PINS). It is a visual search platform where users discover, save, and act on ideas across several interests. The company has around 500 million active users globally and the platform is popular among women and Gen Z. It monetizes through ads, offering various formats like standard images, video, shopping, carousel, and interactive ads. Ads are served through an auction system, which are optimized for either brand awareness or conversions.
AI and machine learning improve ad delivery, which in turn, improve performance for advertisers. The platform also provides tools for campaign management and measurement and helps brands assess their ad effectiveness. The company’s advertising appeals to brands across multiple industries, offering custom solutions based on their goals.
Tipranks reported that on October 2, Wells Fargo analyst Ken Gawrelski reaffirmed his Buy rating on Pinterest (NYSE:PINS) due to several positive factors. He expects the company to achieve around 20% revenue growth, with the stock trading at a favorable valuation below 12 times the projected 2026 EBITDA. Gawrelski believes the company will surpass the upper end of its Q3 revenue guidance and beat consensus-adjusted EBITDA estimates, which show margin expansion. The analyst also views the company’s improvements in ad load and the release of the AI-driven Performance+ product.
The analyst expects steady Q4 growth and controlled expenses, with optimism that a housing market recovery will boost engagement.
Moreover, The Fly reported that KeyBanc analyst Justin Patterson raised Pinterest’s (NYSE:PINS) price target from $43 to $45, maintaining an Overweight rating. The firm expects stronger-than-expected Q3 revenue and profitability due to a solid ad market and favorable currency movements. Despite macro uncertainty and a shorter holiday season, KeyBanc expects Pinterest’s product cycles will support continued growth into 2025.
ClearBridge Mid Cap Strategy stated the following regarding Pinterest, Inc. (NYSE:PINS) in its Q3 2024 investor letter:
“Selection in the communication services sector also weighed on performance, primarily driven by a decline in Pinterest, Inc. (NYSE:PINS), which operates a social media platform where users can express their interests and discover ideas through images they “pin” to their pages. Having been a strong contributor in the first half of the year, the company gave back some of its gains as investors captured gains and an uptick in economic uncertainty pushed out spending by leading advertisers. We capitalized on this weakness to add to the position, as we believe that several of its internal initiatives to increase the monetization of its users and become a better value-added advertiser to its customers are coming to fruition.”
Overall PINS ranks 4th on our list of the best communication stocks to buy according to analysts. While we acknowledge the potential of PINS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PINS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.