While things tapered off near the end of January with some pronounced selling, the S&P 500 still scratched out another positive monthly gain, and while the return of 5.62% is nothing to sneeze at, it’s becoming obvious that 2018 may very well be a year for stock picking rather than passive index investing, as valuations are very high.
One of the firms we follow here at 24/7 Wall St. is regional boutique broker Wedbush, who over the years has built a strong reputation on stock picking, often following companies that have smaller market capitalizations than the big blue chips.
The company’s Best Ideas list crushed the S&P 500 in January, up a massive 14.19%. For February, the firm makes a big change to the portfolio. Though Activision Blizzard Inc. (NASDAQ: ATVI) remains a top pick on Wall Street, the Wedbush team has removed it from the Best Ideas list.
Activision 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, and downloadable content to a range of gamers.
While upside could remain for the shares, the analysts see the stock as fully valued and said this in the report:
Although we remain constructive on Activision Blizzard, we are removing it from the Best Ideas List. The stock closed at $74.13; right under our $75 price target with a price to earnings multiple approaching 29x fiscal year 2018 estimated consensus earnings per share of $2.57.
Shareholders receive just a 0.47% dividend. The Wall Street consensus target for the stock is $73.46. The shares closed Thursday at $73.35.
Here are three additional stocks on the list that still hold solid upside potential and that look like solid plays for 2018.
This is another leading video game developer that should benefit from not only the continuing rise in new console sales but the rising trend of mobile gaming. Electronic Arts Inc. (NASDAQ: EA) produces top-selling games and related content and services under the EA brand in various categories, including action-adventure, role-playing, racing and first-person shooter games.
The company, which is very well known for its EA sports games like Madden Football, has made the move into mobile play by adapting many of the top franchise titles, which have been popular for years, into the mobile arena.
The key holiday launch of “Star Wars Battlefront” was disappointing and caused the shares to get hit hard. Wedbush remains positive and noted this:
The company’s EA’s shares traded down significantly following its second quarter 2018 results report, as investors viewed weaker-than-expected third quarter guidance as a signal that management’s expectations for November release Star Wars Battlefront II had decreased meaningfully. EA shares then traded to all-time highs following its third quarter 2018 results report as Ultimate Team revenue inflected up meaningfully in the quarter, largely offsetting a disappointing debut for Star Wars Battlefront II and highlighting the growing importance of ongoing Digital revenue streams relative to that of intermittent game launches.
Wedbush has a $138 price target, and the consensus target is $135.62. Shares closed on Thursday at $128.18.
Norwegian Cruise Line
This is a top pick at Wedbush in the retail and consumer sector. Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) is the world’s third-largest cruise company, and it owns and operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. The company acquired Prestige Cruise Holdings, the parent company for Oceania and Regent Seven Seas Cruises, in 2014 to diversify into the premium and luxury segments of the market and expand its global footprint. Today, Norwegian has 25 ships across all three brands and offers itineraries to more than 510 destinations.
The company reported strong fourth-quarter results that beat expectations, given solid underlying bookings strength. For 2018, bookings are up meaningfully on both volume and price, which led many analysts to bump up net yield forecasts. The Wedbush report noted this:
As the smallest of the three major cruise line operators, Norwegian is in the enviable position of being able to significantly grow capacity without dramatically impacting the supply/demand dynamic for the industry. As such, the company’s new hardware has and should continue to drive solid yield growth and cost savings, as new ships command price premiums and are more efficient than their older counterparts.
The $65 Wedbush price target is in line with the consensus target of $65.18. Shares closed Thursday at $60.59.
This company may be a touch off the radar but could be offering aggressive accounts some big upside potential. Worldpay Inc. (NYSE: WP) is the combination of Worldpay and Vantiv, which recently merged. Worldpay provides payment processing and network services for merchants and financial institutions worldwide.
The company operates two primary segments. The primary business within Merchant Services is merchant acquiring, which consists of authorization, clearing and settlement of transactions, and reporting. The Financial Institution Services segment consists of issuer processing, card issuance and network processing for financial institutions worldwide.
Wedbush has remained bullish on the shares:
Our rating is predicated on company’s pending transformative transaction to acquire Worldpay (expected to close mid-January 2018), which we believe will de-risk its exposure to national merchants, gain exposure to high-growth non-US markets, and provide revenue/cost synergies. We also assume that synergy-timing targets will likely be conservative given management’s prior track record in integrating another transformative transaction (Mercury).
The Wedbush price objective is $100. The consensus objective is $88.32, and shares closed Thursday at $79.80.
These three outstanding picks for more aggressive accounts from the analysts at Wedbush look to be off to an outstanding start in 2018. Again, as stock picking may be the way to go this year, careful consideration of new holdings could be tantamount to success.