7 Top Picks For 2018 And Their Corresponding ETFs

Traders are busy building out brackets for 2018’s best competing stocks.

Some bet on FireEye Inc FEYE and CBS Corporation CBS, others bet against bitcoin. Here’s what Drexel Hamilton had to say.

The Rating

Drexel Hamilton earlier this week named its top industry Buys as:

  • Textron Inc. TXT ($66 price target) for aerospace and defense;
  • OSI Systems, Inc. OSIS ($105 price target) for health care and defense;
  • QEP Resources Inc QEP ($33 price target) in energy;
  • Apple Inc. AAPL ($235 price target) in IT hardware and software;
  • Tower Semiconductor Ltd. (USA) TSEM ($46 price target) among chip manufacturers;
  • ARRIS International plc ARRS ($40 price target) in cloud computing; and
  • Consolidated Communications Holdings Inc CNSL ($20 price target) in telecom.

The Thesis

The analysts defended their Buys with the following justifications:

Textron’s business and military jets are expected to accelerate organic revenue growth and improve margins, compounding the capex-unlocking effects of tax reform.

Last year, OSI Systems delivered strong revenue growth in its security business, stable profits from its optoelectronics line and a recovery in its health-care division. Analyst Brian Ruttenbur now forecasts two-year annual revenue growth of 10 to 15 percent.

After a strong performance in late 2017, QEP Resources is expected to carry momentum through the first half of 2018. The firm is seen to be transforming into a low-cost, high-growth Permian oil producer expanding its crude oil mix.

Analyst Brian White considers Apple poised to surpass a $1 trillion market cap in 2018 amid a “revaluation phenomenon,” capital opportunities from tax reform, innovations in the HomePod and Apple Watch, sales growth in China and progress in “ultra-luxury” smartphones.

Tower Semiconductor is expected to build on a 16-quarter growth streak with 15-percent earnings increases and near-double digit revenue growth. Its increased competitiveness in specialty analog foundry technologies and manufacturing capabilities; long-term contracts; and low-cost manufacturing model are seen to drive peer outperformance.

With two recent wireless acquisitions, ARRIS International will register earnings accretion and combat margin headwinds. Analyst Greg Mesniaeff also anticipates profits from the loss of Net Neutrality and the deployment of next-generation broadband technologies.

Consolidated Communications’ technical pressure and strong fundamentals support Drexel’s upgrade to Buy. The firm is forecasted to maintain its $1.55 annual dividend despite merger-related declines in revenue and earnings before interest, taxes, depreciation and amortization.

Drexel Hamilton affirmed that the individual stocks should outperform corresponding exchange-traded funds identified as:

  • iShares Dow Jones US Aerospace & Def.ETF ITA for Textron and OSI;
  • Energy Select Sector SPDR (ETF) XLE for QEP;
  • Technology Select Sector SPDR Fund XLK for Apple;
  • VanEck Vectors Semiconductor ETF SMH for Tower;
  • First Trust Exchange-Traded Fund II SKYY for ARRIS; and
  • SPDR Series Trust XTL for Consolidated Communications.

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Posted In: Brian RuttenburBrian WhiteDrexel HamiltonGreg MesniaeffAnalyst ColorLong IdeasUpgradesPrice TargetReiterationAnalyst RatingsTrading IdeasETFs