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All the Wall Street firms that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the stock they not only like on a longer term basis, but those that usually have big upside to the assigned target price. These portfolios of top stocks, and the rates of return, are often how brokerage firms and banks can set themselves apart from each other.
We have covered the Jefferies Franchise list of stocks since its inception back in December of 2013 and have watched as they brought home some huge winners for the firm’s clients. On a total return basis, the Franchise list has outperformed the S& P 500 by a massive 90.66% to 63.53% since inception.
The current list includes five companies that look especially good now, and two are relatively new additions.
This remains a top pick on Wall Street and Jefferies still is very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.
The company reported outstanding results that beat estimates and the analysts commented:
Activision reported results, beating forecasts and guiding 2018 conservatively. Since 2011, the company has ended the year 19% higher than the initial outlook, on average, which suggests $3.00 in earnings per share could be achievable. We note that the beat this quarter was driven by a resurgence on Call of Duty as well as in game spend. We raised estimates and note that our new $3.02 estimate for 2019 is ahead of consensus.
Jefferies also feels that microtransactions may be one of the most compelling reasons to own the shares now. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. Another term, “pay-to-win,” is sometimes used to refer to games where buying items in-game can give a player advantage over others, particularly if the items cannot be obtained by free means.
Shareholders of Activision Blizzard are paid just a 0.51% dividend. The Jefferies price target for the shares is $86, and the Wall Street consensus target is $76.58. The stock closed Monday at $70.08 per share.
This company may be somewhat off the radar for investors, but it is well liked at Jefferies and across Wall Street. DXC Technology Co. (NYSE: DXC) is the world’s second-largest pure-play information technology services firm, behind only Accenture, and it generated around $25 billion in annual revenues. Moreover, as of fiscal 2017, the company had more than 170,000 employees (with an offshore mix of around 50%), serviced around 6,000 clients in a wide range of verticals, and it had a presence in over 70 countries, with the Americas representing around 50% of total revenues.
The company reported solid fiscal third-quarter results earlier this month, which included impressive margin performance and revenues that were in line with estimates. The company also offered fiscal 2018 earnings per share guidance that was raised from previous levels.
DXC Technology shareholders are paid a small 0.70% dividend. Jefferies has a $120 price target for the shares, while the posted consensus target is $112.33. The shares closed trading at $103.76 on Monday.
This is a top Permian Basin play for more aggressive accounts. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
The $160 Jefferies price target compares with the posted consensus target of $155.24. The shares closed most recently at $133.23.
This old-school chip tech company was a recent addition to the Jefferies Franchise List. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators. Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets.
Jefferies remains bullish on the company despite quarterly results that some on Wall Street did not care for. An an earlier report noted this:
Analyst Mark Lipacis added the company to the Franchise Pick list as he believes the company is uniquely positioned to benefit from several secular drivers as the industry shifts towards the next phase of growth-the Internet of Things-and cyclical demand from industrial capex picks up. He notes that the Auto and Industrial businesses grew by 18-21% in 2017. Further, he expects the company to expand gross margins by 10% as consolidation in semis drives further pricing power.
Texas Instruments investors receive a 2.25% dividend. Jefferies has set its price objective at $150. The consensus price target was last seen at $120.58, and the shares closed most recently at $106.60 apiece.
If there is any company to own in the retail sector, this may be the one. It recently made its debut on the Franchise Picks List. Ulta Salon Beauty Inc. (NASDAQ: ULTA) is a holding company for the Ulta Beauty group of companies. It is a beauty retailer that offers cosmetics, fragrance, skin care, hair care products and salon services. The company offers approximately 20,000 products from over 500 beauty brands across all categories, including its own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin and brow services.
Ulta Beauty operates approximately 970 retail stores across over 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. The company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes.
The Jefferies price target is a stunning $300. The consensus price objective is $249.09, and the stock closed Monday’s trading at $207.90 a share.
These five outstanding picks from the Jefferies analysts all have solid upside to the firm’s price target. While better suited for more aggressive growth accounts, they all look like good picks for the rest of 2018 and beyond.
By Lee Jackson