Here are five stock ideas that analysts predict offer upside of at least 20% in 2015, and in a couple cases upwards of 40%. [All prices as of market close January 8, 2015]
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3D Systems (DDD)
3D System’s (DDD) stock has been nothing short of a roller coaster ride over the past couple years, rocketing from $30 per share to $90 in 2013, then cratering back down to around $30 in 2014 after profit margins unexpectedly fell amid the company’s acquisition spending spree. On top of that, the stock took a beating on news that Hewlett Packard would begin making 3D printers in 2016.
But some market watchers say the headwinds from 2014 are likely to abate this year.
“A string of acquisitions last year pushed out profitability and 2015 will be the year 3D starts to harvest those investments,” says Sandy Villere, manager of the Villere Balanced Fund. And in coming quarters, S&P Capital IQ analyst Angelo Zino expects 3D to sell more of its proprietary materials -- like plastic and metals that are used by 3D printers -- which carry higher profits than the printers. Profit margins for materials are in the 70% range, compared with 30% to 40% for the actual printers.
3D Systems’ main business is selling 3D printers to manufacturers from GE (GE) to Boeing (BA) that use them to make customized parts for their engines and planes. 3D also has customers in health care that use its printers to produce everything from retainers to hearing aids and prosthetic limbs.
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Morningstar projects the company’s annual revenue will grow on average by 18% over the next ten years. For 2015, analysts polled by Thomson Reuters forecast earnings will spike 43% to $1.04 per share, while sales will balloon 31% to $875 million. Villerie thinks the stock can double in the next two to three years. Zino sees the stock hitting $50 in the next 12 months – printing investors a more than 50% return.
EOG Resources (EOG)
As oil prices plunged more than 50% since June, investors indiscriminately jettisoned oil exploration and production stocks regardless of the company’s health. According to analysts, EOG Resources (EOG) is one quality company that’s unfairly sold off with oil. Since June, the stock plummeted some 26% to $87 per share.
The energy watchers say this is not a driller that gorged on cheap debt to fund haphazard drilling with no regard for whether the wells will yield good production. Rather, EOG strategically drills for oil and gas in areas that will yield copious barrels of oil with a keen focus on cost. The company has a large stake in Texas’ Eagle Ford Shale, one of the richest basins for crude oil in North America, where the firm says production costs are less that $40 per barrel of oil. At that level, EOG forecasts a minimum 10% return after taxes. So at around $50-$55 per barrel, EOG should be able to keep the oil production spigot full force while keeping its profits flowing.
EOG projects total production from its Eagle Shale properties at 3.2 billion barrels, amounting to 12 years worth of oil to drill. And that doesn’t include other projects like the Delaware Basin, where it estimates it has more than 40 years worth of oil inventory. Cash flow from operations has risen by double digits over the past three years, and risen nearly 23% in the first nine months of 2014. S&P Capital IQ analyst Stewart Glickman thinks shares can rise to $115 in the next 12 months, yielding a 33% return.
From the sensational Sony Pictures hack attack to J.P. Morgan Chase’s (JPM) disclosure that contact information for 76 million households was compromised, 2014 was another year of the rise of the cyber attack. And the volume of attacks is poised to spike this year, according to Experian's 2015 Data Breach Industry Forecast.
In both Sony and JPMorgan’s cases, cyber security firm FireEye (FEYE) was hired to clean up the mess. Referred to as the “Ghostbusters for cyberattacks,” the Milpitas, California-based company offers advice and software to prevent and resolve cybersecurity attacks. But for a company that seems to be at the epicenter of so many high-profile cyber attacks, its shares cratered 23% last year, while the NASDAQ rose over 14%. Why? The stock’s valuation shot way above its sales projections, and according to one analyst, Wall Street misunderstood the company’s acquisition of cyber consulting firm Mandiant’s business. Also, the company is in the process of shifting business models to one that’s more focused on managing security systems for companies against potential cyber hacks than simply selling software that detects attacks and lets companies manage security on their own. That’s had the impact of depressing sales upfront.
“Companies don’t want to deal with chasing ghosts out of their businesses,” says Brent Thill, technology analyst for UBS. “They want someone else to manage it. So FireEye acting as a prime contractor will be a preferred methodology going forward. And from a financial standpoint it’s stickier and offers recurring revenue.”
Billings might be a better measure than sales of the firm’s business – those were up a whopping 133% in the third quarter (the latest reported financial period). And the company raised its full-year billings target as well. Even so, analysts polled by Thomson Reuters forecast on average that revenue will climb 47% this year to $624.15 million. Stifel Nicolaus analyst Gur Talpaz says he sees strong demand and adoption of its new FireEye as a Service as a future indicator of revenue growth and views any near-term weakness as a buying opportunity. He thinks shares can climb to $45 in the next 12 months from around $31 now, offering a firey return of 45%.
Gilead Sciences (GILD)
Shares of Gilead Sciences (GILD) caught a bit of a cold last year after competing drug maker AbbVie (ABBV) received FDA approval for an oral hepatitis C drug, setting up direct competition for Gilead’s blockbuster hepatitis C drug, Sovaldi. That’s the famous drug that costs $84,000 for 12-week treatments. Worse, pharmacy benefits manager Express Scripts announced it will replace Gilead’s pricey Sovaldi with AbbVie’s new drug, which is lower priced. Investors chucked shares of the biotech company on fears it would lose its stronghold on the hepatitis C market, which now accounts for more than 50% of its sales.
But Morgan Stanley analyst Matthew Harrison predicts the biotech firm will retain a 75% share of the hepatitis C market and believes Sovaldi’s price will only fall by 15% as a result of the new competition. And he’s not alone. S&P Capital IQ analyst Jeffrey Loo also thinks Gilead will maintain a dominant market position in the hepatitis C market.
Why so confident? Gilead’s treatments require one pill a day whereas AbbVie requires four to six pills, twice per day. Also, in addition to Sovaldi, as of October, Gilead received FDA approval to sell another hepatitis C drug, Harvoni, which treats the most common type in the U.S. And adding relief, at the start of the New Year, CVS announced an exclusive deal with Gilead for Sovaldi and Harvoni.
On top of hepatitis C, Gilead has the largest share of the HIV drug market with three of the top five selling HIV drugs. The biotech giant also has a promising leukemia drug, which was approved late last year. S&P’s Loo says the drug, which is set to generate a skimpy $150 million in sales this year, could ramp up sales to $1 billion by 2020.
For 2015, analysts estimate overall sales will jump 17% to $26.56 billion -- and Morningstar thinks the company can maintain that annual sales growth pace through 2018. Earnings are projected to balloon nearly 25% to $9.91 per share this year. Loo thinks shares can rise to $135 in the next 12 months, offering a healthy return of about 35%.
Google this: While the Nasdaq gained a heady 14% in 2014 coming within shouting distance of its all-time high, shares of Google (GOOGL) skidded 4%. Investors neglected shares of the internet giant for a litany of reasons. Among the laundry list of concerns: Google risks losing its spot as the default search engine on Apple’s iPhone. Then there are lingering concerns Google will lose out increasingly on mobile-ad spending as Facebook gobbles up more mobile ad sales. The company is also under pressure from European regulators to “unbundle” its search engine from other services.
But these risks are likely priced in, says Scott Kessler, chief technology analyst for S&P Capital IQ. And, Google still reigns as the world’s top search engine, accounting for more than 60% of web searches. No other competitor has even 10%, according to Morningstar. And for all the concerns about Google losing market share in mobile ad sales, Android is the leading operating system for smartphones globally and Morningstar estimates 90% of mobile searches are performed on Google. Meanwhile, as more people watch Youtube online and on their mobile devices, Google can sell more ads against content.
For 2015, analysts project sales will jump 17.6%, with earnings per share rising by roughly the same clip. Kessler thinks share can get to $650 over the next year, offering a return of nearly 30% from current levels.