"Baird Is Bullish on 3 Very Hot Stocks Poised for 2016 Potential Upside"
By Lee Jackson of 24/7 Wall St.
December 30, 2015
While many investors are more than happy to see 2015 come to a close, the question remains the same as it does every year at this time. What stocks are going to be good alternatives for next year? In some cases it may very well be some of the same companies that performed well in 2015. Many analysts continue to tout some of the FANG companies (Facebook, Amazon, Netflix, Google), while others lean toward other winners.
In a recent research report, Baird maintained Outperform ratings on three top companies that have reported outstanding numbers and had positive catalysts. All three could be solid additions to aggressive growth portfolios for 2016.
This is one of Baird’s top biotech picks for its solid upside potential for 2016. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline that most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward.
The company provided strong guidance earlier this year on its Otezla launch and encouraging feedback from doctors on the potential of new triplet regimens in myeloma. Analysts across Wall Street raised their estimates for the drug as, after a little more than a year on the market, the psoriasis and psoriatic arthritis treatment has achieved considerable prescriptions among physicians.
Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. While third-quarter numbers were pretty much just in line, fourth quarter and 2016 could prove to be better.
The stock jumped recently when Celgene and Natco came to a patent settlement, removing a huge overhang on the stock that had been there for some time. Revlimid makes up over 60% of the company’s total revenue, so having better clarity on the duration of its life cycle should continue to be a positive in 2016 and beyond. Plus, Baird thinks that the terms of the settlement are incrementally more favorable than many expected. The Baird price target for the stock is $162. The Thomson/First Call consensus price target is much lower at $142.75. The shares closed Tuesday at $121.27.
This stock has had an outstanding year so far, still up a sizzling 25%. Nike Inc. (NYSE: NKE) is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned subsidiaries include Converse, which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories. With one of the most recognizable brands in the world, long-term investors may do very well adding shares here, despite the big move up in the stock this year.
Nike benefits from consumer preferences for “athleisure.” With the company’s extensive product line and recognizable worldwide branding, the stock continues to roll year after year. Driven by its digital business as well as inline and factory stores, the company now anticipates achieving $16 billion in revenue by the end of fiscal year 2020. Over the next five years, incremental growth in its Brand Direct to Consumer revenues is expected to be driven by e-commerce sales, which are projected to grow to $7 billion. Nike also expects to drive wholesale growth in the mid-to-high single-digit range over the next five years.
The company reported revenue that was just below estimates, but beat on the bottom line. Baird noted that the 20% increase in global futures is the key factor supporting an upward overall bias to estimates, and the analyst thinks that sentiment on the company remains high going forward. Investors receive a 1.0% dividend. The Baird price target is raised to $72.50 from $70.00, on a split-adjusted basis, and the consensus price target is $72.56. Nike closed at $64.36 on Tuesday.
This is another apparel leader that has been mauled since October and could have huge upside for investors. Under Armour Inc. (NYSE: UA) bills itself as the originator of performance footwear, apparel and equipment that has revolutionized how athletes across the world dress. Designed to make all athletes better, the brand’s innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world’s largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal.
The company reported that net revenues increased 28% year over year in the third quarter to $1.20 billion. On a currency neutral basis, net revenues increased 31% compared with the prior year’s period. Net income increased 13% in the third quarter to $100 million, and diluted earnings per share for the quarter of 2015 were $0.45, compared with $0.41 per share in the prior year’s period, inclusive of the impacts of the Endomondo and MyFitnessPal acquisitions.
Baird is bullish on the hiring of Chip Molloy as the new chief financial officer of Under Armour. Molloy did an outstanding job during his tenure as CFO at PetSmart, and having all the personnel in place for the executive team, combined with the pullback of 13% since Black Friday, makes for an outstanding entry point for investors. Baird has a $115 price target, and the consensus target is $105.38. The shares closed Tuesday at $82.25.
Baird has found top-grade companies that have resolved some issues and are also trading at levels that offer patient growth investors an outstanding entry point. With the potential for a January fade in the markets, investors may want to scale in purchases.
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