Increasingly, the brokerage firms and banks that we cover on Wall Street are starting to agree that while the future remains bright for the U.S. economy, the future for investors may be one of stock market gains that are much lower than the norm has been over the past 10 years. When that is the case, investing strategies often shift from indexing to a more disciplined stock picking routine, and that’s when investors need solid growth ideas.
Jefferies highlights the firm’s top growth stocks to buy each week, and this week is no exception. While these stocks are better suited for accounts that have a higher risk tolerance, they all make good sense now and all have outstanding upside potential. We found four that look extremely good now and could bring investors some outsized year-end gains and continued upside in 2019.
Anthem
This is a top health care play that probably holds less risk for investors. Anthem Inc. (NYSE: ANTM) is one of the largest managed care organizations in the United States, with offerings in the commercial (large and small employer), Medicare, Medicaid and individual markets. The company operates Blue Cross & Blue Shield plans in 14 states.
The company got a string of positive Wall Street updates last week, with many firms raising their price targets for the stock. The Jefferies team did as well and said this in the report:
We met with management and came away more positive on the company’s long-term outlook. We note that management’s target for long-term earnings-per-share(EPS) growth in the high single digits, low double digit range seems achievable without the help from pharmacy benefit managers (PBM) savings, which we believe will add 6-7% to EPS in 2020-2021. We think EPS growth will largely be driven by an improved medical/pharmacy cost position driving enrollment growth and reinvestment of the $3.2 billion of pharmacy cost. We estimate a 2021 EPS power of $23.50+. inclusive of PBM savings, yielding an EPS compound annual growth rate from 2018 to 2021 of 15%.
The Jefferies price target recently jumped to $345 from $323, and the Wall Street consensus target was last seen at $321.79. The stock closed last Friday at $280.53 a share after falling almost 2.5% on the day.
Sensata Technologies
This top stock has backed up nicely and is offering a very good entry point. Sensata Technologies Holding N.V. (NYSE: ST) is one of the world’s leading suppliers of sensing, electrical protection, control and power management solutions with operations and business centers in 16 countries.
Sensata makes products that improve safety, efficiency and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, air-conditioning and ventilation, data, telecommunications, recreational vehicle and marine applications.
The company has two business segments. Performance Sensing manufactures automotive, commercial and industrial sensors, including pressure sensors, pressure switches, position and force sensors. Sensing Solutions manufactures bimetal electromechanical controls, thermal and magnetic-hydraulic circuit breakers, power inverters and interconnection products for the industrial, commercial, aerospace, military and residential end-mark.
The Jefferies team said this about the company when the firm initiated coverage last week:
We like sensors as a play on all three auto tech trends and see limited disinter-mediation as sensors are unlikely to be combined with back end software. Sensata is set for rapid China growth as they modernize the fleet.
Jefferies has set its price target at $59, while the posted consensus target is $54.39. The stock closed trading at $44.23 a share, down 3.5% on Friday.
24/7 Wall St.Tesla
This has been one of the most talked about companies over the past two years, and the Jefferies team recently has turned very positive on the shares. Tesla Inc. (NASDAQ: TSLA) manufactures and sells electric vehicles, particularly its high-end Model S and X, as well as the forthcoming mass-market-oriented Model 3.
Tesla also generates revenue from selling zero-emission vehicle credits to original equipment manufacturers, installing, operating and selling solar energy systems (previously SolarCity), and manufacturing and selling energy storage systems to customers.
The Jefferies team recently changed their rating on the company to Buy and noted this:
We find that the company is one of the few original equipment manufacturers likely to grow earnings in 2019-2020, funding is less of a concern and our recent factory visit suggested substantial room for improvement. The resolution of manufacturing issues is underway and after their quarter, we’re more convinced the company can de-lever organically. Also, our recent visit to Fremont highlighted meaningful scope to improve productivity and offset the Model 3 average selling price erosion. We raise numbers significantly and now forecast positive EBIT of $620 million in 2019, 2% margins going to 5% in 2021 estimated and free-cash-flow of $226 million in 2019.
The $360 Jefferies price target was raised to $450. That compares with a consensus across Wall Street of $328.28, as well as the most recent close at $357.96 per share.
Ulta Beauty
If there is any stock to own in the discretionary sector, this may be the one. Ulta Salon Beauty Inc. (NASDAQ: ULTA) is a holding company for the Ulta Beauty group of companies. It is a beauty retailer that offers cosmetics, fragrance, skin care, hair care products and salon services. The company offers approximately 20,000 products from over 500 beauty brands across all categories, including its own private label. Ulta Beauty also offers a full-service salon in every store featuring hair, skin and brow services.
Ulta Beauty operates approximately 970 retail stores across over 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. The company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes.
The company posted earnings last week, and the analysts said this when reviewing them:
Ulta Beauty reported third quarter last week. EPS/comparisons were in-line with consensus while gross margins were flat year over year, falling short of expectations for 40 basis points of expansion due primarily to an extended clearance event. The fourth quarter guide calls for comp sales in the 7-8% range, slightly below our expectations though we think management’s estimate could prove conservative. While we expect near-term volatility in shares to persist, we are positive on the growth treeline in EPS and we continue to forecast mid-high teens EPS growth in 2019 estimated.
The Jefferies price target is at $335. The posted consensus price objective is $319.52, and the shares ended last week trading at $254.47, which was down a whopping 13% on the day.
These four outstanding stock picks from the Jefferies analysts all have solid upside the firm’s price targets. While better suited for more aggressive growth accounts, they all look like good picks for the rest of 2018 and beyond.
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