One thing that has stretched multiples in the S&P 500 this year to a pricey 17 times earnings is that many people have chased a few stocks in the index much higher, and the bond proxy stocks in telecoms, consumer staples and utilities have all been pushed way above normal valuation levels. The fact of the matter is there are many reasonable stocks, but investors have to get out there and find them.
Finding them is one of the reasons we cover Jefferies top growth stocks to buy every week. The firm searches for growth with reasonable valuations and upside potential. This week’s group is no exception to that rule, with biotech, a medical devices stock and a top chip company that are all rated Buy at Jefferies.
Abiomed
Jefferies thinks this top company has virtually no competition in its space. Abiomed Inc. (NASDAQ: ABMD) engages in the research, development and sale of medical devices to assist or replace the pumping function of the failing heart. It also provides continuum of care to heart failure patients.
The company offers Impella 2.5 catheter, a percutaneous micro heart pump with integrated motor and sensors for use in interventional cardiology; Impella CP that provides partial circulatory support using an extracorporeal bypass control unit; Impella 5.0 catheter and Impella LD, which are percutaneous micro heart pumps with integrated motors and sensors for use primarily in the heart surgery suite; and Impella RP, a percutaneous catheter-based axial flow pump.
The company also manufactures and sells AB5000 circulatory support system for temporary support of acute heart failure patients in profound shock, including patients suffering from cardiogenic shock after a heart attack, postcardiotomy cardiogenic shock or myocarditis. In addition, the company engages in the research, development, prototyping and the pre-serial production of a percutaneous expandable catheter pump, which enhances blood circulation from the heart with an external drive shaft.
In the report the analysts noted the following:
Competition in the space remains non-existent and having only penetrated 7% of the market for pumps thus far, we believe if the company can sustain a 40% revenue growth rate for the next 5 years, the higher $1.8B goal for calendar year 2021 could be achievable.
The Jefferies price target for the stock is $145, and the Wall Street consensus target is $128.13 The shares closed most recently at $123.69.
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AveXis
Jefferies just recently upgraded this stock to Buy from a Hold rating. AveXis Inc. (NASDAQ: AVXS) went public in February and is a clinical-stage gene therapy company that engages in developing and commercializing novel treatments for patients suffering from rare and life-threatening neurological genetic diseases. Its initial product candidate is AVXS-101, a gene therapy product candidate that is in a Phase 1 clinical trial for the treatment of spinal muscular atrophy Type 1.
The company also intends to identify, acquire, develop and commercialize gene therapy product candidates for the treatment of other rare and life-threatening neurological genetic diseases. It has strategic collaboration and license agreements with Nationwide Children’s Hospital, the Research Institute at Nationwide Children’s Hospital, Regenxbio and Asklepios Biopharmaceutical.
Jefferies notes the stock is down almost 30% from highs printed in June and the company reported updated SMA type 1 data in conjunction with earnings. With solid efficacy so far, and additional positive feedback, the firm upgraded the shares to Buy.
The $42 Jefferies price target is lower than the consensus target of $50.25. Shares closed Friday up almost 6% on the day to $40.50.
Celgene
The Jefferies team also likes this top large cap biotech. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.
Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs.
The company reported outstanding second-quarter results with revenues up 21% year over year. In addition, the company raised sales guidance to $11 billion on strong growth across most major products driven by 16% in demand and 6% in pricing. Upcoming catalysts include GED-0301 endoscopy study in Crohn’s disease with top-line results expected in August/September.
Wall Street analysts have noted that the company has discussed at its recent conference the benefits of longer duration Revlimid. Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.
Jefferies has a $137 price objective, while the consensus target is $137.39. The shares closed Friday at $113.39.
NVIDIA
This top chip company has reported strong earnings all of this year. NVIDIA Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.
NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has a technology partnership with electric car maker Tesla Motors. It has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.
Top Wall Street analysts feel the stock is maturing to a platform company from a pure chip company, and they see the stock continuing to benefit from four secular trends: virtual reality, PC gaming, chips in the automobile industry and graphic processing units (GPUs) in the cloud.
The company reported incredible numbers again last week, and forward guidance also came in to the upside. Jefferies noted the big gains in the research report:
Datacenter sales beat consensus by 16%. Both gaming and auto sales beat, with auto growing 68% year-over -year. We raise Fiscal year 2017 and 2018, with 2017 increasing by 13%.
NVIDIA investors receive a 0.8% dividend. The Jefferies price objective was raised to $73 from $69. The consensus target is $64.06, and the stock closed Friday at $63.04, up 5.6%.
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These four top growth plays from Jefferies are better suited for more aggressive growth accounts. With the market pricey to some degree here, investors may want to take a small starting position and see if we don’t back up a little over the next couple of months.
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