Shades of 2000 are hanging over the market, as the “hanging chads” did then. The presidential election results are being disputed, and this could go on into next year. The Bush/Gore battle took an additional 37 days when the election results were disputed in Florida, and ultimately it was decided by the U.S. Supreme Court. While that seems unlikely this time, the litigation at various state and local levels could drag on for some time.
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With that in mind, we screened the top growth stock picks from Jefferies this week, as we do each week, looking for stocks that look unlikely to be affected by the outcome of the presidential election. We found four that look like very solid ideas now, and while all 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.
Intercontinental Exchange
Trading volume is exploding and looks to continue, and this stock is a great way to play that theme. Intercontinental Exchange Inc. (NYSE: ICE) was founded in 2000 as an over the counter (OTC) energy market and has since expanded both organically and through acquisitions. The firm offers central clearing services for the futures and OTC markets. Its primary products include agriculture, financial and energy contracts and credit default swaps.
The company recently completed a transformational acquisition of NYSE Euronext that greatly diversifies the company while offering significant optionality.
Jefferies has stayed bullish on the shares and noted this:
Management reiterated the strength of the Ellie Mae business in the short term driven by an acceleration in originations and a backlog of refi’s. While the low interest rate environment has certainly been a tailwind for near-term growth, management believes ICE Mortgage Services is well- positioned to generate +8-10% in annualized long-term growth over the next decade. As for the data business, growth in index revenue, fixed income capabilities and ESG position ICE well for consistent 5-6% growth in this business. Further, with the Presidential election still undecided, ICE’s revenue mix is a favorable combination for this uncertain time.
Investors receive a 1.22% dividend. Jefferies has set a $117.50 target for the shares, which is very near the Wall Street consensus target of $117.14. Intercontinental Exchange stock closed Monday at $98.22.
KeyCorp
This top bank makes good sense for investors for 2021 and beyond. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.
The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.
The analysts noted this about the bank’s prospects:
We hosted meetings with management and continue to see scope for significant cost improvement. While the company has trimmed 3-5% of gross costs annually, management still sees levers to pull. The acceleration of digital uptake will result in a thinner branch footprint, with a faster pace of closures likely versus the recent 2-3% annual pace. Meanwhile, the exiting of the indirect auto business, and refocusing on Laurel Road and mortgage should have long-term benefits. That said, while PPP loans will help reported net interest income for fiscal 2021, core NII still faces pressure and is not likely to bottom until fiscal 2022.
KeyCorp stock investors receive a 4.87% dividend, which the bank claims will remain intact. The Jefferies target is $15, and the consensus target is $13.88. The shares ended Monday’s trading at $15.20, up almost 19% on the day.
Northrop Grumman
This was ranked as one of the top five defense contractors by sales last year. Northrop Grumman Corp. (NYSE: NOC) provides innovative systems, products and solutions in unmanned systems, cyber, C4ISR and logistics and modernization to government and commercial customers worldwide. It is also one of the companies profiting most from war.
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The Aerospace Systems segment designs, develops, integrates and produces manned aircraft, unmanned systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems.
The Information Systems segment offers advanced solutions for the Department of Defense, national intelligence and federal civilian, state, international and commercial customers. It provides products and services primarily in the fields of command and control, communications, cyber, air and missile defense, intelligence processing, civil security, health information technology, and government support systems.
The Technical Services segment provides logistics, modernization and sustainment services, as well as other advanced technology and engineering services, including space, missile defense, nuclear security, training and simulation services.
Jefferies has remained bullish for years and noted this:
We were out with key takeaways from our meetings we recently hosted with management. We pointed out that while the Administration and Congress may see changes over time, the threat environment is the primary influencer of the defense budget and the company is positioning to be the revenue outperformer in the space. Northrop Grumman backlog growth is up 52% since year end 2018, and we noted that it positions the company for growth in any environment. Additionally, we highlighted that 2021 margins are expected to be at the low end of the 2020 guide of 11.3% to 11.5%.
Shareholders receive a 1.93% dividend. The Jefferies price target is $375. The consensus target is $384.26, and Northrop Grumman stock closed most recently at $301.28.
24/7 Wall St.PayPal
This stock has long been a Jefferies favorite and continues to deliver solid results. PayPal Holdings Inc. (NASDAQ: PYPL) operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide.
The company 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 its payments platform, including PayPal, PayPal Credit, Venmo and Braintree products.
PayPal’s platform allows customers to pay and get paid, withdraw funds to their bank accounts and hold balances in their PayPal accounts in various currencies.
The analysts noted this about the earnings:
The company reported a broadly positive third quarter result with upside and positive momentum on total payment volume (TPV), revenues, margins, NNA and customer engagement. That said, shares traded lower on disappointing guidance. In the quarter, we pointed out that transaction margins were impacted by a more rapid-than-expected migration within eBay and higher TPV mix within P2P. Further, the company suggested it would be increasing its long-term growth rates when it updates the investment community in February 2021, which in our view, illustrates that the company has confidence in several sustainable tailwinds which should help improve the long-term outlook.
The $230 Jefferies price objective is well above the $222.37 consensus figure. PayPal stock fell almost 9% on Monday and closed at $184.72 a share.
These four top stocks to buy range from a defense behemoth to a top payments stock. They all offer decent value in a very pricey stock market. These stocks are best suited for aggressive growth investors with reasonable risk tolerance, but all should fare well in 2021 regardless of who is president.
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