The rage for the past 10 to 15 years has been to index. Stock picking, once the trademark of such great managers as Peter Lynch and Bill Miller, was pushed out of favor as it became easier and cheaper to just index a portfolio. Now after a six-year plus rally that has pushed the S&P 500 up over 200%, and with stocks trading at a rich 18 times trailing earnings, stock picking is more important than ever.

A new report, the analysts at Jefferies post the performance of the Jefferies Franchise Pick List, which was introduced in December 2013 to highlight the firm’s highest conviction buy-rated stocks in the United States. The stocks on the list have returned 29% since inception, which is 12.5% above the S&P 500, and the bulk of that outperformance has come this year.

We screened the list for top stocks rated Buy with the highest upside to the Jefferies price targets.

Applied Materials

This stock is a semiconductor capital equipment leader that has lagged the overall tech market over the past year. Applied Materials Inc. (NASDAQ: AMAT) is actually now trading below its moving averages, and for patient investors it may be a high-quality pick now. The company is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The analysts are very positive on the stock and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. Many on Wall Street were disappointed when the merger with Tokyo Electron was called off recently, and some think that has contributed to the slide in the stock’s price.

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Despite reporting solid first-quarter earnings that were above consensus, as well as giving guidance that was in line with expectations, the stock has continued to underperform. It may very well be one of the best technology values available for investors today. Many Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong next year.

Applied Materials investors are paid a 2.04% dividend. The Jefferies price target for the stock is $28. The Thomson/First Call price target is $24.50. The stock closed Friday at $19.62 a share.
AbbVie

This newly minted Franchise stock is being reinstated as the top global pharmaceutical stock to buy at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

The company reported outstanding first-quarter earnings, as Humira sales continued on a torrid pace. Larry Robbins from Glenview Capital said recently that he believes that the stock is trading relatively “cheap” and that AbbVie’s pipeline is underappreciated, as it will be difficult for competitors to make a generic version of its Humira, a drug to treat rheumatoid arthritis and Crohn disease.

The Jefferies team points to numerous clinical read-outs for the stock over the rest of 2015. With a stunning pipeline to match outstanding products, this may be the best positioned large pharmaceutical stock to buy now.

AbbVie investors are paid a very solid 3.05% dividend. The Jefferies price target is a stunning $90. The consensus target is lower at $73.77. Shares closed Friday at $67.05.

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Google

The technology giant is striving to expand customer offerings and increase the brand reach. Google Inc. (NASDAQ: GOOGL) recently introduced Android Pay, a revamped photos and a lightweight Android derivative operating system it calls Brillo, which is designed to power the Internet of Things. The company also recently announced a new mobile version for the Android OS, which is expected to be released this fall.

While Google has competition in search, data indicates that the company’s search advertising is still rising year-over-year at a stellar 20% from big direct response advertisers and a solid but lower 15% from more traditional retailers. As many have expected, search traffic on desktop is growing modestly on a year-over-year basis, but aggregate traffic growth is being driven by mobile.

Google remains the undisputed leader in Internet search, and when you add in a diverse portfolio that includes everything from the Android platform to YouTube, from the Google Wallet for automatic pay to the Google Flights tool, continued growth is not out of the question.

Some prominent Wall Street analysts also think that Google can be a big winner in augmented reality (AR) in both the hardware and services categories. With Google Glass and the company’s big investment in Magic Leap for hardware, and virtual reality and AR apps powering the computing of the future, Google’s massive trove of data will be key to enabling both.

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Google stock has dramatically underperformed over the last year and with a gigantic stash of cash, and new directions in countless technology silos, the future is extremely bright for the company.

The Jefferies price target is set at $693, but the consensus target is lower at $638.30. The stock closed trading on Friday at $547.47.

Micron Technology

Micron Technology (NASDAQ: MU) is a global leader in advanced semiconductor systems. Micron’s broad portfolio of high-performance memory technologies, including DRAM, NAND and NOR Flash, is the basis for solid state drives, modules, multichip packages and other system solutions. The company’s memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.

Micron and Intel announced recently the availability of their 3D NAND technology, the world’s highest-density flash memory. Flash is the storage technology used inside the lightest laptops, fastest data centers and nearly every cell phone, tablet and mobile device.

The Jefferies team feels that while DRAM pricing was weaker than expected in the first quarter, the company has taken solid supply-side actions that should help firm pricing.

The Jefferies price target is $40, and the consensus target is $39.02. Shares closed Friday at $25.13.

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High-quality tech and health care stocks at good prices are hard to come by after a multiyear market rally. The Jefferies picks are designed for the long-term growth investors with the time and the capital to be patient.

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