More and more it seems like the companies that we cover on Wall Street are starting to agree that while the future is still bright for the U.S. economy, it may be one of stock market gains that are much lower than the norm has been over the past 10 years. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine, and 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. The firm’s analysts have been reviewing third-quarter results, and they are very positive going forward on some of the biggest and most powerful technology and momentum giants. These four look like solid picks for more aggressive growth accounts.
Amazon
This is the absolute leader in online retail, and many feel that online holiday shopping will continue to grow massively. Amazon.com Inc. (NASDAQ: AMZN | AMZN Price Prediction) serves consumers through retail websites that primarily include merchandise and content purchased for resale from vendors and those offered by third-party sellers. It has one of the most valuable brands in the world.
The company serves developers and enterprises through Amazon Web Services, which provides computing, storage, database, analytics, applications and deployment services that enable virtually various businesses. AWS is also the undisputed leader in the cloud now, and many top analysts see the company expanding and moving up the enterprise information value chain and targeting a larger total addressable market.
The company reported quarterly results last week, and while the results were less than stellar, history says the coming quarter could be very positive. The Jefferies report said this:
Fourth quarter guidance was weak and even the high end of fourth quarter operating income guidance is 30% below prior consensus. Cost pressures include the expansion of one day shipping and investments behind marketing at AWS. We’d buy the pullback–Amazons stock has decreased in four of the past six years following third quarter results and has increased an average of 6% in the following 90 days after posting third quarter declines.
The Jefferies target price is a whopping $2,300, while the Wall Street consensus target is $2,190.22 The stock closed on Monday at $1,777.08.
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Intuit
This company hits all the metrics in the technology sector for accounting needs. Intuit Inc. (NASDAQ: INTU) is a provider of business and financial management solutions for small and medium-sized businesses, financial institutions, consumers and accounting professionals.
Products and services include TurboTax, QuickBooks, Quicken, small business financial management and payroll processing, personal finance and tax preparation and filing and online banking services through its Digital Insight acquisition. Intuit also offers products on a software as a service (SaaS) platform across all its business divisions.
Intuit has served small businesses and accountants with QuickBooks for more than 20 years. The company was an early innovator in cloud accounting when it first launched QuickBooks Online in 2001. QuickBooks Online has more than a million paying subscribers, cementing its market leadership as small businesses shift to the cloud.
Over 40% of small businesses are using either Quickbooks Online or Quickbooks Desktops, while 35% are using Excel or manual paper accounting. This highlights the underlying opportunity for the company going forward, and the analysts noted this.
High-growth software valuations are now trading above terminal M&A multiples, suggesting that despite the selloff, we still have more room for multiple contraction. We favor names with attractive growth and reasonable valuations. We note that our most interesting take away from market activity last week was that no one is immune from multiple contraction, as evidenced by Atlassian Corporation beating estimates/raising guide and shares trading down 9% last week.
The company won’t report quarterly results until November.
Intuit investors receive a 0.79% dividend. Jefferies has a $320 price target, and the consensus price objective is $289.56. The stock closed well below those levels on Monday at $258.61.
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ServiceNow
This stock has had an incredible 2019 and remains a top pick, despite some recent big-time volatility. ServiceNow Inc. (NYSE: NOW) develops and sells a hosted, subscription-based suite of services designed to automate various IT department functions, such as help desk, operations management and change/release management.
The company also sells a number of applications that automate various self-service related applications outside of the IT department, such as HR onboarding, facilities requests and governance, risk and compliance.
ServiceNow had some changes at the C Suite level, and the market at first took a dim view. Jefferies said this:
ServiceNow’s CEO announced that he will be departing by year-end 2019 to take the CEO role at Nike. He will be replaced by the former SAP CEO Bill McDermott. Given the new CEO’s track record in enterprise software, we view this hire positively. The company also released preliminary third quarter numbers and updated 2019 estimated guidance. While the company beat consensus third quarter subscriber billings expectations, the implied fourth subscriber revenues and billings guides were both below consensus and shares were down big last Friday.
The $330 Jefferies price objective compares with the $303.09 consensus price target and the most recent close at $244.70 a share.
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Tesla
This has been one of the most talked about companies over the past two years, and the Jefferies team remains very positive on the shares. Tesla Inc. (NASDAQ: TSLA) manufactures and sells electric vehicles, particularly its high-end Model S and X, as well as the mass-market-oriented Model 3. It makes some of America’s most eco-friendly cars.
Tesla also generates revenue from selling zero-emission vehicle credits to original equipment manufacturers, installing, operating and selling solar energy systems (previously SolarCity), and manufacturing and selling energy storage systems to customers.
The stock has been volatile, and CEO Elon Musk is unpredictable as well. However, the analysts remain positive and noted this in the wake of surprising third-quarter results:
Tesla reported third quarter results last week. Free cash flow of $371 million was well ahead of the $72 million consensus and slightly ahead of Jefferies estimates though capital expenditures remained low. We expect capex will ramp in the coming quarters and management and confirmed improved capital efficiency. Model Y is due to launch in Summer 2020 estimated, slightly ahead of our expectations for the third quarter of 2020 and mgmt confirmed their expectations for higher margins on model Y versus the M3. Overall, we think the third quarter results and tone from the call are supportive of the outlook for 2020 growth.
The Jefferies price target remains at $300. The consensus target is lower at $261.40, but the stock ended Monday at $327.71.
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These stocks offer investors strength in their specific technologies and industries, with the potential to generate some significant portfolio alpha. These top companies are suitable for growth accounts that have a larger degree of risk tolerance. With earnings out of the way, some clear sailing could be the course for the fourth quarter.
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