Wedbush Makes Big Q3 Changes To Firm’s Best Ideas List

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With the second quarter earnings rolling out fast and furious, many of the top companies we follow on Wall Street are making some changes to the lists of their high conviction stock picks for clients. With the market continuing to trade at near all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility with the political and world landscape remaining unsettled.

In a new research note, the analysts at Wedbush make a big move by swapping out a top technology information services company and adding two new blue chips to the firm’s well-respected Best Ideas list of stocks to Buy. Since inception on Oct.1, 2001 and ending on July 18, 2017, the Best Ideas List has generated an annualized return of +13.68% compared with +5.65% for the Standard & Poor’s 500.

Fidelity National Information Services

This top company has been on fire all year, but is removed from the Wedbush Best Ideas List. Fidelity National Information Services, Inc. (NYSE: FIS) is a global leader in banking and payments technology as well as consulting and outsourcing solutions and serves more than 14,000 institutions in more than 130 countries. Fidelity provides software, services and outsourcing of the technology that empowers the financial industry.

The Wedbush team keeps the firm’s Outperform rating on the company, and noted this in the report.

“We are removing Fidelity National Information Services from Wedbush’s Best Idea List, primarily due to lack of near-term catalysts. The optimism expressed in most IT spending surveys, earlier in the year, has moderated and has yet to convert to Stronger revenue and earnings-per-share trajectory. That being said, we continue to believe the company offers investors with a low-beta, “sticky” business model with predictable/consistent growth.”

Shareholders are paid a 1.3% dividend. The Wedbush price target for the shares is set at $98.40. The Wall Street consensus price objective is $92.80. The stock trading closed Wednesday at $89.87.

Cognizant Technologies Solutions

This company is added to the list and has been on fire over the last year. Cognizant Technologies Solutions Corporation (NASDAQ: CTSH) provides information technology (IT), operations and technology consulting, infrastructure, and business process services worldwide. The company operates through four segments: Financial services, health care, manufacturing/retail/logistics, and other areas. Its consulting and technology services include strategy consulting, business and operations consulting, technology strategy and change management, and program management consulting services; application design and development; systems integration; and application testing, consulting, and engineering services, as well as enterprise information management services.

Despite a gain of more than 21% in its shares so far this year, the Wedbush team is very positive on the company going forward, and noted this in the report.

“We believe Cognizant’s digital revenue mix (30%) is 6% higher than reported, which places the company as a top digital player among its Tier One peer group, which should provide incremental opportunities for superior top line growth, while shielding the company from ongoing pricing compression taking place at Cognizant’s legacy/commoditized business.”

The analysts also note that, pushed by activist investor Elliott Management last year, the company committed to ramping up the acceleration to the transition to digital, and starting a three-year margin enhancement program. This is in addition to shareholder-friendly capital allocation programs.

The Wedbush price objective for the stock is posted at $80, and the Wall Street consensus is set much lower at $69.42.The shares closed Wednesday at $69.50.

Visa

This credit-card issuer is becoming a huge leader in digital pay and is the other newest member to the Best Ideas List at Wedbush. Visa Inc. (NYSE: V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. The company operates one of the world’s most advanced processing networks, VisaNet, that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants.

Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products.

The analysts believe that Visa Europe (VE) is a big part of future growth, and they also cited millennials shifting credit usage as a big positive. They noted this in the report.

“Visa Inc.’s recent investor day suggested that VE integration is ahead of plan (phase 1 of the expense reduction program (cost rationalization) as being largely done, while the tech migration phase is underway), while transaction yield in Europe has been higher than anticipated.”

Shareholders receive a small 0.70% dividend. The Wedbush price target is posted at $110, and the consensus is at $104.59. The shares closed Wednesday at $97.17.

Two top additions to the company’s highest conviction Best Ideas List, both of which make good sense going forward for aggressive growth accounts. Buying partial positions now may make sense with the market trading at all-time highs.