Now that 2016 has arrived, Wall Street forecasters and analysts are out with their top picks for the year. Merrill Lynch has made many updates to its various lists, and one such list is the Top US Ideas for the first quarter of 2016. These each involve catalysts that are expected to come, or start to offer a benefit, in the first quarter.
While Merrill Lynch had two Underperform picks, the focus here is solely upon the upside. Again, the picks from Merrill Lynch each come with expected catalysts early on in 2016. Included on each is the rationale and a comparison to the consensus analyst price target from Thomson Reuters.
These eight picks were released on Monday ahead of the selling, but they all felt close to irrelevant against the harsh selling pressure. It just so happens that new or reiterated Buy ratings from analysts often look a bit silly when you see the Dow Jones Industrial Average down 400 points at one point in the day.
Teva Pharmaceutical
Not only does Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) have a Buy rating, but an above-average price objective of $84.00 as well. The firm’s Sumant S. Kulkarni believes Teva is well-positioned to drive further shareholder value, given its best-in-class generic portfolio after the Actavis deal closes in the first quarter of 2016. Teva shares closed down 0.5% at $65.30 on Monday, and the consensus target price is $77.59.
The Merrill Lynch report said:
We also believe Teva has a potentially underappreciated branded pipeline. With a diverse product mix that should be relatively less subject to concerns around drug pricing, solid cash flow generation profile, and commitment to an investment grade credit rating, Teva presents an attractive opportunity on one of the “cleaner” stories in Specialty Pharma …
Under Armour
Robby Ohmes at Merrill Lynch selected Under Armour Inc. (NYSE: UA) as a top pick. The firm has a Buy rating and $108 price objective. The consensus analyst price target is closer to $105, and shares were down 1.2% at $79.66 when Monday’s trading concluded.
Ohmes’s take is that Under Armour shares have pulled back on concerns over warm weather, but he still expects strong 2016 revenue outlook on improving visibility around footwear and International momentum. He said:
We believe footwear and international are poised to accelerate in 2016, given: (1) fourth quarter acceleration in sneaker sell-through business on strength of UA basketball sneakers (Steph Curry 2) likely driving a significant increase in orders, and (2) China significantly ramps-up as UA starts the roll-out of partner operated stores that are already seeing a strong response from Chinese consumers. Importantly, strong momentum in footwear and International should support Under Armour’s premium multiple as it increases visibility that Under Armour is on track to be a global athletic apparel and footwear brand.
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