It’s not unusual in the stock markets for laggards to become leaders at some point, and the reason is simple: Investing styles tend to change from year to year, based on valuations, currency differences, trade and a host of other items. One thing is for sure, it’s starting to look like some of the smaller capitalization stocks in the Russell 2000 that struggled last year are getting some love this year.
In a new research report, Jefferies equity strategist Steven DeSanctis has definitely spotted a trend, albeit early in the year, and it could be significant for stock investors with a higher risk tolerance. This was noted in the report:
Steven pointed out that the Russell 2000 is up ~10% year-to-date, which is the best start to the year for the index since 1987, and finds that stocks that were down the most in 2018 are now up ~19% on average year-to-date. He thinks performance this year will be reminiscent to the 2001 Small/Midcap performance and following the January rally, would recommend fading lower cap and lower quality names. He continues to favor growth over value, domestic over foreign, size and quality. Jefferies screened Buy-rated names that are higher market cap, higher return on equity, lower debt and foreign exposure, and >10% sales growth:
While 20 stocks fit the criteria that DeSanctis favors, these five top companies look like outstanding picks now. All are rated Buy at Jefferies.
Many on Wall Street feel this top company has virtually no competition in its space. Abiomed Inc. (NASDAQ: ABMD) engages in the research, development and sale of medical devices to assist or replace the pumping function of the failing heart. It also provides continuum of care to heart failure patients.
The company offers Impella 2.5 catheter, a percutaneous micro heart pump with integrated motor and sensors for use in interventional cardiology; Impella CP that provides partial circulatory support using an extracorporeal bypass control unit; Impella 5.0 catheter and Impella LD, which are percutaneous micro heart pumps with integrated motors and sensors for use primarily in the heart surgery suite; and Impella RP, a percutaneous catheter-based axial flow pump.
The Jefferies price target for the stock is at $460, and the Wall Street consensus target was last seen at $437.60. The stock closed Friday’s trading at $349.37 a share.
This top Permian Basin play was absolutely eviscerated in the fourth-quarter sell-off, but it has rallied back some. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
Jefferies has a price target of $158 on the stock, and the posted consensus target is $148.22. The shares ended last week trading at $102.21 apiece.
This smaller cap company is somewhat off the radar but offers solid growth potential. Green Dot Corp. (NYSE: GDOT) is a pro-consumer bank holding company and financial technology innovator that engages in the provision of prepaid cards, debit cards, checking accounts, secured credit cards, payroll debit cards, consumer cash processing services, wage disbursements and tax refund processing services.
The company operates through Account Services and Processing and Settlement Services segments. The former segment offers deposit account programs that can be acquired through omnichannel distribution platform. The latter segment comprises products and services that all specialize in facilitating the movement of funds on behalf of consumers and businesses.
The $100 Jefferies price target on Green Dot compares with the posted consensus price objective of $95.23. The stock closed most recently at $78.66 per share.
This stock had a red-hot initial public offering in 2016 and has been steadily moving higher over the past two years, but the last 2018 sell-off offers aggressive accounts an outstanding entry point. Trade Desk Inc. (NASDAQ: TTD) provides a self-service omnichannel software platform that enables clients to purchase and manage data-driven digital advertising campaigns in the United States and internationally.
The company’s platform allows clients to manage integrated advertising campaigns in various advertising channels and formats, including connected TV, mobile, video, audio, display, social, and native on various devices, such as smart TVs, computers, and mobile phones and tablets.
Jefferies has set its price objective at $150. The consensus target price is $132.29, and the stock ended the day on Friday at $137.38 a share.
If there is any stock to own in the discretionary sector, this may be the one. Ulta 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 Jefferies price target is $335 a share. The posted consensus price objective is $314.27, and the shares closed most recently at $290.72.
These five outstanding stock picks from the Jefferies analysts all have solid upside to the firm’s price targets. While better suited for more aggressive growth accounts, they all look like good picks for 2019 and beyond.