With stocks at record highs, and top Wall Street strategists like Jefferies Sean Darby cautioning that perhaps we have moved into a “euphoria” stage, it makes sense for investors to not only exercise caution when selecting stocks but to manage what Darby terms as “draw-down” risk.
A new Jefferies research report, while noting that caution, also includes 10 high-conviction stock picks for growth investors to consider for the rest of 2020 and beyond. While not all of these are suitable for every investor, growth investors with a degree of risk tolerance looking for companies that can maintain a substantial edge should find something to their liking in this group.
While all these stocks are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
AMD
This top company appears to have turned the corner in a big way, but shares sold off after earnings. Advanced Micro Devices Inc. (NYSE: AMD) is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
Shares rose last year on the back of Google’s announcement concerning Stadia at last year’s game developers conference. The AMD CEO had noted that Google’s cloud gaming platform was using AMD Radeon GPUs and the announcement then confirmed it. The close partnership suggests that Google ultimately may announce that it will use EPYC 2 server MPUs.
Jefferies noted that “Analysis of instance availability at the top cloud service providers shows ongoing share gains for AMD in CPU’s. But gains by ARM’s Graviton are worth monitoring.”
Jefferies has a $95 price target on Advanced Micro Devices stock. The Wall Street consensus target is $76.15, and the last trade Friday came in well above that level at $85.55.
Equifax
This company suffered a stunning security breach a few years ago and has fought back to be much stronger. Equifax Inc. (NYSE: EFX) provides credit and risk management solutions to businesses and consumers. The second-largest U.S. credit bureau (based on revenue), the company also operates in 19 other countries.
Equifax has amassed data on approximately 820 million consumers, 91 million businesses, 280 million employee files, 201 million public records and 5.8 billion trade accounts. Products and services include consumer reports, risk scoring and analytics, income and employment verification, decisioning services and marketing services.
In the report, the analysts note that Equifax is the only credit bureau that is cloud native and has a real competitive advantage in bringing new products to market quickly.
The $207 Jefferies price target is well above the consensus figure of $186.71. Equifax stock ended last week’s trading at $168.37.
The huge social media leader has been on a roll, and the analysts remain very positive. Facebook Inc. (NASDAQ: FB) is the largest social network, with over 2.0 billion monthly active users and over 1.6 billion daily active users. The company generates revenue from advertising and from payments, with over 95% of revenue from advertising. It generates close to 50% of revenues in the United States and Canada and is expanding rapidly in international markets.
The company’s solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends. Messenger, a messaging application for mobile and web on various platforms and devices, enables people to reach others instantly, as well as enable businesses to engage with customers. WhatsApp Messenger is a mobile messaging application.
Jefferies said, “Our proprietary survey of 800+ US Instagram users supports our view that Reels could be Facebook’s next key product catalyst.”
Jefferies has set a $310 target price, while the posted consensus target is $284.24. Facebook stock closed at $293.66 on Friday.
Keurig Dr Pepper
The combination of coffee and a unique and a beloved soft drink makes this a stellar long-term play. In 2018, Keurig Green Mountain and Dr Pepper Snapple merged to form Keurig Dr Pepper Inc. (NYSE: KDP).
The company is a leading producer of specialty coffee and single-serve brewing systems available in more than 20 million homes and offices in North America. Keurig has partnerships with many global coffee, tea and cocoa brands. Dr Pepper is the third largest carbonated beverage producer in the United States, with strength in flavored (non-cola) carbonated beverages. It also has a diverse portfolio of noncarbonated beverages.
The analysts cited accelerated coffee pod/brewer trends and rising household penetration as set to inflect organic growth above consensus. That is a huge positive for shareholders.
Investors in Keurig Dr Pepper stock receive a 2% dividend. Jefferies has set a $40 price target, which compares to the consensus target of $33.81, as well as Friday’s closing price of $30.07.
Lowe’s
This company has a low 6% of foreign sales and is a top pick at Jefferies for the suburban flight story. Lowe’s Companies Inc. (NYSE: LOW) is a leading home improvement retailer with more than 2,000 stores in North America. The company has tempered its new store opening plans and is focusing investments on technology and e-commerce capabilities, in addition to improving its retail store productivity.
Lowes offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under the categories of kitchens and appliances, lumber and building materials, tools and hardware, fashion fixtures, rough plumbing and electrical, lawn and garden, seasonal living, paint, home fashions, storage and cleaning, flooring, millwork, and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
Jefferies analyzed the company’s new tool rental business and the firm sees a $1.5 billion revenue opportunity and a catalyst for multiple expansion.
Investors receive a 1.45% dividend. Jefferies raised its $193 price target to $205. The consensus target is $181.50, and Lowe’s stock was last seen trading at $166.08.
Martin Marietta Materials
This remains a favorite across Wall Street, especially if a large infrastructure package emerges, and it is also on the Jefferies Franchise Picks list. Martin Marietta Materials Inc. (NYSE: MLM) is one of the largest U.S. suppliers of aggregates, with operations across 27 states, Canada and the Bahamas. Its largest concentration is in Texas, comprising approximately a third of its exposure.
The company remains upbeat on 2020 construction demand and noted that many states with its greatest exposure were well positioned for housing and public nonresidential construction growth.
As the analysts noted in the report, “Our roadshow revealed optimism in the prospects of infrastructure bill passage in the first half of 2021 and volumes returning to growth in the second half of 2021.”
Investors receive a 1.1%% dividend. The Jefferies price objective is $267. The consensus target price is $245.11, and Martin Marietta Materials stock closed most recently at $222.48 a share.
Tesla
This has been one of the most talked-about companies over the past two years, and Jefferies remains very positive even though the shares have skyrocketed. 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.
Tesla stock has been on a huge short-squeeze-driven run, and CEO Elon Musk is unpredictable as well. The numbers keep rolling in and the stock keeps going higher, and the recently announced a five-for-one stock split is effective today. Jefferies noted that while its edge in cars may shrink, it continues to widen in other dimensions, such as software, battery capacity and industrial efficiency.
The Jefferies price target remains at $2,500, which is well above the $1,340.81 consensus target. Tesla stock ended Friday at $2,213.40 per share.
Vertex
Jefferies recently initiated coverage on the shares with a Buy rating, and the firm is very positive on this recent IPO. Vertex Inc. (NASDAQ: VERX) is an on-premise and cloud provider of tax compliance software (e.g., use tax, sales tax, value added tax) to large enterprises.
Vertex’s solutions enable real-time calculation of use tax at the point of sale and tax return filing. Vertex’s system uses a robust database of transaction types, rates, rules and borders across 19,000 jurisdictions in more than 130 countries.
The analysts report that, with a $21 billion total addressable market for third-party software that manages indirect taxes, they expect high-teens/low 20s revenue growth from this leading provider.
The $34 Jefferies price objective compares with a posted consensus target of $29. Vertex stock was last seen trading at $28.19.
Vital Farms
This was another recent IPO, and it is a company that may interest many younger inventors. Vital Farms Inc. (NASDAQ: VITL) packages, markets and distributes pasture-raised shell eggs, pasture-raised butter and ghee, and other products. Those products are sold under the trade names Vital Farms, Alfresco Farms, Lucky Ladies and RedHill Farms, primarily to retail foodservice channels.
Vital Farms should benefit from a first-mover advantage in pasture-raised eggs as it has created the necessary scale at a national level across its farmer network, egg production, distribution and market share (76%) for a differentiated, ethical business model. The analysts at Jefferies forecast 30% sales compounded annual growth rate for this ethical food company.
Jefferies has set its price target at $47. The $39 consensus target is just above Friday’s close at $38.13 per share.
W.W. Grainger
This stock has had a tremendous run and could be poised to move even higher. W.W. Grainger Inc. (NYSE: GWW) distributes maintenance, repair and operating supplies, as well as other related products and services, that are used by businesses and institutions in the United States, Canada, Europe, Asia and Latin America.
The company offers material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, building and home inspection supplies, vehicle and fleet components, and various other products. It also offers inventory management solutions and distributes tools, fasteners and safety and industrial supplies.
Holders of W.W. Grainger stock receive a 1.67% dividend. The price target at Jefferies is $410, while the consensus target is $346.67. Friday’s closing share price was $365.98.
These are 10 high-conviction stock picks for investors looking for ideas. With this very diverse group of selections, investors have a lot to choose from, some as mentioned much more aggressive than others. All these companies should continue to hold their own easily against peers in the coming months and years.
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