In a note Thursday, Tom Lee highlighted five stocks that investors have written off too soon.
“We remain constructive on the US and believe 1Q15 results will provide a margin surprise. Our YE 2015 target remains 2,325 and our favourite sectors remain: Consumer Cyclicals/Financials (housing); Technology (capex) and an eventual alpha trade in Energy. We took a look at the list of least liked companies and highlighted 5 potentially representing contrarian ideas.”
All five stocks are the lowest ranking stocks on the Russell 3000 based on the percentage of buys versus percentage of sells, or “net % of buys less sells.”
These stocks are all expected to see positive earnings-per-share in 2015 and have positive EPS estimate revisions for Q1.
The companies are:
- Quest Diagnostics (DGX): The company has a network of labs across the country that provide various kinds of medical testing. A string of acquisitions put pressure on the company’s balance sheet. “Company should enjoy considerable operating leverage as throughput increases, and can continue ‘buying’ incremental revenue due to fragmented and dispersed ownership structure of the industry,” Lee writes.
- AutoNation (AN): The vehicle retailer posted 17 consecutive quarters of double-digit EPS growth, but S&P and Moody’s give its credit their worst possible ratings. Like Quest Diagnostics, it has also spent heavily ($US1 billion) on M&A.
- Dun & Bradstreet (DNB): It as a dominant market position in the business information and analytics industry, but significant investment and M&A activity could weigh on EPS growth.
- Guess?, Inc (GES): Management provided positive guidance for revenues in 2015 and 2016, but the general trend of less mall traffic and a strong dollar make investors sceptical.
- Intelsat (I): The company has $US10 billion in contracted backlog and 75% +EBITDA margins, 2015 guidance was weaker than expected, and it has delayed the launched of three new satellites.