Merrill Lynch Has 4 Big 2015 Losers to Buy for Big Potential
2016 Gains
By Lee Jackson of 24/7 Wall St. December 30, 2015
There is a plethora of reasons why stocks fail in any given
year. Sometimes the fundamentals are just rotten, but many times either the
sector falls out of favor or a geopolitical or headline incident can mar
performance. 2015 was no different from any other year as some of the top
performers from 2014 met with consistent selling and got absolutely hammered
this year.
We screened the Merrill Lynch research database for stocks
that performed well in 2014 but met with not only selling this year, but a
degree of scorn from some of the analysts on Wall Street. While there is
absolutely no guarantee they do indeed rebound in 2016, they certainly have
been rerated to the degree where more downside seems unlikely.
All four stocks are rated Buy at Merrill Lynch.
Alibaba
This time last year, this company was the hottest thing on
the planet. Alibaba Group Holding Ltd. (NYSE: BABA) is the largest online and
mobile commerce company as measured by gross merchandise volume, and it had the
highest profile initial public offering (IPO) of 2014. The stock has acted
horrible since, printing highs at $120 in mid-November of last year.
Plain and simple, the dominance in Alibaba’s core business,
the very hard barrier to entry for competition and new growth opportunities
like cross-border e-commerce make the stock extremely attractive. With most of
the damage to the China equity markets seemingly subsided for now, the residual
effect to the company may all subside some.
The company recently made a non-binding offer to acquire the
82% of Youku that Alibaba doesn’t already own. This comes as little surprise to
Wall Street, given Jack Ma’s vision for digital content and delivery. While a
few of the leading video sites continue to struggle, there is a ton of
synergies overall in the combination.
Merrill Lynch sees Alibaba as cheap, with outstanding
premium growth potential. The firm also notes that Alibaba has reached a Mobile
Monetization inflection point as China Online retail continues to go online.
This means that Alibaba will be able to sustain premium growth rates in its key
Retail segment, which is 80% of the company’s overall revenue for at least the
foreseeable future.
The Merrill Lynch price target for the stock is a
conservative $101. The Thomson/First Call consensus estimate is even lower at
$95.59. Shares closed Tuesday at $83.26.
Adeptus
Health
This stock has been absolutely mauled and is down a whopping
50% or so since late September. Adeptus Health Inc. (NYSE: ADPT) is a leading
patient-centered health care organization expanding access to the highest
quality emergency medical care through its network of freestanding emergency
rooms and partnerships with premier health care providers.
In Texas, Adeptus Health owns and operates First Choice
Emergency Room, the nation’s largest and oldest network of independent
freestanding emergency rooms (ERs). In Colorado, in partnership with University
of Colorado Health, Adeptus Health operates UCHealth Emergency Rooms. In
Arizona, with Dignity Health, the company owns and operates Dignity Health
Arizona General Hospital and freestanding ERs.
The stock was knocked down big again recently after reports
questioned freestanding ERs taking in patients that should be treated in lower
acuity settings. The company submits this is nothing new, and 93% of the
company’s patient fall into the 3 to 5 level acuity silo on a 1 to 5 acuity
basis, which is no different than hospitals with attached ERs.
Some Wall Street analysts see the company delivering a 30%
compounded annual growth rate over the next three years, as it grows beyond the
three state markets where it currently does business. Also strong gains from
Medicare/Medicaid reimbursements could bolster earnings. In fact, some have the
company’s 2017 EBITDA 17% higher than current Wall Street projections. Adeptus
also recently was added to the S&P SmallCap 600 index.
The Merrill Lynch price target is a gigantic $130, and the
consensus target is $110.09. The stock closed Tuesday at $55.36, up almost 9%.
Enterprise
Products Partners
This stock is down 33% this year but remains one of the
largest publicly traded partnerships and a leading North American provider of
midstream energy services to producers and consumers. Enterprise Products
Partners L.P. (NYSE: EPD) once again, despite the energy slump, just raised the
distribution 1%. Enterprise Products maintains a very good long-term position
in the market. It provides many of its services on the basis of long-term,
fixed-fee contracts, insulating against some of the wilder swings of the
commodities that it trades in.
One reason why many analysts may have a liking for the stock
might be its distribution coverage ratio, which is well above one times, making
it relatively less risky among master limited partnerships. The company’s
distributions have grown for several quarters and are expected to continue in
2016.
Investors receive a very solid 6.17% distribution. Merrill
Lynch has a $35 price objective, and the consensus target is $34. Shares closed
Tuesday at $24.97.
SunEdison
This top solar company has been absolutely destroyed, down
over 80% since July, after pushing higher since the beginning of the year.
SunEdison Inc. (NYSE: SUNE) manufactures solar technology and develops,
finances, installs and operates distributed solar power plants, delivering
predictably priced electricity and services to its residential, commercial,
government and utility customers. It also provides 24/7 asset management,
monitoring and reporting services for hundreds of solar systems worldwide via
its Renewable Operation Center.
SunEdison bought Vivint Solar in a cash, stock and
convertible securities deal that some on Wall Street thought was ill-advised.
Some investors are wary of the buying binge and don’t feel the company has the
profits to support all the transactions. With the new breath of life from the
tax credit extension, the deal was renegotiated with less cash outlay, a
positive for SunEdison and its yieldco company TerraForm Power.
Merrill Lynch has a huge $12 price target. The consensus
target is even higher at $15.13. The shares closed trading Tuesday at an
incredibly low $5.02.
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