There is a plethora of reasons why stocks fail in any given year. Sometimes the fundamentals are just rotten, but many times either the sector falls out of favor or a geopolitical or headline incident can mar performance. 2015 was no different from any other year as some of the top performers from 2014 met with consistent selling and got absolutely hammered this year.
We screened the Merrill Lynch research database for stocks that performed well in 2014 but met with not only selling this year, but a degree of scorn from some of the analysts on Wall Street. While there is absolutely no guarantee they do indeed rebound in 2016, they certainly have been rerated to the degree where more downside seems unlikely.
All four stocks are rated Buy at Merrill Lynch.
Alibaba
This time last year, this company was the hottest thing on the planet. Alibaba Group Holding Ltd. (NYSE: BABA) is the largest online and mobile commerce company as measured by gross merchandise volume, and it had the highest profile initial public offering (IPO) of 2014. The stock has acted horrible since, printing highs at $120 in mid-November of last year.
Plain and simple, the dominance in Alibaba’s core business, the very hard barrier to entry for competition and new growth opportunities like cross-border e-commerce make the stock extremely attractive. With most of the damage to the China equity markets seemingly subsided for now, the residual effect to the company may all subside some.
The company recently made a non-binding offer to acquire the 82% of Youku that Alibaba doesn’t already own. This comes as little surprise to Wall Street, given Jack Ma’s vision for digital content and delivery. While a few of the leading video sites continue to struggle, there is a ton of synergies overall in the combination.
Merrill Lynch sees Alibaba as cheap, with outstanding premium growth potential. The firm also notes that Alibaba has reached a Mobile Monetization inflection point as China Online retail continues to go online. This means that Alibaba will be able to sustain premium growth rates in its key Retail segment, which is 80% of the company’s overall revenue for at least the foreseeable future.
The Merrill Lynch price target for the stock is a conservative $101. The Thomson/First Call consensus estimate is even lower at $95.59. Shares closed Tuesday at $83.26.
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Adeptus Health
This stock has been absolutely mauled and is down a whopping 50% or so since late September. Adeptus Health Inc. (NYSE: ADPT) is a leading patient-centered health care organization expanding access to the highest quality emergency medical care through its network of freestanding emergency rooms and partnerships with premier health care providers.
In Texas, Adeptus Health owns and operates First Choice Emergency Room, the nation’s largest and oldest network of independent freestanding emergency rooms (ERs). In Colorado, in partnership with University of Colorado Health, Adeptus Health operates UCHealth Emergency Rooms. In Arizona, with Dignity Health, the company owns and operates Dignity Health Arizona General Hospital and freestanding ERs.
The stock was knocked down big again recently after reports questioned freestanding ERs taking in patients that should be treated in lower acuity settings. The company submits this is nothing new, and 93% of the company’s patient fall into the 3 to 5 level acuity silo on a 1 to 5 acuity basis, which is no different than hospitals with attached ERs.
Some Wall Street analysts see the company delivering a 30% compounded annual growth rate over the next three years, as it grows beyond the three state markets where it currently does business. Also strong gains from Medicare/Medicaid reimbursements could bolster earnings. In fact, some have the company’s 2017 EBITDA 17% higher than current Wall Street projections. Adeptus also recently was added to the S&P SmallCap 600 index.
The Merrill Lynch price target is a gigantic $130, and the consensus target is $110.09. The stock closed Tuesday at $55.36, up almost 9%.
Enterprise Products Partners
This stock is down 33% this year but remains one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, just raised the distribution 1%. Enterprise Products maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason why many analysts may have a liking for the stock might be its distribution coverage ratio, which is well above one times, making it relatively less risky among master limited partnerships. The company’s distributions have grown for several quarters and are expected to continue in 2016.
Investors receive a very solid 6.17% distribution. Merrill Lynch has a $35 price objective, and the consensus target is $34. Shares closed Tuesday at $24.97.
SunEdison
This top solar company has been absolutely destroyed, down over 80% since July, after pushing higher since the beginning of the year. SunEdison Inc. (NYSE: SUNE) manufactures solar technology and develops, finances, installs and operates distributed solar power plants, delivering predictably priced electricity and services to its residential, commercial, government and utility customers. It also provides 24/7 asset management, monitoring and reporting services for hundreds of solar systems worldwide via its Renewable Operation Center.
SunEdison bought Vivint Solar in a cash, stock and convertible securities deal that some on Wall Street thought was ill-advised. Some investors are wary of the buying binge and don’t feel the company has the profits to support all the transactions. With the new breath of life from the tax credit extension, the deal was renegotiated with less cash outlay, a positive for SunEdison and its yieldco company TerraForm Power.
Merrill Lynch has a huge $12 price target. The consensus target is even higher at $15.13. The shares closed trading Tuesday at an incredibly low $5.02.
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There you have it, four solid companies that for one reason or another were eviscerated in 2015. While their shares are not suitable for conservative accounts, aggressive investors with a patient time frame could score big gains in 2016 and beyond.
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