Investing

Jefferies Has 4 Health Care and Technology Stock Buys to Start Q2

Lee Jackson

Published: April 3, 2018 8:10 am

Last Updated: January 12, 2020 1:50 am

Starting the second quarter, the markets are down for the year, and with the average annual return for the S&P 500 for the past three years at 11.4%, it would appear we have nowhere to go from here but up. One thing is for sure, the sleepy days of no volatility look to be a thing of the past as we move back into a more normal trading mode. Now might be a good time to snap up some tech and health care shares as they took the brunt of the first-quarter selling.

Jefferies highlights the firm’s 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 all have outstanding upside potential. We found four that look extremely good now.

Dexcom

This company has been on a roll and looks to have more upside potential. Dexcom Inc. (NASDAQ: DXCM) is a medical device company that focuses on the design, development and commercialization of continuous glucose monitoring systems in the United States and internationally. The company offers its systems for ambulatory use by people with diabetes and for use by health care providers.

Its products include Dexcom G5 mobile continuous glucose monitoring system to communicate directly to patient’s mobile device, Dexcom G4 PLATINUM system for continuous use by adults with diabetes and Dexcom Share, a remote monitoring system. Dexcom has a collaboration and license agreement with Verily Life Sciences to develop a series of next-generation glucose monitoring products.

A recent FDA clearance is positive, and the analysts noted this:

The company received FDA clearance for its G6 sensor this week. This was slightly ahead of schedule. The G6 was cleared with no factory calibration claim, closing a key gap with Abbott’s Libre. Plans for launching the G6 could potentially move up to the second quarter. The earlier than expected launch should somewhat mitigate share shift and could help the company meet or exceed the upper end of the 2018 revenue guidance range.

The Jefferies price target is $70 but may move higher. The Wall Street consensus target is $70.36. The stock closed Monday’s trading above both levels at $74.53.

Exact Sciences

While this stock had been on fire, it could still have big upside. Exact Sciences Corp. (NASDAQ: EXAS) is a molecular diagnostics company focused on the early detection and prevention of the deadliest forms of cancer. The company has commercialized a next-generation non-invasive colorectal cancer screening test and Cologuard, which received concomitant FDA approval and Medicare coverage in 2014.

Cologuard is included in the colorectal cancer screening guidelines of the American Cancer Society and stool DNA is included in the U.S. Multi-Society Task Force on Colorectal Cancer. The stock is down almost 30% from highs posted in January and looks like a great buy at current levels.

The company reported fourth-quarter sales in line with the flash results and raised fiscal year 2018 sales guidance slightly with Cologuard volume guided in line. Jefferies met with management recently and noted this:

We met with the CFO and investors relations recently and came away incrementally confident in the long-term growth potential. Management remains confident in the Cologuard adoption ramp and ability to take meaningful share in the ~$14 billion colorectal cancer screening market over time through reorders, new doc adds, hospital systems and engaging with payor programs. Current penetration rates for potential patients is ~11 orders/doctor/year and one extra test/doctor/per year would equate to ~$100 million of rev upside to our 2020 estimates.

The Jefferies price objective remains at a strong $60, and the consensus target is $56.60. The shares closed Monday at $38.80.

Nvidia

This top chip company has reported strong earnings the past few years but was absolutely hammered last quarter. 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 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.

Jefferies has been bullish on the company for some time as it remains on the Franchise List of top picks at the firm. Its report noted this:

We attended the analyst day last week and came away increasingly confident that the product offerings remain years ahead of the competition. The company’s success is not just a result of hardware, but also the CUDA software platform and NVIDIA has more engineers working on CUDA than on hardware. As far as the suspension of the self-driving car testing on public roads is concerned, we believe the company’s decision is prudent and we expect the technology to improve over time.

Investors receive just a 0.28% dividend. Jefferies has a $300 price target, and the consensus target is much lower at $251.29. The shares closed Monday at $221.05.

Square

This is another stock that came out with big fanfare that has turned around recently. Square Inc. (NYSE: SQ) develops and provides payment processing, point-of-sale (POS), financial and marketing services worldwide. It provides:

• Square Register, a POS software application for iOS and Android that enables sellers across a range of business types to itemize products or services for faster checkout
• Square Analytics, which shows sellers how their businesses are performing
• Instant Deposit service that sends funds from a sale immediately to a seller’s bank account
• Square Reader for magnetic stripe cards, EMV chip cards and NFC, which connects wirelessly to mobile devices

The company also provides Square Capital, a financial service product that provides merchant cash advances to pre-qualified sellers; Square Customer Engagement, a marketing service product; and Caviar, a food delivery service.

The analysts said this in their coverage of the company:

We were out with a deep dive into the company’s non-payments business lines, which we believe are becoming a more critical piece of the overall investment thesis. Subscription & Services products currently comprise ~25% of adjusted net revenue but are likely to climb to ~50% by 2022. Growth from other, higher margin products could lead to upside to the target EBITDA margin profile of 35-40%.

The $60 Jefferies price target compares with the $47.65 consensus target, which is in line with the most recent close of $47.68.

These four top growth stocks to consider could be great trades for the balance of 2018 and good holds into the coming years as they all stand to have continued revenue growth and are solid players in their respective sectors.