24/7 Wall St. Reports That Baird Is Bullish in 2016 On These 3 Stocks

"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.

Celgene

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.

Source: Yahoo!Finance

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.

Nike

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.

Source: Yahoo!Finance

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.

Under Armour

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.

Source: Yahoo!Finance

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. 

24/7 Wall St. runs a financial news company with content delivered over the Internet. The company’s articles are republished by many of the largest news sites and portals, including MSN Money, Yahoo! Finance, MarketWatch, Time.com, USAToday, etc. The company publishes over 30 articles per day and has readers throughout the world. The editors of 24/7 Wall St. do not own securities in companies that they write about. Other writers may have positions in companies, and these are disclosed in their articles. 24/7 Wall St. is not an investment adviser, and the content of the site is not an endorsement to buy or sell any securities. Articles are simply the opinions of the writers.

16th AIM student equity update by Travis Mantel: Aviva (ticker: AV): This Massive Insurance Company Ensures Stability in a Portfolio

AV (Aviva PLC): Insuring Some Alpha?

By: Travis Mantel, Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Aviva provides general and health insurance - and fund management products - worldwide. It has been creating synergies higher than expected from their acquisition of Friend’s Life three months into 2015.

• Aviva has increased their customer base by more than 20% from the beginning of 2014 due in large part to the acquisition.  However, Aviva offers more products than Friends Life and has experienced a 45% increase in revenues propelled mostly by cross-selling to new customers.  

• Management has indicated that they are forecasting to raise their dividend next year with estimates of a growth of 15.6%.  Also, they have been using excess cash to buy back common stock from shareholders which should help push the stock to 52-week highs.

• The UK central bank is unlikely to raise interest rates within the next year which will help propel Aviva’s earnings in the next year.

Aviva PLC (NYSE:AV) remains a very strong company in a desecrated international financial sector.  Since their CEO, Mark Wilson, has taken over, Aviva has been focused on increasing earnings through expense reduction and revenue growth.  Mark thought Aviva was very inefficient when he came on in the beginning of 2013 and has combatted that with a series of expense reductions, specifically in operations.  He has reduced SG&A expenses by a total of 19% over his two year tenure.  Further, they have been pushing for growth in revenue base and have been able to achieve that with the acquisition of Friends Life.

Friends Life brought over a customer base of over 5 million.  Cross selling to these new customers has increased underwriting profits by 45% this year.  The synergies created from this acquisition are much larger than they initially anticipated.  Six months since the acquisition they have produced run-rate synergies of £104 million when they initially anticipated three year synergies to equal £225 million.  Very profitable acquisition that is working in Aviva’s favor.

Management has stated there will be an increase in their dividend over the next year by an estimate of 15.6%.  They have also built up a cash reserve that they are using for a stock buyback, spending $887 million in 2014 and an estimated $867 million in 2015.  These two initiatives are building great value for shareholders in Aviva. 

Aviva is set up for a very successful few years ahead of them.  UK is not anticipated to raise interest rates in the coming years.  Their products look much more valuable during periods of zero interest rates and they are still able to create a spread on these products.  Mark Wilson has set up Aviva to be more efficient and more profitable than ever.

What has the stock done lately?

Aviva’s stock has increased in value by just under 1% from the beginning of the year.  The stock has risen to as high as $17.50 during the year, but analysts continue to forecast a future price target above $18.50 - it is currently at about $15.  With response to beating EPS estimates and the news of a dividend increase, the stock has rallied from $13.25 to the current price.  Large banks continue to have an overweight grade put on Aviva - including the likes of JPMorgan and Morgan Stanley.

Past Year Performance: Aviva has increased in value by 4% over the past year, but the stock is a huge bargain at this point with a low P/E ratio of 9.0.  They have increased underwriting profits by 45% from Q3 of 2015 to Q3 of 2014 and are anticipating accelerated growth from the close to zero interest rates in the UK.  Stock buybacks and a dividend increase will help grow shareholder value. 

Source: FactSet

My Takeaway

Aviva PLC has greatly increased their presence in the UK.  Their new CEO has taken a very active role in Aviva and has been successful in creating a more efficient company while growing revenues.  Friends Life is an acquisition that is benefiting Aviva more than anticipated through the use of cross selling to their new customer base.  With a low interest rate environment Aviva will take advantage with attractive products while still making a spread on the investment.  Aviva will be very profitable in the coming years and may be more profitable than anticipated if the Friends Life acquisition continues to overproduce.  It is also an attractive investment with management continuing to give cash back to their shareholders through increasing dividends and share buybacks. This should be a stable stock, but also one that could add some alpha!

Marquette University AIM students have been posting daily common stock updates during their winter break

AIM Equity Student-Managed Fund: Common Stock Updates

The students in Marquette’s Applied Investment Management (AIM) program are responsible for managing two equity funds which are a part of the University’s endowment. The equity portfolios consist of the following:

·         AIM Small Cap Equity Fund (Russell 2000 benchmark)

·         AIM International Equity Fund (Russell Global benchmark)

Each student is assigned an industry sector and is responsible for following the existing equity holdings within that portion of the portfolio. They are expected to closely monitor the stocks currently held and to offer periodic recommendations about adding new holdings and/or removing stocks as market conditions warrant.

Each day during December and January (during the students’ winter break) an update of a stock currently in the AIM Equity funds will be highlighted on the AIM blog. The purpose of these postings is to info their classmates (including the juniors who will be entering the AIM program in January 2016) about the current status of a stock they are responsible for following.

These updates are slightly different from the normal AIM stock write-ups and would be closer to the type of research most retail investors would read in Seeking Alpha or Morningstar. Typically during the semester the students are expected to write their recommendations in a format that would be viewed by an institutional investor. To view all previous write-ups, go to: http://business.marquette.edu/centers-and-programs/aimp-student-equity-write-ups.

Since mid-December, one new stock write-up has been posted on the AIM blog (http://aimprogramblog.blogspot.com/). AIM students, alumni and others are encouraged to post comments about the stock update.

Disclosure: The AIM Equity Funds currently hold positions in these stocks. The articles written by the students express their own opinions. The students do not receive any compensation for these articles and they have no business relationships with any companies whose stock is mentioned in these articles. Marquette University does not endorse the opinions expressed by the students who have authored these articles.

15th AIM student equity update by Dan Kralovec: Acadia Healthcare (ticker: ACHA): Is the Diagnosis and Prescription for More Acquisitions?

ACHC (Acadia Healthcare Company, Inc.): Can Acquisitions Heal This Healthcare Stock?

By: Dan Kralovec, student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Acadia Healthcare operates inpatient psychiatric facilities, residential treatment centers, group homes, and substance abuse facilities in the  United States and Great Britian. It competes in a highly specialized environment - and successful acquisitions have been (and are likely to remain) the main driver of growth.

• The industry is consolidating and success is driven by bed psychiatric bed count – and ACHC has added over 500 beds to their facilities in 2015. 

• Given the recent increase in mental health awareness, we should see a decision in FY 2016 with regard to US Medicaid laws that restrict thousands from seeking mental health services.  

Acadia Healthcare Company, Inc. (NASDAQ: ACHC) continues to show great growth potential despite the overall poor performance in the healthcare sector over the past few months. Acadia is an industry-leading provider of specialized behavioral health services to individuals suffering from mental health disorders and/or alcohol and drug addiction. ACHC operates 232 facilities between the U.S. and the U.K with a combined total of 9,200 psychiatric beds.

It’s difficult to establish a foothold in the behavioral health services industry due to a high degree of specialization. Likewise, this space has been subject to much consolidation as of late. Being a pure play healthcare company, ACHC has grown primarily through strategic acquisitions. This past year, they’ve acquired eight companies, which have added significantly to their facility portfolio and total bed count. Management recently affirmed that FY2016 should reflect this past year’s acquisition strategy. Last month, Acadia acquired MMO Behavioral Health system, its two locations with a combined 80 beds. The annual $16 million in revenue is expected to be immediately accretive to Q4 financial results.  To remain competitive, ACHC not only continues to acquire value added companies, but also allocates an enormous amount of time and capital towards the improvement of existing facilities to meet any increasing demand for a specific service. They’re constantly upgrading systems, security, and adding beds to already established locations.

The firm also drives growth through joint ventures with larger health systems and non-for-profits. Depending on the needs of the other party, Acadia utilizes their expertise to retrofit or develop entirely new psychiatric facilities. Much like the increased bed count, these relationships give the firm instant access to a much larger customer and referral base. ACHC currently has 10 projects like this in the works. Joint Ventures and acquisitions have been accretive in other ways besides increasing the customer base. For instance, ACHC just acquired the behavioral health segment and psychiatrist development program from the Einstein Medical Network last spring. With a market wide shortage of available psychiatrists, ACHC will have the option place graduates into their facilities as they see fit.

Looking forward, management believes the firm will generate $8 billion in annual revenue by FY2018, almost twice the estimate for FY16. Success will be directly proportional to the amount of beds the firm can successfully add to their existing and “newly acquired” facilities. Each facility has a development team tasked with handling the operations, requesting new beds if needed, and forecasting any potential change service demand. With management spending more time on acquisition targets, this group is absolutely vital to the success of the firm’s underlying operations going forward.

In light of the recent Planned Parenthood shooting in Colorado Springs, much attention has been directed towards our Nation’s insufficient mental health system. In recent years, there has been an increase in both mental health awareness and availability of treatments, hence ACHC’s aggressive acquisition strategy. Reimbursement rates have been strong amidst an otherwise uncertain regulatory environment. Medicaid laws prohibit the use of funds to finance payments to metal health and substance abuse facilities. Currently, legislation is in place to provide mental health coverage to adult Medicaid beneficiaries. Although the bill’s status is unknown at the moment, successful passage could increase their addressable market. It will be interesting to see how the affects, if any, on the companies bottom life in the months to come.

There has been much speculation in the market as to whether or not Acadia is attempting to buy the Priory Group, Britain’s largest rehab clinic with a bed count of over 7,000. To put things into perspective, each bed costs ACHC about $125,000. At the current rate of 500 beds/year, it would take ACHC about fourteen years and $875MM to grow organically to this magnitude. An acquisition of this magnitude would materially affect EPS and shareholder value. Although this transaction is currently speculation, the information may be “relevant” enough to the point that it could be priced into ACHC stock.

What has the stock done lately?

The stock is currently trading for around $61, down 12% from a month ago - and near its 9 month low. Trading volume remains steady despite the stock’s overall negative returns. Short interest has increased a bit (6.4% of float) compared to previous months. The company has beaten earnings estimates for the past three quarters. The most recent consensus target price on this stock is about $89.13, representing a 48% upside when compared to the current price. Considering the current stock price and the increase in short interest, a positive catalyst is defintley needed to spark an increase in ACHC’s share price.

Past Year Performance: Earlier this year, two venture capital firm sold about 4.8MM shares at an average price of $80. The stock price has since dropped by about 33%. Despite the recent poor returns, ACHC has increased 3% in value over the past year. The company is on track to meet Q4 earnings and sales estimates and there has been no major news to suggest any fundamental issues with the firm.

Source: FactSet

 My Takeaway

More mergers, joint ventures, and acquisitions are definitely a huge positive for a shareholder that may be concerned with the sustainability of ACHC’s business model. With that being said, bed expansion is one of the most important drivers of growth. Based on past results, it’s unlikely that we will see management cease their expansion strategy in the near future. The firm is defintley broadening their reach and expanding their service portfolio. In FY 2016 we should hear something with regards to the Medicaid mental health exclusion. However, there seems to be a bit of suspicion with regards to the outlook for the industry in an election year. A short interest of 6% isn’t all that worrying, but the increase from previous months should be noted. Lastly, it’s worries me that the reasoning behind the major recent selloff remains unknown. For these reasons, despite the attractive price, I would approach this stock with caution unless you believe that the consensus estimates are accurate and have a strong opinion that there will be a supporter of behavioral health care expansion in the White House in 2016!

Job Security? The most (and least) endangered jobs of 2016!

The most (and least) endangered jobs of 2016

From: Yahoo!Finance    By Rick Newman

The economy should muddle forward in 2016, with employers likely to match or exceed the 2.6 million jobs created during the last 12 months. But the mix of jobs will continue to shift, for one big reason we’re all very familiar with by now: the digital revolution.

McKinsey & Co. estimated recently that 45% of all activities humans perform in the workplace can be done by software or machines that already exist. That portion will most likely rise in the future. And it’s no longer just rote mechanical jobs that are vulnerable to automation. Even CEOs spend their time doing work that can be automated, according to McKinsey.

In many industries, robots may end up working alongside humans rather than replacing them completely. But workers in some industries seem especially vulnerable to technology. These are 5 categories of jobs, for instance, in which McKinsey estimates that somewhere between 85% and 100% of the labor can be done by machines rather than humans (Most Endangered):

Production workers in industries such as textiles, packaging, coating, painting and meatcutting. Approximate number of such workers: 3.2 million. These are mostly lower-skill jobs that can be done by increasingly sophisticated machines—a trend that has been underway for years and shows no signs of abating.

Bookkeeping, accounting, auditing and billing clerks. Number of workers: 2.1 million. Software can now help individuals and small businesses track their bills, invoices, expenses and taxes, replacing the clerical staff who do much of this basic work. There's still strong demand for more sophisticated auditors and accountants who deal with complex tax and financial situations.

Mechanics and automotive technicians. Number of workers: 740,000. Vehicles are loaded with software these days, and fixing problems often requires digital updates rather than mechanical fixes. As more vehicles become connected to the Internet, software updates will be beamed straight to the vehicle, with no visit to the dealership required.

Construction equipment operators. Number of workers: 340,000. Increasingly efficient machines get more accomplished with fewer people—plus, robotic dozers and graders are on the way.

Bakers and butchers. Number of workers: 300,000. These might seem like hands-on jobs, but machinery now requires little but professional oversight.

Many of the jobs lost in these and other fields will be offset by newly created jobs, many of them relating to the digital technology that’s transforming the workplace. But some jobs that have been around for a while still seem safe. Here are 5 categories of jobs in which little or none of the work can be automated, according to McKinsey. (Least Endangered):

Freight, stock and material movers. Number of workers: 2.3 million. A lot of transportation work can be done by conveyor belts and other machines, but moving stuff around still requires a lot of people to maintain cargo facilities, handle pop-up problems, maintain equipment and supervise it all.

Home health aide. Number of workers: 800,000. The job requires a personal touch and the ability to respond to a patient’s needs.

Management / financial analyst. Number of workers: 570,000. These professionals make strategic decisions based on data, financial performance and company priorities.

Sales managers. Number of workers: 375,000. It still takes a human touch to oversee the people who bring in revenue and generate new business.

Clergy. Number of workers: 45,000. A robotic minister? Don’t think so.

AIM Student Equity Update by Ryan Woo: Syneron Medical Ltd. (ELOS): New Year's Resolution: "De-Inking and Shaping Up"

ELOS (Syneron Medical Ltd.): Tatto and Fat Removal!

By: Ryan Woo, Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• ELOS engages in the research, manufacture, development, marketing, and sale of aesthetic medical products. It is a medical device company specializing in fat and tattoo removal - and it continues to post HSD - low DD organic growth, most recently 8% organic growth in 3Q2015 and 15% in the US (36% of total revenue as of 2014).

• The tattoo removal system PicoWay still has low penetration in the United States and is expected to beat initial annual guidance by $2-3 million. The non-invasive fat removal product UltraShape has had its revenue guidance for 2015 lowered, but its recurring revenue stream of FTZs has grown at mid-20% clip.

• ELOS continues to buy back shares and has no debt on its balance sheet. The company could possibly explore issuing debt to lower its cost of capital or set itself up for an acquisition if the opportunity arises.

• Despite the stock being down 40% since its addition to our international portfolio, momentum in product sales, the growth in the FTZ aftermarket for UltraShape, and commitment to a stronger marketing presence should reflect strongly in the stock price within the next six to twelve months.

Syneron Medical Ltd. (NASDAQ: ELOS) remains 'in-play'. Despite a lowering of guidance for Ultrashape, PicoWay has done enough to more than compensate for the disappointment. Momentum should gain in system sales in 1Q16 and beyond as New Year’s resolutions to “get in shape” or “remove a tattoo that was a mistake” will become more prevalent. In addition, disposable income should continue to rise as oil prices tank, which is a positive for Syneron’s overall end market.

During its last earnings call in early November, Syneron announced the hiring Jeff Nardoci as the President of the Body Shaping group in North America. This complements the appointment of William Griffing as the CEO of North America earlier in 2015. Nardoci is experienced in the medical sales field, having been the Senior Vice President and Chief Strategy and Marketing Officer for Banner Health. Higher up management is still getting accustomed to its new positions as well: Amit Meridor, Syneron’s CEO, has only been with the company since 2014, and his predecessors have had shorter terms than expected. Other company executives have only been with the company for four years or fewer. We should see improvement in the abilities and communication of management going forward.

The company may also be in a position to be taken out. Competitor Lumenis was acquired over the summer of 2015 by XIO Group, a Chinese private equity firm, for $510 million at $14 per share. This $14 represented an 18% premium to the price at which the stock was trading at previously. Syneron currently trades at a price of $7.50, but analysts believe that an acquisition could value Syneron at nearly double this stock price. This is mainly due to the synergies that could be produced from Syneron’s products and the acquiring firm’s network. A clean, debt-free balance sheet only helps the acquisition possibility.

Syneron is expected to continue its share buyback program of $20 million. Currently, it has used $9.4 million of the $20 million. With interest rates soon to rise, it will be interesting to see if Syneron takes on debt to fund an acquisition or buyback more shares, especially since the share price today is much lower than the average cost of $9.47 that the company has been paying. Nonetheless, it is important to note that management is determined to follow through by using all of the $20 million authorized in buybacks.

What has the stock done lately?

ELOS reached its high in the middle of May of 2015, which unfortunately is when we purchased the stock. Reported revenue and adjusted EPS have both slightly missed consensus estimates, resulting in recent sell-offs for the stock. A positive catalyst of increased sales guidance for new devices will be much appreciated for the share price. Management also has to do a better job of tempering analyst expectations for their products. Raising guidance for UltraShape sales from $15 to $18 million would have been much better for the stock price than lowering guidance from $20 to $18 million.

Past Year Performance: ELOS has decreased 22% in value over the past year, so the stock is on the bargain table: ELOS's market valuation is ~68% off its 52 week high. Less than half of the $20 million for share buybacks have been used, so there is still plenty of room from here to lower shares outstanding which in turn will raise EPS and the stock price.

Source: FactSet

My Takeaway

Syneron has had its fair share of issues in 2015 between the executive committee and middle management. However, the company appears to be a turnaround story with expected product sales momentum and qualified new hires. ELOS should be able to produce net income (as opposed to a net loss) within the next four quarters, which will hopefully bring the stock price back to its 52 week high. Up nearly 20% since early November, this stock is starting to move again!