The research team at UBS A.G. (NYSE: UBS) has released what Wall Street calls a Q-GARP list, which is simply “quality growth at a reasonable price.” Most investors will know this by GARP, growth at a reasonable price. The UBS list is constructed using an initial quantitative screen of stocks based on: 1) quality metrics — high and stable profitability, 2) growth — high expected earnings growth, and 3) valuation — low valuation relative to peers. The final list is a compilation of quality growth stocks that the analysts at UBS believe are trading at attractive valuations.
In a recently released report, the Q-GARP team adds three new names to the list and presented some updates and price targets on others already there.
Allergan Inc. (NYSE: AGN) receives an invitation to the UBS list. The company is focused on the development of therapeutics for glaucoma and chronic pain. The UBS price target for this top pharmaceutical name is $115. The Thomson/First Call estimate is also at $115. Investors receive a miniscule 0.2% dividend.
eBay Inc. (NASDAQ: EBAY) is also a new name to the Q-GARP list of stocks to buy. It is no secret that eBay has one of the most capital-efficient business models in e-commerce. The company has an operating margin of 20.9%. Plus, with the stock essentially flat over the past six months, now may be a great time for investors to take a long look at owning some. The UBS price target is $64, the same as the consensus target.
Qualcomm Inc. (NASDAQ: QCOM) wraps up the new names on the list. The company has the advantage of not only selling chips into the smartphone market, it receives extensive royalty payments each year that act to annuitize earnings. The UBS price target for the stock is $76, and the consensus stands at $76.50. Investors also receive a 2.3% dividend.
We screened the Q-GARP list for stocks that had the right metrics and attributes to be on the list, but had not participated as much in the 2013 bull market rally. Here are those top five names to buy.
Intel Corp. (NASDAQ: INTC) has moved recently, but lagged much of the year. The company recently announced that the Samsung Galaxy Tab 10.1 tablet will use the Clover tail+ processor from Intel. This is one of the flagship tablets from Samsung and bodes well for Intel’s push into the tablet market. The UBS target is low at $22.50, and looks to be revised soon. The consensus price target for the stock is at $23.25, and investors receive a 3.8% dividend.
Schlumberger Ltd. (NYSE: SLB) also has traded flat for most of this year. Middle East tensions are pushing up oil prices, and the oil services giant stands to benefit. The UBS price target for the stock is $92, and the consensus is at $91.50. A trade to the UBS target is a move of almost 30% from current trading levels. Shareholders are paid a 1.7% dividend.
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is one of the top generic drug manufacturers in the world. With many popular branded drugs coming off patent in the next few years, the company stands to really benefit. The UBS price target for the stock is $41 dollars, while the consensus stands at $43.50. Investors are paid a 2.8% dividend.
Rockwell Collins Inc. (NYSE: COL) has had muted price movement over fears of reduced government spending. However, the company is also a major manufacturer for the new Airbus A350. They provide a new airborne hosting platform for flight operations, aircraft maintenance and airline applications. Monitoring all the systems of the aircraft, it assists maintenance crews by providing secure, detailed information and trends on the health of each component. In addition, it hosts data to the electronic flight bag, helping pilots get easy and instant access to flight plans, aircraft manuals and maps. The UBS price target for the stock is $70, and the consensus is at $65. Investors receive a 1.9% dividend.
Express Scripts Holding Co. (NASDAQ: ESRX) earnings per share are expected to come in at $4.30 this year, which would place the pharmacy benefit management company at a current-year P/E of 14. Wall Street analysts expect small increases in earnings after that, so Express Scripts could be a value play. It also is popular with big hedge funds. Leon Cooperman’s Omega fund holds 2.7 millions share, while Bain Capitals long/short fund Brookside Capital owns 3.9 million shares. UBS has a $69 price target, and the consensus target is $67.
Some of the names on the UBS Q-GARP list are actually becoming value plays. With the primary focus on earnings growth and low valuation compared to the competition, these stocks may hold tremendous upside for patient investors.