Jefferies Top Stocks to Buy Include 2 Red-Hot Marijuana Companies

Investing

Published: May 6, 2019 7:05 am

Last Updated: January 30, 2020 9:09 pm

For the old-timers on Wall Street and long-time stock investors, the incredible changes in technology and in biotech over the past 25 years have been staggering. Consider that the now ubiquitous smartphone is just over 10 years old, and widespread music and video streaming via the cloud also has happened within the same time-frame. But one major change that only a select few 20 and 30 years ago expected to see is the massive interest in the medical and recreational cannabis industry.

Jefferies was one of the very first of the major Wall Street firms to start research coverage of the cannabis sector, and a new research report raises the price target of one of their top sector picks. We also cover this week some additional Buy-rated companies that the analysts are positive on. All are solid picks for growth styled accounts with some elevated risk tolerance.

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.

Shares of the gaming giant have been volatile and are down a stunning 45% from highs posted last fall. Some recent positive announcements could be meaningful for the stock to regain traction. The analysts said this after the first-quarter results were reported:

The Company reported first results that came in better than expectations, though shares traded ~5% lower initially on the second quarter guidance. We highlight that the continued strength in Call of Duty is notable, especially given the competitive launch window during the past holiday season, and note that the company announced the first 5 CoD esports franchises have been sold. That said, 2020 continues to look like the breakout year, as Blizzard continues to struggle and the content pipeline builds. Our 2020 EPS estimate remains well ahead of consensus.

Jefferies has a $60 price target on the stock, while the Wall Street consensus target is $52.75. The stock last traded at $47.15, down almost 5% on Friday.

Aurora Cannabis

This company has made a string of acquisitions to grow the scale of its overall business, and it also saw industry-leading sales in the first quarter. Aurora Cannabis Inc. (NYSE: ACB) produces and distributes medical cannabis products. It is vertically integrated and horizontally diversified across various segments of the cannabis value chain, from facility engineering and design to cannabis breeding, genetics research, production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.

The company’s products consist of dried cannabis and cannabis oil, CanniMed vegan capsules and hemp products, as well as sells vaporizers, consumable vaporizer accessories and herb mills for using herbal cannabis products. It also operates CanvasRX, a network of cannabis counseling and outreach centers, and it provides cannabis analytical product testing services.

Jefferies raised the price target from $12 to a $14 Canadian price target, or approximately a $10.36 U.S. The shares closed trading at $8.79 on Friday.

CannTrust

This could be an off-the-radar play for investors looking for a play with lower name recognition. CannTrust Holdings Inc. (NYSE: CTST) produces and distributes pharmaceutical grade medical cannabis products in Canada. It sells dried cannabis and oil extractions to the client based on the medication document provided by health care practitioner. The company has a partnership with Gold Coast University Hospital.

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CannTrust also focuses on developing nanotechnology to create new products in the medical, recreational, beauty, wellness and pet markets. In addition, the company recently completed a successful secondary offering, and management noted in late April that it expects to report a strong first quarter.

Here, Jefferies lowered its $15 price target to $13 Canadian. The equals about $9.62 in U.S. dollars. Shares were last seen trading at $6.05.

Floor and Decor

Jefferies team continued to view this company as a beneficiary of storm-related events, some of which have plagued the Midwest United States this spring. Floor and Decor Holdings Inc. (NYSE: FND) initial concept focused on buyouts of product, but it has since evolved to direct.

The stores carry all major categories of hard flooring (tile, wood, laminate and stone) along with decorative items and the accessories needed to complete a project. Some 40% of sales are to do it yourself and 60% are to pros. The company currently operates 84 stores and is targeting 400 or more stores over the long term.

After a mixed bag first-quarter earnings report, the analysts said this:

Following a 30%+ run in shares since the fourth quarter print, shares were off as management revised the top-line guide. Comparisons for the quarter came in at +3.1%, well-ahead of peers and against a tough 15.6% compare. Gross Margins of 42.2% came in well-ahead of Street and guide. The light second quarter guide reflects cautious near-term optimism given the housing hangover from late 2018/early 2019, in our view. That said, we think the low bar and set-up for sequential improvement positions the company well for the second half. We see plenty of tailwinds to drive shares higher and we would be buyers on any weakness.

The $53 Jefferies price target compares with the $48 consensus target. The shares ended last week at $44.03, after pulling back almost 9% on Friday.

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Gilead Sciences

This stock is trading at a very reasonable 9.55 times estimated 2019 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.

The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

Gilead came in with stellar first-quarter results, and the analysts noted this afterward:

The Company reported solid first quarter results, highlighting a growing HIV franchise and a stable HCV (Hepatitis C) franchise. Despite several years of downward revisions, we believe this could mark a turning point under the new CEO. We see several catalysts to help shares re-rate higher, including: continued strong performance of core franchises, a positive phase 3 outcome for filgotinib and the announcement of new partnerships or deals that bring mid-stage/pipeline assets. We believe that fiscal year 2019 guidance looks achievable and we forecast revenue and EPS ahead of consensus.

The Jefferies price objective is $95. The consensus price target is $81.26, and the stock closed at $67.13.

These five top stocks to Buy have solid upside potential, and some of them appear to have put some past issues that burdened share price behind. While much better suited for aggressive accounts, they all offer reasonably good entry points with the markets near all-time highs.