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5 Jefferies Growth Stocks to Buy Have Big Upside Potential
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More and more, the companies that we cover on Wall Street are starting to agree that while the future’s very bright for the U.S. economy, it also may be one of stock market gains that are much lower than has been the case over the past nine years. When that is the scenario, investing strategies often shift from indexing to a more disciplined stock-picking routine, and that’s when investors need solid growth ideas.
Jefferies highlights its top growth stocks to buy each week, and this week is no exception. While these companies are better suited for accounts that have a higher risk tolerance, they all make good sense now and have outstanding upside potential. These five look extremely good now.
Activision Blizzard
This remains a top pick on Wall Street and Jefferies remains very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.
The company reported outstanding results that beat estimates and the analysts commented:
Activision reported results, beating forecasts and guiding 2018 conservatively. Since 2011, the company has ended the year 19% higher than the initial outlook, on average, which suggests $3.00 in earnings per share could be achievable. We note that the beat this quarter was driven by a resurgence on Call of Duty as well as in game spend. We raised estimates and note that our new $3.02 estimate for 2019 is ahead of consensus.
Jefferies also feels that microtransactions may be one of the most compelling reasons to own the shares now. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. Another term, “pay-to-win,” is sometimes used to refer to games where buying items in-game can give a player advantage over others, particularly if the items cannot be obtained by free means.
Shareholders receive just a 0.51% dividend. The Jefferies price target for the shares is $86, and the Wall Street consensus target is $74.04. The stock closed Monday at $76.86.
Match Group
Jefferies notes that, despite a big run, the stock is cheap compared to competitors. Match Group Inc. (NASDAQ: MTCH) is the worldwide leader in online dating products in terms of revenue, monthly active users and paid members. Its portfolio of dating sites includes several of the most popular, including Match, Meetic, OKCupid, Tinder, POF and Twoo. It has four of the top five highest-grossing dating apps in North America and three of the top five worldwide.
With ever more millennials turning to online dating, the prospects for this company are incredibly strong. Toss in the computer literacy of younger Americans, and it makes sense that the stocks in this area would show robust growth. Some top analysts on Wall Street feel that as much as a stunning 50% of all dates will begin online by 2022.
The analysts said this:
The company continues to trade at a discount to the subscription Internet peer group and has only 7 million paid subs relative to what we view as a total addressable market of 500 million global singles. We raised EBITDA numbers modestly, expect a 16% 3 year forward revenue compound annual growth rate and believe that catalysts include a new Tinder monetization feature and strategic M&A.
Jefferies has a $50 price target, and the consensus target is $40.35. The stock closed on Monday at $45.60.
Ulta Beauty
If there is any company to own in the retail sector, this may be the one. Ulta Beauty Inc. (NASDAQ: ULTA) is a holding company for the Ulta Beauty group of companies. The company offers cosmetics, fragrance, skin, hair care products and salon services. It offers approximately 20,000 products from over 500 beauty brands across all categories, including its own private label. The company also offers a full-service salon in every store, featuring hair, skin and brow services.
Ulta Beauty operates approximately 970 retail stores across 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. The company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes.
The analysts have stayed positive despite the roller-coaster ride this year, and the report noted this:
The focus on the 3/15 earnings print will be comp sales and merchandise margin and our checks continue to put comp in range (8-10% guide) and merch margin down near 50b basis points on mix and promos (vs. guide for flattish). We don’t see any reason to over-guide and therefore find a conservative 6-8% range reasonable and should create oppty for upside. We note that given the store opening compares, 53rd week, tax impact and an inconsistent consensus basis, clear explanation on the call will be as critical as confidence in execution.
The stunning $300 Jefferies price target compares with a $270.82 consensus price objective. The shares closed Monday at $207.62.
Varian Medical Systems
With a growing need for its services, this company has a very bright future. Varian Medical Systems Inc. (NYSE: VAR) is a manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, proton therapy and brachytherapy.
The company also has Varian Particle Therapy (VPT) and the operations of the Ginzton Technology Center. Its VPT business develops, designs, manufactures, sells and services products and systems for delivering proton therapy, another form of external beam radiotherapy using proton beams for the treatment of cancer.
The analysts met with the company recently and noted this in their report:
We met with management during our recent bus tour. Company remains focused on expanding into other areas of cancer care beyond the radiation therapy/treatment planning core competencies. Company is targeting several other adjacencies including surgical oncology, medical oncology, precision medicine and diagnostic imaging. Near-term, we continue to see a strong growth trajectory driven by SirTex label extension and Halcyon product cycle.
Jefferies has a $114 price objective, which seems very low. The consensus target is $114.67, and shares closed way above both levels Monday at $126.55.
24/7 Wall St.West Pharmaceutical Services
This below-the-radar company could offer a big upside for shareholders this year. West Pharmaceutical Services Inc. (NYSE: WST) is a leading manufacturer of components used for injectable drug delivery systems, including rubber stoppers and syringe plungers, and it offers contract manufacturing services to the health care and consumer products industry.
The company is currently augmenting its product portfolio by offering more proprietary products, including prefilled syringes, advanced injection systems and drug administration systems.
The analysts said this:
In addition to the improved product mix, which should drive 50-70 basis points of margin expansion annually, we also expect gross margins to benefit from better manufacturing efficiency. We expect substantial free cash flow improvement over the next few years and believe weakness in shares (down 9% YTD) presents an opportunity.
Jefferies has set its price target at $115. The consensus target is $101.38, and shares closed Monday at $92.01.
These stocks offer investors strength in their specific industries and the ability to avoid high-flying disasters. All of them are suitable for growth accounts with some degree of risk tolerance.
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