Despite a very difficult week for investors, more data came in to support the huge jobs number at the beginning of the month. The NFIB Small Business Optimism Index held steady at the highest reading since May, and September inventory numbers look like a positive revision to third-quarter GDP growth from 1.5% to 2.1%. In addition, the preliminary University of Michigan Sentiment Index rose to 93.1 from 90, recovering all the lost ground triggered by the China-related events of August. What that means for investors is an improving economy should bode well for growth stocks.
Each week Jefferies focuses on growth stocks calls in which solid data and numbers have come in to back up their overall positive thesis on the stocks. This week the analysts are positive on companies that took a shot price-wise last week and may be offering an even better entry point for investors.
Activision Blizzard
This company reported outstanding earnings recently, made a huge acquisition and is a Jefferies Franchise pick stock as well. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. The company develops and publishes interactive entertainment software products through retail channels or digital downloads, as well as downloadable content to a range of gamers. Its Call of Duty franchise has propelled earnings for this industry powerhouse for years.
The big new recently was the company’s purchase of Candy Crush saga creator King Digital Entertainment. Jefferies, like most of Wall Street, thinks the buy is an outstanding move for the company, and specifically the synergies between the two companies is cited. The analysts feel that the key to unlocking some monster value is creating and cross-promoting the Activision product inside the King Digital mobile distribution network.
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Jefferies also thinks the guidance the company gave when it reported is very conservative. The content the company will release in the rest of 2015 is outstanding and not fully reflected in the guidance. The growth in the quarter was particularly impressive given two challenges: the strong dollar and unfavorable comparisons to the prior year quarter, which were lifted by strong sales of The Amazing Spider-Man 2. Much of that growth was fueled by Destiny, Heroes of the Storm and Hearthstone, which now have 70 million registered players combined. The three titles have generated over $1.25 billion in non-GAAP revenues to date.
Activision investors receive a 0.7% dividend. The Jefferies price target recently was raised to $45. The Thomson/First Call consensus target is $41.46. Shares closed Friday at $34.59 and have dropped almost 15% since earlier this month.
BioMarin Pharmaceuticals
This company is one of Wall Street’s favorites, and earnings were announced recently and were outstanding. BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. The company’s product portfolio comprises five approved products and multiple clinical and preclinical product candidates.
Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. BioMarin is expected to post around $875 million in revenue this year and possibly around $1.1 billion next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome. BioMarin had raised its guidance for Vimizim to $200 million to $220 million from a range of $170 million to $200 million.
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BioMarin could have big readouts this year, and many expect continued solid performance from its marketed products. Wall Street analysts, including Jefferies, are eagerly awaiting the Kyndrisa (which is the brand name for drisapersen) FDA panel on November 24. The company also received a favorable ruling from the patent trial and appeals board in the method of use patent application for drisapersen. This may block competition or force royalty payments.
The Jefferies price target for the stock is $166. The consensus target is $159.31. Shares closed on Friday at $107.44.
Incyte
Often rumored to be in the sights of a larger biotech company, Incyte Corp. (NASDAQ: INCY) has a current validated approach in hematology-oncology. There’s reason to believe the three wholly owned clinical-stage assets the company has could drive several billion in revenue, something important for an acquiring company seeking assets. Many on Wall Street are bullish on the company’s rich pipeline of small molecule therapies in all stages of development and see the company as a key player in the cancer space.
The stock was down big last week on preliminary results from the ongoing dose-escalation and dose-expansion Phase 1/2 study on epacadostat in combination with Merck’s Keytruda. The results were presented at the annual meeting of the Society for Immunotherapy of Cancer. Although results from the study showed that the overall response rate and disease control rate in patients were 53% and 74%, respectively, investors were disappointed as Incyte had reported better disease control rates earlier this month.
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Jefferies thinks that, after looking at the data more closely, it does suggest added activity in large market solid tumor indications, which suggests it will find a place in the treatment program. Incyte expects to initiate a Phase 3 study on this combination in patients with advanced melanoma in 2016.
While the Jefferies price target is $142, the consensus target is $133.18. Shares did rally over 3% Friday to close at $107.36.
Intercontinental Exchange Group
This top exchange company offers continued growth for aggressive investors. Intercontinental Exchange Group Inc. (NYSE: ICE) is expected to have earnings growth in the 2015 to 2016 period of a very solid 21.3%. It boasts the leading network of regulated exchanges and clearinghouses for financial and commodity markets. It delivers transparent, reliable and accessible data, technology and risk management services to markets around the world through its portfolio of exchanges, including the New York Stock Exchange, ICE Futures, Liffe and Euronext.
Jefferies analysts met with management recently, and while recent volatility is boosting exchange volumes, much of the discussion was on the positive long-term potential of the data services business, where growth in this segment is in the early stages for the company. They also think the company’s purchase of IDC last month was a very positive addition.
Investors receive a 1.16% dividend. The Jefferies price objective is $290. The consensus figure is $286.30. Shares closed Friday at $258.47.
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The Jefferies growth stock picks are aggressive, and only suitable for accounts that are very risk tolerant. With that in mind, they could offer some serious upside, especially if we get a solid fourth-quarter rally.
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