Brean Capital's Top Ideas For 2015

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After an eventful 2014, the Brean Capital team came together to pick 28 stocks within each of the firm’s four coverage verticals -- Consumer, Healthcare, Natural Resources, and Technology -- to pay attention to in 2015.

Below are four of the highlighted stocks, with one from each vertical.

Urban Outfitters

Urban Outfitters, Inc. URBN is a specialty retailer that owns and operates over 400 locations around the world across five retail brands: Urban Outfitters, Anthropologie, Free People, Terrain and BHLDN. While Anthropologie and Free People have consistently performed well over the past year, the company’s name brand, Urban Outfitters, has not seen the same positive results.

In addition, Urban Outfitters was a topic of controversy earlier this year that hurt its public reputation when it featured a Kent State University sweatshirt with what seemed to be fake bloodstains for sale on its website. The company denied it had intentionally referenced the Kent State shootings of 1970, and immediately took the sweater off its website after the public backlash.

Related Link: Why Analysts Are Bullish On Apple Heading Into 2015

From a business standpoint, Urban Outfitters has been diligently working to improve its in-store sales, with retail sales growing by 0.7 percent in November over the year-ago period.

Brean Capital’s Elizabeth Pierce sees the potential in Urban Outfitters, giving the stock a Buy rating with a $40 price target. She believes Urban Outfitters “is a quintessential example of a “Best-of-Breed” retailer given its diversified, omni-channel platform, its ability to understand and connect with customers on an emotional level and its global growth potential.”

She continued: “Whilst merchandise execution issues at Urban Outfitters brand have adversely affected recent results, based on our recent channel checks, and considering this management team’s track record of ‘righting the ship,’ we remain confident that a turn is underway.”

Pierce has rated Urban Outfitters seven times since March 2009, earning a 71 percent success rate recommending the stock and a +38.5 percent average return per recommendation.

Rockwell Medical

Rockwell Medical Inc RMTI is best known for the development of ancillary hemodialysis products, for treatment against diseases such as end-stage renal disease, iron deficiency, and chronic kidney disease. Earlier this year, the FDA recommended that Phase 3 Triferic (a treatment that replaces iron lost during dialysis treatment for people with kidney disease) supports a positive benefit/risk to treat this issue.

Despite the positive vote, Brean Capital’s Jonathan Aschoff gave Rockwell Medican a Sell rating with a $4 price target, reasoning “Even if Triferic could eliminate the need for IV iron, we believe it would still fail to improve dialysis center economics," before adding: "[D]ialysis centers have already shown that their choice of drugs under bundled reimbursement is in part driven by economics and Triferic has no clinical benefit over SOC.”

Aschoff has rated Rockwell Medical five times in the last year, earning a 100 percent success rate recommending the stock and a +26.9 percent average return per recommendation.

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American Water Works

American Water Works Company Inc AWK provides solutions to improve public health, protect the environment, and strengthen the economy by managing and treating water.

American Water Works has also been known to acquire its smaller, weaker rivals. Most recently, Illinois American Water, one of AWK’s many state-based subsidiaries, acquired Hardin County Water Company on December 1.

Brean Capital’s Michael Gaugler gave American Water Works a Buy rating with a $62 price target, explaining that “American Water Works has executed well on earnings growth through acquisitions, improved efficiency, and expansion of market based services, all of which strengthen our investment thesis.”

He continued: “Now that rate case activity has slowed, AWK can recoup investment through surcharge mechanisms.”

Gaugler has rated American Water Works three other times since 2013, earning a 100 percent success rate recommending the stock and a +18.1 percent average return per recommendation.

Seagate Technology

Seagate Technology PLC STX is known for developing data storage solutions. As of late, there has been a growing demand for data storage, benefitting Seagate’s continued sales programs.

Brean Capital’s Ananda Baruah gave Seagate a Buy rating with an $83 price target, noting “Our broader bullish framework is driven by: 1) EV/FCF valuation, and 2) potential for L-T Industry Gross Margin expansion (at least 100-200 bps over the next few years from both favorable mix and Cap U increases, and perhaps 400-500 bps during the next 5-7 years).”

In addition, the analyst notes: “core business Gross Margins have trended up Y/Y (ex-impact of recent acquisitions) – which is core to our L-T thesis, and we anticipate continued expansion.”

Baruah has rated Seagate 11 other times since October 2009, earning an 89 percent success rate recommending the stock with a +33.0 percent average return per recommendation.

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Posted In: Analyst ColorLong IdeasAnalyst RatingsTrading IdeasAnanda BaruahBrean CapitalElizabeth PierceJonathan AschoffMichael Gaugler
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