Investing

Large Cap Blue Chips Highlight Jefferies Top Growth Stocks to Buy

Lee Jackson

One thing is becoming crystal clear as the first quarter earnings roll in fast and furious. Even if a company that is a leader in its sector comes in at the estimates or even light, if the overall metrics are intact, and things look to be better the rest of the year, the market is not overly punishing companies. That shows a degree of patience that is often lacking if the market is way overbought and frothy.

This week’s top growth stock picks from Jefferies stay with some large cap blue chip leaders, two of which that did miss on some Wall Street analysts estimates or guided future numbers lower. Jefferies makes the solid case that the past quarter should not be held up as a road map for the future, which makes good sense with solid companies.

Alphabet

This technology giant is a top pick at Jefferies and is on the Franchise picks list. Alphabet Inc. (NASDAQ: GOOGL), through its subsidiaries, builds technology products and provides services to organize the information. The company offers Google Search, which provides information online, and Google Now, which offers information to users when they need it.

It also provides YouTube, which offers video, interactive and other ad formats. Android is an open source mobile software platform. Its hardware products include Chromebook, Chrome OS devices, Chromecast and Nexus devices. Google Play is a cloud-based digital entertainment store for apps, music, books and movies, while Google Drive is a place for users to create, share, collaborate and keep their stuff. Google Wallet is a virtual wallet for in-store contactless payments.

Top Wall Street analysts cite the company’s growing presence in the cloud, which some ultimately feel can be a $7 billion revenue opportunity by 2020. The current cloud products offered by the company are improving, and the analysts cite five potential strengths and key potential adoption drivers for the company.

Many Wall Street analysts have lauded the numerous upcoming catalysts and point out that the company showed consistent revenue growth and margin stabilization, and finally gave cash back in the form of a $5.1 billion stock buyback last year. Last, but certainly not least, the company remains one of the best overall portfolio plays that focuses on the biggest Internet trends: the mobile/multiscreen shift, wearable devices, video, the Internet of Things and much more. Alphabet delivers investors the full package.

While the company modestly missed revenue expectations last week, core margins were up smartly. Jefferies is a buyer of the stock into the weakness and cited three specific reasons for being positive going forward:

  1. YouTube is the premier vehicle to play online video, and Google Sites paid clicks increased 38% in the first quarter of 2016.
  2. Mobile search, which has continued to grow at a frantic pace, was the number one revenue driver silo for the first quarter.
  3. The chief financial officer is implementing very shareholder friendly policies, and the company bought back $2.3 billion worth of stock in the first quarter.

Alphabet’s empire isn’t going anywhere, but investors do have a chance to buy shares at a nice discount to last week.

The Jefferies price objective for the stock is $925, and the Thomson/First Call consensus target price is $911.07. The shares closed Tuesday at $725.37.


Anacor Pharmaceuticals

This biopharmaceutical company has been hit hard as upheavals in the specialty pharmaceutical area have proved damaging to all. Anacor Pharmaceuticals Inc. (NASDAQ: ANAC) is focused on discovering, developing and commercializing novel small-molecule therapeutics derived from its boron chemistry platform.

Anacor’s first approved drug, Kerydin (tavaborole) topical solution, 5%, is an oxaborole antifungal approved by the U.S. Food and Drug Administration (FDA) in July 2014 for the topical treatment of onychomycosis of the toenails. In July 2014, Anacor entered into an exclusive agreement with Sandoz, a Novartis company, pursuant to which PharmaDerm, the branded dermatology division of Sandoz, distributes and commercializes Kerydin in the United States.

Jefferies notes that the company reported lower than expected earnings recently on softness in the Kerydin numbers, but the firm also notes that Crisaborole, an investigational non-steroidal topical PDE-4 inhibitor for the potential treatment of mild-to-moderate atopic dermatitis and psoriasis, is still the big story at the company should get FDA approval in 2017.

The analysts attended the American Academy of Dermatology conference and mentioned a buzz for various new atopic dermatitis therapies, including Crisaborole. They feel that Crisaborole peak sales will be $1 billion or more, and that was reinforced based on their discussions and the new data. Plus, they note that the fact that it is not asteroid is a positive from a safety concern level.

Jefferies has a $105 price target. The consensus estimate is $131.25. The stock closed Tuesday at $68.01.