Cosmetics retailer Ulta and these other stocks should top market this year: Jefferies

Published Wed, Mar 21 20181:40 PM EDTUpdated Wed, Mar 21 20183:26 PM EDT

Cosmetics retailer Ulta Beurty was added to a list of stocks Jefferies says should top the market this year. It joined Jefferies' updated Franchise Picks List, representing the stocks the firm believes will outperform the broader market over the next 12 months. The list, which has beaten the market since Jefferies started it in 2013, includes a wide variety of companies of various sizes from several industries. Jefferies removed air and ventilation company Ingersoll-Rand from the list, which it updates periodically. "Stocks are added to the Franchise Pick list in conjunction with pieces of research containing differentiated analysis, and/or opportunistically when stock moves create compelling entry points," the analysts said in a note. Here are three of the companies Jefferies sees as high-conviction buys. 1) Activision Blizzard ( ATVI ) Analyst Timothy O'Shea's buy rating on shares of Activision Blizzard is accompanied by a $86 price target, implying 20.5 percent upside from Tuesday's closing price. "The primary reason to own the stock is because new digital revenue streams (microtransactions, full-game downloads) are transforming the company into a more recurring and profitable model. Activision generated $4 billion of microtransaction revenue in 2017 and is guiding to double-digit growth for 2018 suggesting at least $400 million in incremental microtransaction revenue." "Mobile is the biggest and fastest growing of all the gaming markets, and Activision is developing a number of games based on its proven IP (like Nintendo). Activision also looks well positioned in eSports with the Overwatch League likely contributing $75-100 million to revenues in 2018." 2) Chevron ( CVX ) Jefferies's Jason Gammel has a 12-month price target of $149 on shares of Chevron, representing roughly 27 percent upside from Tuesday close. "Chevron is the most strategically advantaged in the super-major sector and forecasts an inflection in free cash flow moving forward as major capital projects reach completion, capex falls and production growth from high-margin products drive higher cash flow. … Chevron's low-cost position and depth of drilling inventory in the Permian enables the company to grow its base production profile by 2 percent to 3 percent annually through 2022 on $9 billion to 10 billion per year, with growth supplemented by new major capital projects such as the Tengiz expansion." 3) Ulta Beauty ( ULTA ) Analyst Stephanie Wissink added cosmetics retailer Ulta to the Franchise Pick list this month, with a 12-month target of $260, which is 20 percent higher than Tuesday's close. "Efforts to improve brand mix and experience are already beginning to pay off, as evidenced by the positive double-digit comp in mass cosmetics and ongoing improvement in ecommerce growth. … Easier second-half 2018 comps for the Prestige label provide a favorable backdrop for comp acceleration in the back half of the year, especially given what appears to be compelling new product." The analyst "also notes that the acceleration in cash flow adds capital allocation optionality and company management has hinted at international expansion and the opening of additional metropolitan stores."

Gamers play the video game 'Destiny 2' developed by Bungie Studios and published by Activision during the 'Paris Games Week' on October 31, 2017 in Paris, France.

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Cosmetics retailer Ulta Beurty was added to a list of stocks Jefferies says should top the market this year.

It joined Jefferies' updated Franchise Picks List, representing the stocks the firm believes will outperform the broader market over the next 12 months. The list, which has beaten the market since Jefferies started it in 2013, includes a wide variety of companies of various sizes from several industries.

Jefferies removed air and ventilation company Ingersoll-Rand from the list, which it updates periodically.

"Stocks are added to the Franchise Pick list in conjunction with pieces of research containing differentiated analysis, and/or opportunistically when stock moves create compelling entry points," the analysts said in a note.

Here are three of the companies Jefferies sees as high-conviction buys.