Increasingly, the top Wall Street firms that we cover are starting to agree that while the future’s still bright for the U.S. economy, and despite a strong 2019 start, the next few years 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 its 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 solid now, and they are among the top U.S. growth calls at Jefferies for this week.
The huge social media leader has been incredibly volatile and had an absolutely wretched 2018. Facebook Inc. (NASDAQ: FB) is the largest social network with over 2.0 billion monthly active users and over 1.4 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, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.
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Despite the terrible earnings results posted last year and other negatives, Facebook posted very solid first-quarter results. Jefferies said this:
The Company reported first quarter results last week, with a strong beat showcasing the strength in the organic business. In addition, operating expense growth came in lower than expected, demonstrating prudent mgmt. and leaving the door open for further upside through 2019. While the company did highlight ongoing negotiations with the FTC, which may result in a $3-5 billion fine, we see this as a short-term issue that FB will resolve. We raised our 2020 estimated EPS estimate, but continue to see the potential for upside, driven by better than expected monetization of Instagram.
The Jefferies price target for the shares is $230, and the Wall Street consensus target is $219.67. The shares closed trading on Tuesday at $193.40.
HubSpot
This stock has rallied recently and may be a breakout candidate. HubSpot Inc. (NYSE: HUBS | HUBS Price Prediction) is a cloud-based provider of inbound marketing tools such as website content management, blogging tools, email campaign, search engine optimization, social media monitoring and management, customer relationship management and others for small businesses and mid-sized companies.
The company’s tools provide a single console for marketing professionals to generate new customer leads, convert leads to customers and customers to repeat customers. Jefferies remains impressed and noted this:
The company’s annual proxy statement showed that management beat internal annual recurring revenue targets for 2018 and ARR growth accelerated in ’18. Our work shows new customer bookings accelerated sharply and we remain confident in our above consensus sub rev estimate. The Company reports on 5/7. We do believe the recent outage for HUBS products represents a potential near-term risk as it may have impacted the ability to close deals but we remain confident in our above consensus estimates for 2019.
Jefferies has a $200 target price, while the consensus price objective is just $179.78. The stock was last seen trading at $184.49.
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ServiceNow
This stock had an incredible 2018 and remains a top Wall Street pick. 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 blew out first-quarter earnings, and the analysts said this regarding the quarter’s progress and the rest of 2019:
The Company reported a strong first quarter beat last week with subscriber revenues coming in +36% year-over-year. We note that the Federal business was a key driver, with that segment accounting for 15% of net new annual contract value up from 6% in first quarter 2018. Gross margin was also in line, with Operating margins 2.6% higher than expected as some expenses pushed to the second quarter. Management raised second quarter above consensus and fiscal 2019 guidance increased by more than the first quarter beat. We raised our 2019 and 2020 estimated EPS estimates slightly and remain 4% and 3% ahead of consensus, respectively.
The $285 Jefferies price objective compares with the $275.77 posted consensus target price. The stock closed trading most recently at $271.51 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 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.
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 after the first-quarter report:
The Company reported first results last week that were mixed. We noted that the revenue shortfall in the quarter was more than accounted for by vehicles sold with residual value commitments. We expect that this should not recur, unless Tesla fails to stabilize its pricing policy. That said, auto gross margin of 20.2% came in better than feared. In addition, the company maintained fiscal year delivery guidance of 360-400,000 units and reiterated strong demand. We also point out that on the call, management sounded more open to raising capital to address current inefficiencies in logistics. We remain confident there is a path to sustained profitability.
The Jefferies price target remains at a stunning $400. The analysts’ consensus estimate was last seen at $296.53, and the stock ended Tuesday at $238.69.
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These four stocks all offer investors strength in their specific technology industry silos and the ability to generate some significant portfolio alpha. It should be noted that they are only suitable for aggressive growth accounts that have a much larger degree of risk tolerance.
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