JPMorgan Makes Big Changes to US Analyst Focus List for January

Investing

Published: January 11, 2017 9:35 am

Last Updated: January 12, 2020 3:59 pm

That sure didn’t take long. And it probably should come as no surprise that many of the top firms we cover here at 24/7 Wall St. are already tweaking their high conviction stock lists for 2017. They are trying to take into account macro changes that could make a difference this year, such as higher inflation, a stronger dollar and rising interest rates. They are also trying to factor in positives like lower nominal tax rates and less of the ever burdensome regulations that some feel have stifled business.

So JPMorgan has made changes to its U.S. Analyst Focus List for January, and some of the additions have solid upside potential. Each month, the firm asks its equity analysts for one to three of their best stock picks targeted to five different investment strategies: near term, growth, income, value and short ideas.

Some 16 companies are added this month, while 14 are removed. Here we focused on five that look to have outstanding upside potential. All are rated Overweight at JPMorgan.

Alexion Pharmaceuticals

Rumors have flown for some time that this may be a potential acquisition target. Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) develops and commercializes life-transforming therapeutic products.

It offers Soliris (eculizumab), a monoclonal antibody for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a genetic blood disorder, and atypical hemolytic uremic syndrome, a genetic disease. It also provides Strensiq (asfotase alfa), a targeted enzyme replacement therapy for patients with hypophosphatasia, and Kanuma (sebelipase alfa) for the treatment of patients with lysosomal acid lipase deficiency.

The company conducts Phase 4 clinical trials on Soliris for the treatment of PNH registry; Phase 3 clinical trials for the treatment of myasthenia gravis, neuromyelitis optica spectrum disorder, and delayed kidney transplant graft function; and Phase 2 clinical trials for antibody mediated rejection in presensitized renal transplant patients.

The JPMorgan price target for the stock is $170. The Wall Street consensus target is $169.41. Shares closed on Tuesday at $143.67.

Eli Lilly

This stock also has substantial upside potential. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.

The company posted third-quarter sales and earnings well below Wall Street’s expectations, prompting shares to plummet to a four-month low before rebounding. The stock is down almost 10% on the year and offering investors an outstanding entry point. Top analysts on Wall Street are still very focused on the company’s outstanding late-stage product pipeline, which they and others on Wall Street view as very undervalued.

Recently the company announced a disappointing Phase 3 trial for its Alzheimer’s drug solanezumab, which missed the primary and secondary endpoints. While the analysts are forced to remove potential earnings from their model due to the failure, most remain positive on the stock based on “Underappreciated growth, driven by the diabetes base business, baricitinib and abemaciclib.”

Shareholders receive a 2.75% dividend. JPMorgan has an $85 price objective, and the consensus target is $84.80. Shares closed Tuesday at $76.27.

KLA-Tencor

Wall Street has again been focusing on the core strengths of this semiconductor capital equipment giant since the deal with Lam Research fell through last fall. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.

It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.

The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.

JPMorgan and other top analysts feel that investors should buy the stock as they view the company’s exposure to foundry spending as a key factor that should drive positive estimates revisions over the next 12 month.

Investors receive a 2.71% dividend. JPMorgan has a $90 price objective. The consensus target is $79.70. Shares closed on Tuesday at $79.33.

Netflix

This Wall Street darling and FANG constituent could offer solid upside. Netflix Inc. (NASDAQ: NFLX) is the world’s leading internet television network, with more than 70 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.

Netflix is available on virtually any device with an internet connection, including personal computers, tablets, smartphones, smart TVs and game consoles, and it automatically provides the best possible streaming quality based on available bandwidth. Many titles, including Netflix original series and films, are available in high-definition with Dolby Digital Plus 5.1 surround sound and some in Ultra HD 4K. Advanced recommendation technologies with up to five user profiles help members discover entertainment they’ll love.

The $140 JPMorgan price target compares with the consensus target of $124.35. Note that shares closed at $129.89 on Tuesday.

Range Resources

This is a defensive natural gas stock that many on Wall Street like now. Range Resources Corp. (NYSE: RRC) operates as an independent natural gas, natural gas liquids (NGLs) and oil company. It engages in the exploration, development and acquisition of natural gas and oil properties.

The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian region of the United States. It owns and operates 4,462 net producing wells and approximately 905,000 net acres under lease in the Appalachian region, and 444 net producing wells and approximately 308,000 net acres under lease in the Texas Panhandle, as well as in the Anadarko Basin of western Oklahoma, the Nemaha Uplift of Northern Oklahoma and Kansas and the Permian Basin of West Texas and Mississippi.

Range Resources markets and sells natural gas to utilities, marketing and midstream companies and industrial users; NGLs to natural gas processors or users of NGLs; and oil and condensate to crude oil processors, transporters and refining and marketing companies. As of December 31, 2015, it had proved reserves of 9.9 trillion cubic feet of natural gas equivalents and will continue to pursue an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities.

The analysts cited this in a recent report:

The company recently closed its acquisition of Memorial Resource Development (MRD), which operated the low cost Terryville Field in North Louisiana, and now boasts high quality asset bases with attractive firm transportation (FT) agreements in two geographic areas.

Shareholders receive a 0.21% dividend. The JPMorgan price target is $46. The consensus target is $47.31. Shares closed Tuesday at $33.36.

These are five top new picks that the JPMorgan team likes this month. All make good sense for growth portfolios with a degree of risk tolerance. With earnings right around the corner, investors may want to buy partial positions and see how the fourth-quarter results come in.