Jefferies Franchise Picks Crushing S&P 500: 5 to Buy Now

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All the Wall Street firms that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the stock they not only like on a longer term basis, but those that usually have big upside to the assigned target price. These portfolios of top stocks, and the rates of return, are often how brokerage firms and banks can set themselves apart from each other.

We have covered the Jefferies Franchise list of stocks since its inception back in December of 2013 and have watched as they brought home some huge winners for the firm’s clients. On a total return basis, the Franchise list has outperformed the S& P 500 by a massive 90.66% to 63.53% since inception.

The current list includes five companies that look especially good now, and two are relatively new additions.

Activision Blizzard

This remains a top pick on Wall Street and Jefferies still is very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide. It develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers.

The company reported outstanding results that beat estimates and the analysts commented:

Activision reported results, beating forecasts and guiding 2018 conservatively. Since 2011, the company has ended the year 19% higher than the initial outlook, on average, which suggests $3.00 in earnings per share could be achievable. We note that the beat this quarter was driven by a resurgence on Call of Duty as well as in game spend. We raised estimates and note that our new $3.02 estimate for 2019 is ahead of consensus.

Jefferies also feels that microtransactions may be one of the most compelling reasons to own the shares now. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. Another term, “pay-to-win,” is sometimes used to refer to games where buying items in-game can give a player advantage over others, particularly if the items cannot be obtained by free means.

Shareholders of Activision Blizzard are paid just a 0.51% dividend. The Jefferies price target for the shares is $86, and the Wall Street consensus target is $76.58. The stock closed Monday at $70.08 per share.

DXC Technology

This company may be somewhat off the radar for investors, but it is well liked at Jefferies and across Wall Street. DXC Technology Co. (NYSE: DXC) is the world’s second-largest pure-play information technology services firm, behind only Accenture, and it generated around $25 billion in annual revenues. Moreover, as of fiscal 2017, the company had more than 170,000 employees (with an offshore mix of around 50%), serviced around 6,000 clients in a wide range of verticals, and it had a presence in over 70 countries, with the Americas representing around 50% of total revenues.

The company reported solid fiscal third-quarter results earlier this month, which included impressive margin performance and revenues that were in line with estimates. The company also offered fiscal 2018 earnings per share guidance that was raised from previous levels.

DXC Technology shareholders are paid a small 0.70% dividend. Jefferies has a $120 price target for the shares, while the posted consensus target is $112.33. The shares closed trading at $103.76 on Monday.