Alpha is one of those confusing terms used in the financial industry, but rarely defined. It is basically a performance measurement on a risk-adjusted basis. Alpha takes the volatility or price risk of an investment vehicle like a mutual fund, and compares its risk-adjusted return to a benchmark index like the S&P 500. If the fund is up 15% and the S&P 500 is up 10%, the 5% difference is the alpha.
The UBS Alpha Preferences is not a rating system, it is a list of “most” and “least” preferred stock selections on a sector relative basis for 41 of the major industries the analysts cover in North America. The duration of the expected relative out- or underperformance is generally expected to be 60 to 90 days.
We screened their list for names that have the best fundamental and technical characteristics. Here are some of the most preferred alpha preference stocks to buy.
Monster Beverage Corp. (NASDAQ: MNST) produces a line of energy beverages like Monster Energy, Java Monster and Muscle Monster. First-quarter net sales were recently up 6.5%, which boosted market share a point to 32.7%, just behind Red Bull’s 35% share. The Thomson/First Call estimate for the stock is $62.
Apple Inc. (NASDAQ: AAPL) has taken a beating over the past year. With iPhone 6, Apple streaming music, new iPads and PCs and other innovation on the way, the stock has a ton of value. The consensus price objective for the iconic name is $535. Investors are paid a 2.8% dividend.
IntercontinentalExchange Inc.‘s (NYSE: ICE) debt-to-equity ratio is very low at 0.24 and is currently below that of the industry average, implying that there has been very successful management of debt levels. The company operates regulated global markets and clearing houses primarily in the United States, the United Kingdom, Canada and Brazil. The consensus price objective for this top name is $182.50
Ingersoll-Rand PLC (NYSE: IR) is benefitting from the U.S housing boom. Climate solutions and residential solutions accounted for 53% and 14% of total 2012 revenue, respectively. That number should grow if the housing market stays strong. The consensus price target for the stock is $50. Investors receive a 1.8% dividend.
Las Vegas Sands Corp. (NYSE: LVS) operates some of the most well-known Vegas casinos, including the Venetian, Sands and Palazzo. It also has ventured into Asia, with the Venetian Macau, Sands Macau and Four Seasons Macau. The consensus price target for this top gaming name is $65. Investors are also paid a tidy 2.4% dividend.
Beazer Homes USA Inc. (NYSE: BZH) builds quality single-family homes in 16 states across the country. Like other home builders, low mortgage rates and pent-up demand have fueled earnings growth. The consensus price target is $21.
Expedia Inc. (NASDAQ: EXPE) provides travel products and services to leisure and corporate travelers, offline retail travel agents and travel service providers through a portfolio of brands, including Expedia.com, Hotels.com, Hotwire.com, Expedia Affiliate Network, Classic Vacations, Expedia Local Expert, Egencia, Expedia CruiseShipCenters, eLong and Venere.com. The consensus price objective for the stock is $71.
CareFusion Corp. (NYSE: CFN) was just added to the most preferred list at UBS. CareFusion has run higher in the past week, and traders are looking for even more gains in the health care products and services company. The consensus target for the stock is $37.
The UBS alpha methodology provides an alternative and differentiated view of how the analysts evaluate investment opportunities, and it complements their absolute-return based research rating system (which includes ratings and 12-month price targets). For investors, it is important to remember that, in most cases, the time horizon for these names is shorter than the standard 12 to 18 month window. It may make sense to appropriate trading or speculative capital toward these stock.