Increasingly, the Wall Street firms we cover are starting to agree that while the future’s still bright for the U.S. economy, stock market gains may be much lower than the norm has been over the past decade. When that is the case, investing strategies often shift from indexing to a more disciplined stock-picking routine. That’s when investors need solid growth ideas.
Jefferies highlights the firm’s top growth stocks to buy each week, and this week is no exception. While these stocks are better suited for accounts that have a somewhat higher risk tolerance, they all make good sense now and have outstanding upside potential.
Adobe Systems
This high-profile old-school software company has posted outstanding earnings. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content. The other segments are Digital Marketing and Print and Publishing.
Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Some on Wall Street see earnings per share increasing a solid 30% or more for 2018.
The Jefferies team feels the company deserves a premium multiple to its peers due to Adobe’s strong competitive position in the creative space and above-average growth prospects. They noted this in the report:
The Company announced the acquisition of Magento, which will help add key e-commerce features to the product and customer experience. We believe the 9x calendar 2018 revenue valuation is a fair price, especially as it should boost Adobes total addressable market by ~$13 billion. Separately, the company also announced an $8 billion buyback program which could potentially increase our fiscal 2012 EPS by 9%.
The Jefferies price target for the shares is $265, and the Wall Street consensus target is $249.08. Shares traded early Thursday at $248.45.
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CBS
This large cap broadcaster’s shares are down over 20% from where they were trading this time last year and could be an incredible value. CBS Corp. (NYSE: CBS) may be in the best position of all the broadcast networks with an outstanding prime-time lineup, solid sports franchises like the NFL, March Madness College Basketball, The Masters and other top programming, the venerable network could once again be an outstanding stock for shareholders.
The company is leading in the ratings and is poised to continue the network’s programming dominance in 2016. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect the company to shrink its share base by around 25% over the next two years.
The company surged past Wall Street expectations in the first quarter, with the company crediting strength across all units. Revenue in the quarter ending March 31 increased 13% year over year to $3.76 billion, a company record for the quarter. Affiliate and subscription fee revenues shot up 16%, with retransmission revenues and fees from CBS Television Network rising 25% in the quarter.
Shareholders receive a 1.41% dividend. Jefferies has a price target of $67, and the consensus figure is $66.04. Shares were last seen trading at $50.05.
IAC/InterActiveCorp
This company is another top Jefferies pick. IAC/InterActiveCorp (NASDAQ: IAC) operates a diverse collection of online media assets, ranging from search to personals, with Ask.com and Match.com driving the bulk of its revenue and profits. IAC generates revenue from a combination of advertising (both search and display), subscriptions and transactions.
The merger between Angie’s List and IAC/ InterActiveCorp Home Adviser was well received. The company was combined with HomeAdvisor, IAC’s home services marketplace. The analysts are positive on the deal and noted this in a report:
Early Angie’s integrations have been a success and mgmt. finds synergies are tracking well to their targets. We note Angie’s represented ~27% of IAC revenue in fiscal 2018 and expect EBITDA margins will expand toward 35% while revenues grow at a 20% 5 year compounded annual growth rate.
The $175 Jefferies price target is less than the consensus target of $189.35. Shares traded at $155.15 Thursday morning.
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PayPal
This stock has long been a Jefferies and Wall Street favorite. PayPal Holdings Inc. (NASDAQ: PYPL) is a global, technology-driven payment platform with greater than 210 million direct customer relationships in more than 200 countries. PayPal empowers a streamlined digital and mobile payment experience in-browser, on mobile devices and in-app. It is accepted at more than 75% of the largest 100 internet retailers.
PayPal enables businesses of various sizes to accept payments from merchant websites, mobile devices and applications, as well as at offline retail locations through a range of payment solutions across company’s payments platform, including PayPal, PayPal Credit, Venmo and Braintree products.
The stock was hit when the company announced restructuring of the company’s agreement with eBay, which will become merchant of record after the current deal expires in 2020. However, eBay will continue to accept PayPal-branded transactions through 2023. The analysts discussed this new relationship:
The company has emphasized how its changing relationship with EBAY should open doors to new marketplace acceptance deals. The top 75 online marketplaces generated ~$1.35 trillion in purchase volume and even excluding Taoboa, Tmall and Amazon, we estimate PayPal is accepted at ~30% of the marketplaces.
The Jefferies price objective is $98. The consensus target is $86.11, and shares traded at $82.05.
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These four top stock picks from the analysts at Jefferies all make sense for investors looking for growth potential but who don’t want to be caught in crowded stocks that could see massive selling if the fortunes turn.
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