4 Jefferies Franchise Picks Could Be Big Q4 Winners

Print Email

The fourth quarter is underway, and with earnings reports for the third quarter on deck, many investors are looking to add stocks to their portfolios that can add a little extra alpha for the end of the year run. With the potential for another positive year for the major indexes, there is also concern that the market is expensive and overbought. It makes sense now to perhaps book some winners or losers and free up cash for new stocks for the stretch run.

The Jefferies Franchise List of high-conviction stock picks has provided investors outstanding total return since inception in December of 2013, outperforming the S&P 500 in that category by a stunning 25.5%. We found four companies that could be perfect additions for the fourth quarter, as they often excel then.

Activision Blizzard

This remains a top video gaming pick on Wall Street and Jefferies is still very positive on the shares. Activision Blizzard Inc. (NASDAQ: ATVI) 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.

With its new Blackout mode, many analysts think “Black Ops 4” looks like the most exciting Call of Duty in years, and most are optimistic that Activision Blizzard will have a strong third and fourth quarter. The Jefferies report said this about the second-quarter results:

The company reported results ahead of consensus last week even in the seasonally slow second quarter. Third and fourth quarter guidance looks light but there are significant catalysts including expansions and a new Call of Duty. We believe the company could launch four mobile games in the next twelve months and they could contribute between $200 million and $500 million of incremental revenue upside. We raised our price target and note our earning over share estimates for 2018 and 2019 remain ahead of consensus.

A recent Jefferies research piece noted this:

We believe Activision is building a Disneystyle entertainment business for the 21st century, but with higher operating margins.

Shareholders receive just a 0.41% dividend. The Jefferies price target for the stock is $90, and the Wall Street consensus target is $81.15. The stock closed Wednesday’s trading at $83.02.

Alphabet

The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.

Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.

The company blew out the latest earnings numbers, and with a wide and bountiful silo of products and services, the stock remains almost unchallenged. It should be noted that traffic acquisition cost relief drove 20% gross profit growth, despite heavy cloud infrastructure and YouTube content investment.

At a recent conference, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail). Smart shopping campaigns leverage machine learning to make sense of touch points along the consumer purchase path, including better offline attribution capabilities (locally oriented searches up 200% over past two years) and improved purchase conversion rates (20% on average).

Jefferies has a $1,450 price target, and the consensus target is $1,385.10. The shares closed Wednesday at $1,211.53.