Best Ideas List For The Second Half (ANF, AWK, BKS, CMG, GME, HSY, IPSU, MED, RVBD, SEIC, PRTS)

Many research firms and brokerage firms maintain a list of best ideas for the year, and these often get updated quarterly or as companies reach a target or as they fall out of favor.  This week came an updated “Best Ideas” list from Janney Capital Markets and some of the picks are fresh and some of the expected upsides are much higher than what economists have as overall market upside projections.  The list has so far outperformed the S&P 500 Index through the first two quarters in total return: +11.12% for Janney versus 6.02% for the S&P 500.

This week brought some new changes to the list and many updates on the old list.  Some of the companies covered on the list are Abercrombie & Fitch Co. (NYSE: ANF), American Water Works Company, Inc. (NYSE: AWK), Barnes & Noble, Inc. (NYSE: BKS), Chipotle Mexican Grill, Inc. (NYSE: CMG), GameStop Corporation (NYSE: GME), The Hersey Company (NYSE: HSY), Imperial Sugar Co. (NASDAQ: IPSU), Medifast, Inc. (NYSE: MED), Riverbed Technology, Inc. (NASDAQ: RVBD), SEI Investments Co. (NASDAQ: SEIC), and U.S. Auto Parts Network, Inc. (NASDAQ: PRTS).

We have covered these and added in targets and upside from Janney, as well as a blurb on each.  After that, we have added in some independent color if applicable.

Abercrombie & Fitch Co. (NYSE: ANF) was interesting to see after it has already enjoyed such a large run that has more than doubled.  It was not a repeat on the list.  Its adjusted price on the list was $66.92, but shares on Friday are up at $72.87.  Janney sees a fair value at $85.00, implying about 16% upside.  Thomson Reuters shows a consensus price target objective of $83.11 and supposedly there is a high target of $100 out there.  Janney’s thesis is supported by more international growth and it noted, “we will look to short-term weakness as opportunities for the long-term.”

American Water Works Company, Inc. (NYSE: AWK) was noted with a price of $29.45 and its price on Friday was $29.95.  Janney’s target is $32.00.  The firm noted, “American Water remains among our top ideas, not only in the water utility space, but in the water sector generally.”  It also looks for earnings growth and additional dividend growth.  As this was our top water pick at 24/7 Wall St., our only comment is that we see this one making it to $35 perhaps by the end of 2012. This is also a stock to hold for the next decade.

Barnes & Noble, Inc. (NYSE: BKS) was new on the list, which may be from the implied buyout interest. Janney’s quarter-end updated price was $16.58, but the stock was around $17.75 on Friday.  Janney’s fair value target is $24.00, implying about 35% upside remaining.  Janney is the street-high at $24.00, and investors may want to know that the Thomson Reuters consensus is from a small group of analysts but that appears to only be $19.50.  Janney noted, “Borders’ Bankruptcy Provides Near Term Support” and sees opportunity in the nooks and e-books.

Chipotle Mexican Grill, Inc. (NYSE: CMG) is a repeat on the Best Ideas list but Janney still sees big upside despite this hitting new all-time highs.  The quarter-end adjusted price was $308.19 and shares were almost $325.00 on Friday.  Janney’s fair value target is $375.00 and Janney appears to be the street-high target.  Thomson Reuters has a consensus target under the current price at closer to $286.00.  As a reminder, this one is up almost $200.00 from its 52-week low.  Janney noted several issues here that few may know about, one is its Asian concept called ShopHouse Southeast Asian Kitchen.  Its market share within the limited-service Mexican segment was said to be 14.1% at the end of 2010.

GameStop Corporation (NYSE: GME) is a repeat name on the list and Janney’s adjusted price of $26.67 is fairly in-line with today’s level of $26.80.  The firm sees a target of $33.00 as fair value and that is not much higher than the Thomson Reuters consensus target of $30.32.  One other firm has a $35.00 target.  Janney’s top points were competing store closures, its evolving position to digital, loyalty programs, and having easy comparable expectations ahead.  With the buyback and turnaround underway, investors need to know that despite its 50% recovery bounce it is still considered “cheap” at well under 10-times earnings.  It is also a heavily shorted stock.

The Hersey Company (NYSE: HSY) was new on the list and Janney’s adjusted initiation was at $56.85 and shares were at $57.60 on Friday.  Its fair value target is $62.00 and Thomson Reuters has a consensus target of just over $59.00. It should be known that Hershey is now close to 5-year highs.  You know Hershey regardless of your age and Janney simply noted, “pricing power, superior ad spending and volume growth, and a compelling valuation.”

Imperial Sugar Co. (NASDAQ: IPSU) was new on the list and this stock has been on fire.  The adjust start price was $20.00 and shares were at $21.50 on Friday.  Janney is the street-high target with a $30.00 fair value.  There are only three analysts covering this one and the consensus is above $26.00 and the low is $24.00.  Janney noted, “Earnings power of $3.00 per share in 2013 looks increasingly achievable.”  It did end one note of possible caution”…though we note the lack of visibility in the sugar refining business impairs somewhat our ability to predict earnings on a near-term basis.”  Our own take at 24/7 Wall St. is that the business model is changing and it is getting into natural sweeteners that are not sugar.  This is a huge growth opportunity ahead.

Medifast, Inc. (NYSE: MED) is a new Best Ideas member and its adjusted price was $23.73 versus the fair value target of $39.00.  Janney is the street-high and Thomson Reuters has a consensus target of just over $33.00.  This is a weight management and weight-loss company.  Janney notes that past issues reflect a low valuation now and it noted, “To be sure, if it weren’t for growing pains, a new auditor, another restatement, and needed reinvestments, a 43% EPS grower wouldn’t be available at 10.8x P/E; therefore, investors need to be comfortable with recent volatility and a heavy apparent risk basket.”  Keep in mind that this implies upside of well over 50% and this stock was back at $35.00 at the start of 2010.

Riverbed Technology, Inc. (NASDAQ: RVBD) was new on the list with an adjusted start price of $39.59 and a Friday price of $40.80.  Janney gave a fair value of $45.00, implying about 10% upside.  Thomson Reuters has a consensus of about $42.00, but one competing research firm still has a $50.00 target.  Janney noted, “We see shares of RVBD as a good secular play on data center consolidation trends and shift to cloud computing… Riverbed has the best products on the market, and has been executing well on emerging opportunities.”

SEI Investments Co. (NASDAQ: SEIC) was new on the list.  The adjusted price of $22.51 compares to a price of $22.70 on Friday.  Janney’s fair value target is $35.00, implying more than 50% upside in the stock.  Janney noted, “Since the beginning of 2009, over 7,300 financial advisors have left the four largest full-service brokerages firms, many of whom are choosing to become independent fee-based advisors. We believe the trend towards fee-based advisors, an area SEI has significant experience in, will continue to accelerate in 2011. Within the U.S., SEI has 6,000 independent advisors operating on its proprietary platform, and even more advisors/accounts within the United Kingdom.”  Keep in mind, that Janney is way above-consensus here as Thomson Reuters sees targets of $26.70.  Still, this means Janney is calling for more than 50% upside.

U.S. Auto Parts Network, Inc. (NASDAQ: PRTS) was new on the Best Ideas list with an adjusted price of $7.66 and a Friday price of $7.76.  Janney’s fair value target is $10.00, implying close to 35% upside.  For whatever it is worth, Janney is only in the middle of the pack as the consensus price target is about $10.30 and the high target is $12.00.  Two key drivers noted by Janney are the Whitney Automotive Group integration and the anniversary of the eBay changes.  Janney also noted that it is mitigating the Google “Panda” search issues.  As this is an after-market of auto parts, we hope that the Janney bullishness is not too robust because that would not be very suggestive of a highly robust new-car market.

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JON C. OGG