With earnings for the first quarter winding down and the second quarter well underway, 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 bursting through yet again to new all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility as the political and geopolitical cycles could prove to be very unpredictable.
In a recent research note, the analysts at Jefferies made a big move by adding a top consumer goods/auto parts company to the firm’s well-respected Franchise Picks list of stocks to buy.
Delphi Automotive PLC (NYSE: DLPH) used to be owned by General Motors and is the newest addition to the Jefferies Franchise Picks portfolio. The company is a global supplier of vehicle electronics, transportation components, integrated systems and modules, and other electronic technology. The company is one of the most geographically diversified suppliers in the world, with a goal of generating an equal portion of sales from North America, Europe, Asia and the rest of the world.
The report cites the 30% growth of advanced driver assistance systems for autonomous vehicles, which provides safety at a moderate cost. The report also noted this:
Delphi is the global Electrical/Electronic Architecture (E/EA) leader with 25% market share (55% annual revs). The growing need for vehicle complexity management (wiring/cabling +50% since 2012) suggests E/EA is nearing an inflection point (and is undervalued). Original equipment manufacturers will be more inclined to rely on the company’s expertise in a segment increasingly intertwined with both complex hardware (cabling, wiring, harnesses etc.) and software (Multi-domain, SoC) needs.
Shareholders are paid a 1.45% dividend. Jefferies raised its price target for the stock to $100 from $86, while the Wall Street consensus target is $86.15. The stock closed Wednesday at $79.25 a share.
We also screened the Franchise Picks list for the highest dividend-paying stocks in the group.
This stock is one of the top pharmaceutical stocks picks across Wall Street and is the number one global pick at Jefferies. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. Last year, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The problem with Humira is that biosimilars and generics are itching to enter the market. The Jefferies report said this:
Consensus models almost a “worst case” scenario of a 2018/19 biosimilar entry in the US, where we assume 2022. We see $2 to $4 downside on a discounted cash basis for a worst case mid-2018 launch. We see up to $15 upside if biosimilars are delayed until 2022. The ‘135 dosing patent is not the only barrier to US biosimilars, as many other blocking patents are currently in force. However, if upheld, it implies we are unlikely to see US biosimilars prior to the second half of 2022.
AbbVie shareholders are paid a stellar 3.94% dividend. The whopping $90 Jefferies price target compares with a consensus target of $71. The shares closed on Wednesday at $65.04 apiece.