We have heard it almost constantly for the past half-year. The market is poised for a bear raid, the recession is coming, the economy is horrible, companies are laying off people, energy companies will go bankrupt. The shrill drone of bad news has indeed taken its toll, and the data that is being posted indicates just that.
In the new “Picturing the Weeks Opportunities” research gem that comes out every weekend from T.J. Thornton and his outstanding team at Jefferies, he makes the case that everything from S&P 500 dividend spreads to the 10-year Treasury yields, to investors net bullishness, to 52-week lows, are at levels not seen since the darkest of times, including the 2008 meltdown. He acknowledges that the rally has helped but makes the case that it could have much more room to run.
Should the rally continue to pick up steam, equity investors will be well served to own stocks that will benefit among the most. We screened the Jefferies Franchise Picks stock list for companies that could excel in an extended bull move, and found four that look outstanding. All are rated Buy at Jefferies.
Activision Blizzard
This company reported very mixed fourth-quarter results but remains a Franchise pick at Jefferies. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. The company develops and publishes interactive entertainment software products through retail channels or digital downloads to a range of gamers.
The company’s Call of Duty franchise, which has propelled earnings for this industry powerhouse for years, came out just in time for the holidays with “Call of Duty: Black Ops 3,” which showed up as one of the top-selling games over the three-day Black Friday and Christmas selling periods.
The big news last fall was the company’s purchase of Candy Crush saga creator King Digital Entertainment. Most on Wall Street think the buy is an outstanding move for the company, and specifically the synergies between the two companies is cited. Many analysts feel that the key to unlocking some monster value is creating and cross-promoting the Activision product inside the King Digital mobile distribution network.
The fourth-quarter revenues came in below consensus expectations as softness in what Jefferies calls “casual” brands like Skylanders and Guitar Hero weighed on results. The firm points out that Activision has a half a billion monthly active users, putting it in the ranks behind digital giants like Facebook and YouTube. With shares trading at a very reasonable 13 times estimated 2016 earnings, Jefferies is a buyer of the stock on the current weakness.
Investors receive a 0.82% dividend. The Jefferies price target for the stock is $45. The Thomson/First Call consensus target is $37.92. The stock closed Friday at $31.89.
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