Bernstein Picks TMUS, CMG, GM for Strong H2 Gains

Bernstein's top 14 stock picks for H2 include T-Mobile, Chipotle, and GM, with previous strategy returning 17.6%.

By Alex P. Chase

7/10, 13:18 EDT
Chipotle Mexican Grill, Inc.
General Motors Company
GitLab Inc.
monday.com Ltd.
SentinelOne, Inc.
T-Mobile US, Inc.

Key Takeaway

  • Bernstein's top stock picks for H2 2024 include T-Mobile (TMUS), Chipotle (CMG), and General Motors (GM), with potential upsides of 6%, 39%, and 19% respectively.
  • Canaccord Genuity highlights GitLab (GTLB), Monday.com (MNDY), and SentinelOne (S) as strong software stocks, projecting significant revenue growth and free-cash flow margins.
  • Citi's Q2 earnings outlook favors earnings revision strategies due to low macro risk, with growth sectors expected to benefit from reasonable valuations and diverse earnings expectations.

Bernstein's Stock Picks

As the second half of the year begins, Bernstein has released its latest selection of stocks that are attractive based on both quantitative and fundamental analysis. This basket includes 14 names across six sectors, all highly ranked on a quantitative basis, not crowded, and rated as overweight by Bernstein’s analysts. The previous portfolio using this strategy returned 17.6% over six months, matching the S&P 500's performance. Bernstein analysts noted, “Quantitative and fundamental approaches to stock selection can each add value to the investment process, but an integrated and disciplined strategy combining the two methods can produce better results than either method alone.”

Among the selected stocks, T-Mobile US (TMUS) stands out. Shares have climbed 12% this year, and analyst Ottavio Adorisio’s $190 price target implies a 6% potential upside. Adorisio highlighted T-Mobile’s strong pricing power and ability to tap significant scale synergies to boost margins. Bank of America’s analyst David Barden also raised his price target to $195, citing confidence in T-Mobile’s execution and growth potential.

Chipotle Mexican Grill (CMG) is another notable inclusion. Analyst Danilo Gargiulo projects a 39% increase to $80, driven by traffic growth, store openings, product innovation, and robust in-store execution. Gargiulo emphasized Chipotle’s strong value positioning and ability to sustain top-line growth despite a promotional environment. Shares of Chipotle are up 27% this year.

General Motors (GM) has also performed well, adding 30% this year. Analyst Daniel Roeska’s $55 price target suggests a 19% upside. Roeska pointed to GM’s strong cash flows, disciplined capital allocation, and consistent shareholder returns. GM’s truck business is expected to remain highly profitable, and the company reported its best quarterly sales figures in over three years.

Software Stocks with Strong Fundamentals

As the artificial intelligence craze continues, Canaccord Genuity has identified software companies with strong fundamentals despite high interest rates. Canaccord’s screen of 147 software companies highlighted four with revenue growth of 25% or more forecast for the next 12 months and at least 50% incremental free-cash flow (FCF) margins over the trailing 12 months.

GitLab (GTLB) is among the top picks, with a trailing incremental FCF margin of 93% and 25% forecast growth. Despite a 16% decline this year, Canaccord expects growth ahead, citing GitLab’s ability to generate revenue growth and operating leverage. Canaccord has a $65 price target, implying a 22% upside.

Monday.com (MNDY) also made the list, with a trailing incremental FCF margin of 91% and projected revenue growth of 28%. Canaccord highlighted Monday’s high non-GAAP gross margins, durable growth, and healthy FCF leverage. The stock is up 30% in 2024, and Canaccord expects continued growth due to “upmarket momentum” and new pricing plans. Barclays also initiated coverage with an overweight rating and a $275 price target, implying an 11% upside.

SentinelOne (S) turned up with a trailing incremental FCF of 89% and forecast revenue growth of 28%. Canaccord views SentinelOne as a “long-term secular winner” due to its positioning as a data-driven security platform. Canaccord has a buy rating and a $23 price target, implying a 13% upside. The stock has fallen about 26% in 2024.

Citi's Quantitative Factor Profile

Citi’s latest quantitative factor profile and outlook for Q2 2024 earnings season highlights a preference for earnings revision strategies. Macro risk in earnings revisions has dropped to a historical low, suggesting that sell-side analyst views are more fundamentally focused. This, coupled with reasonable valuations and volatility profiles, bodes well for performance this earnings season. Citi continues to favor growth, which carries less macro risk exposure and is not crowded.

Citi’s analysis shows that macro risk in estimate revision accounts for only 5% of its total variance, one of the lowest levels in the last 25 years. Forward P/E and P/B ratios are around historical average levels. Diverse expectations on earnings surprises in technology and other quality/growth-oriented sectors are seen as a tailwind. Low embedded macro risk is the most effective indicator for earnings revision strategy performance.

Price momentum’s macro risk has returned to historical averages, and its valuations are not stretched. Citi remains neutral on price momentum, noting that eventual rate cuts could be a tailwind. For value factors, the 10-year yield is the main macro driver, with cyclical E/P potentially benefiting from higher oil prices and rising yields. Growth’s macro risk remains below historical averages, with muted exposures to the dollar and oil. Its main macro risks are negative exposure to long-term interest rates and credit spreads.

Street Views

  • Ottavio Adorisio, Bernstein (Bullish on T-Mobile US):

    "What makes TMUS’s equity story compelling is the structural nature of its two key growth drivers: 1) strong pricing power and 2) the ability to tap significant scale synergies to boost margins."

  • David Barden, Bank of America (Bullish on T-Mobile US):

    "We exited the meeting confident in TMUS’s ability to execute against its current plan and to continue identifying new growth segments within a mature market."

  • Danilo Gargiulo, Bernstein (Bullish on Chipotle Mexican Grill):

    "We believe that Chipotle will be able to sustain top-line growth momentum despite the increasingly promotional environment due to their strong and unique value positioning as a ‘category-of-one’ concept, driving traffic growth of LSD-MSD and same-store sales growth of 7% for FY24 without the need for discount."

  • Daniel Roeska, Bernstein (Bullish on General Motors):

    "General Motors has responded to slowing growth prospects by re-emphasizing its core value proposition: strong cash flows, disciplined capital allocation, and consistent shareholder returns. We expect GM’s truck business to remain highly profitable given the oligopolistic nature of the market and the deceleration of the electric vehicle (EV) transition."