With the 2015 trading year winding down fast, many of the top brokerage firms that we cover here at 24/7 Wall St. are releasing their top stock ideas for 2016. Given that the markets have had a very tepid year, with virtually no gains except for big momentum stocks, investors may want to take a look at the top ideas for 2016 and rotate some capital now.

In a new Cowen research report, three of the firm’s best analysts make their top picks for 2016. These best ideas not only have some outstanding upside potential, they also appear to have low valuations, which help lower some of the inherent downside risk should the market continue to stumble.

Chicago Bridge & Iron

This top company is down big since May and could be offering investors an outstanding entry point. Chicago Bridge & Iron Co. N.V. (NYSE: CBI) provides conceptual design, technology, engineering, procurement, fabrication, modularization, construction, commissioning, maintenance, program management and environmental services worldwide.

The company’s Engineering, Construction and Maintenance segment offers engineering, procurement and construction services for energy infrastructure facilities, as well as comprehensive and integrated maintenance services. Its projects include nuclear, fossil and renewable electric generating plants for the power industry, and upstream and downstream process facilities for the oil and gas industry.

The Cowen analysts note that the company is exiting the nuclear business with Westinghouse and feel that it can now deliver on what they feel is an outstanding operating cash flow potential. The analysts also see liquefied natural gas (LNG) projects, momentum on the petrochemical arena and perhaps a Mozambique LNG FID project coming next year. The net result could be a narrowing of the multiple gap with the company’s peers. Trading at a low 11.5 times estimated 2016 earnings, the stock is cheap.

Investors are paid a small 0.73% dividend. The Cowen price target for the stock is $59, and the Thomson/First Call consensus target is $56.53. The shares closed Tuesday at $38.79.

Harris

This top defense sector play is way cheaper than peers and could be an outstanding buy at current levels. Harris Corp. (NYSE: HRS) provides technology-based solutions that solve government and commercial customers’ mission-critical challenges. The company designs, develops and manufactures a line of secure radio communications products and systems for manpack, handheld, vehicular, airborne, strategic fixed-site and shipboard installations that span the communications architecture from high-capacity line of site, backbone radios, small soldier personal radios and tablet computers, as well as offers assured communications systems and equipment, including Internet Protocol based voice and data communications systems.

Cowen notes that the defense sector is very positive with solid sentiment reading, and the group historically outperforms in presidential election years, noting that 2016 candidates likely will remain hawkish in the wake of recent elevated domestic threats. Plus it trades at a 10% discount on 2016 estimates earnings to company’s peers in the industry. Most importantly, in a sector that for the most part is overbought and fully valued, Harris offers one of the only true bargains.

The Cowen price target jumps to $102 from $88, while the consensus target is $95. The stock closed on Tuesday at $84.27.

Spirit Airlines

This ultra-low-cost carrier sold off big from the springtime highs and is offering investors the best entry point in a year. Spirit Airlines Inc. (NASDAQ: SAVE) was named by Air Transport World as the Value Airline of the Year at the 41st Annual Industry Achievement Awards ceremony earlier this year. The carrier’s super-low prices, which are way below industry standard, allow customers to pay up to choose additional amenities.

Spirit has seen a 40% growth in customer satisfaction, according to internal surveys. This growth has also led to Spirit being included in the Department of Transportation’s monthly Air Travel Consumer Report beginning this year. While the absolutely no-frills airline is not for everyone, it has a loyal customer following, which continues to grow.

Cowen analyst Helane Becker is one of the best in the sector on Wall Street, and she notes that fares have bottomed in Chicago and Dallas, where the company has over 15% of its capacity. She also notes that the forward price-to-earnings multiple shrunk 32% this year, and the stock now trades at a low 10.7 times forward earnings estimates, versus a historical 12.7 times, and a high in 2014 of just under 20 times.

The Cowen price target is raised to $55 from $50, and the consensus target is right in line at $55.25. The stock closed Tuesday at $40.74.

All these new top 2016 picks offer growth investors some solid upside potential. While there is no reason to think 2016 is a blockbuster up year for the markets, we should see mid to high single-digit gains, and stock picking will likely be at a premium.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.