Now that summer is upon us and the first-quarter earnings season is clearly in the rearview, many of the top firms on Wall Street are making some changes to the lists of their high-conviction stock picks for clients for 2018. Although markets have been relatively quiet for the past month, 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 world landscape looks to remain unsettled.
One of the firms followed 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 blue chips.
The company’s Best Ideas list beat the S&P 500 in May, up 5.5%, compared to the index’s 2.2%. Year to date, Wedush’s Best Ideas list is up 17.5%, versus only 1.2% for the S&P 500.
Activision Blizzard Inc. (NASDAQ: ATVI) is still at the top of the list. Wedbush believes that the company could earn $3.00 as early as this year by optimizing King’s untapped ad opportunity and monetizing its Overwatch League. While Wedbush has modeled more modest earnings for 2018, the firm believes that Activision’s new investments have the potential to significantly expand its margins and profits for the next several years.
Wedbush has an Outperform rating for Activision and an $81 price target, implying upside of 10.91% from Friday’s closing price of $73.03. The consensus analyst price target is $75.88, and the 52-week range is $55.41 to $79.63.
Electronic Arts Inc. (NASDAQ: EA) is another video game stock finding its way onto the Best Ideas list. Wedbush expects significant growth for the foreseeable future, driven by cost discipline, digital sales growth and several key evergreen franchises. With its dominant sports franchises and well-developed recurring revenue model, Wedbush believes that EA represents a solid opportunity for investors to benefit from continued digital growth for the industry over the next several years.
Wedbush has an Outperform rating for EA and a $158 price target, implying upside of 16.44% from Friday’s closing price of $135.69. The consensus price target is $143.24, and the 52-week range is $99.63 to $134.89.
Facebook Inc. (NASDAQ: FB) is no stranger to this list. Wedbush expects Facebook to weather the controversy surrounding its Cambridge Analytica data breach, and it further expects the company to continue to invest in various initiatives that will generate substantial EBITDA growth for years to come. These investments — also in its Instagram, WhatsApp and Messenger platforms — likely will yield significant returns in future years, especially in video, which should drive contribution margins even higher. The competition has failed to keep pace with Facebook, and its network effect and large user base will limit defections while providing an appealing target market for advertisers.
Wedbush has an Outperform rating and a $275 price target, implying upside of 41.76% from Friday’s closing price of $193.99. Shares of Facebook have a consensus price target of $219.37 and a 52-week range of $144.56 to $195.32.
Foot Locker Inc. (NYSE: FL) may be a surprising addition to this list for some, but the stock is actually up about 15% in 2018, and up 33% in the past six months. According to Wedbush:
Foot Locker has reaffirmed an important part of its 2018 story: inflecting comps beginning in 2Q and accelerating over the year as the retailer benefits from favorable comparisons and better products and allocations from key vendors (Nike, Vans, Champion, and more). The company’s +DD EPS guide is also achievable and includes a likely conservative guide on the margin.
Wedbush has an Outperform rating for Foot Locker and a $61 price target, implying upside of 11.51% from Friday’s closing price of $54.70. The stock has a consensus price target of $51.85 and a 52-week range of $28.42 to $59.55.