Franchise Picks: The 20 Best Stocks to Buy - Jefferies

Today, Jefferies introduced a new product - Jefferies Franchise Picks - which represents the 20 highest conviction, Buy-rated ideas from the Jefferies US Research Team.

Stocks making the list:

Abbott Laboratories (NYSE: ABT) ($48 Target Price): Expect margin and multiple expansion. Splitting the company and/or additional capital return could also unlock value. Company deserves a higher multiple given their ability to continue to grow margins and because the lower multiple device business is only 20% of sales. Our ‘14/’15 EPS ests are 9% and 18% above consensus.

Activision Blizzard, Inc. (NASDAQ: ATVI) ($23 Target Price): We believe the company offered conservative guidance around the Vivendi transaction, and that they’re poised to benefit from the first console cycle in 7 years. We believe the '14 release slate looks very strong, with an important in-game policy change with the 2014 World of Warcraft release which should help to drive sales.

Agilent Technologies Inc. (NYSE: A) ($65 Target Price): We believe the company’s F2014 EPS outlook is conservative, and believe numbers are finally beatable. Core EMG order growth has troughed, removing the key overhang on shares, and that should enable the market to properly value the two pieces-tech and life sciences.

Church & Dwight Co. Inc. (NYSE: CHD) ($75 Target Price): We expect F14 organic sales growth to accelerate to 4.5% from 2% in F13, as we transition from a very promotional year to one in which there's significant innovation. We're less concerned than the market about the launch of Tide Simply Clean, and our numbers are ahead of the Street for both ’14 and ’15.

Envision Healthcare Holdings (NYSE: EVHC) ($40 Target Price): Company is poised to benefit from healthcare reform implementation (i.e., less bad debt) and increased focus by hospitals on outsourcing (emergency room, ambulatory, physician services, etc.), a result of continued cost pressures on the industry. Acquisition of physician practices will also drive growth.

Fifth Third Bancorp (NASDAQ: FITB) ($23 Target Price): We like Ohio banks for loan growth potential, the ability to cut costs, and strong capital positions. We believe there’s further room to cut costs, and that capital return should be among the best in the group. Despite all of that, the stock trades at a discount to the group on P/B and P/E.

Freeport-McMoRan (NYSE: FCX) ($45 Target Price): Believe there's excessive skepticism regarding the sustainability of high copper prices. We forecast $4.05 in EPS for ’14, $5.00 for ’15, and that compares to the Street’s $3.16 for ’14, and $3.36 for ’15. Expect multiple expansion as the balance sheet is deleveraged, production volumes and margins expand.

GNC Holdings Inc (NYSE: GNC) ($68 Target Price): We're more optimistic than the Street on the company’s ability to continue to drive comps with their Gold Card program. We expect a 4-5% comp lift from the Gold Card in ’14, resulting in an 11% overall comp. Stock trades at about 16x our above consensus ’14 estimate, and we expect EPS growth of 20%+ in both '14 and '15.

Huntsman Corporation (NYSE: HUN) ($28 Target Price): Stock trades at less than 10x EPS, despite what we believe will be 10%+ EPS growth through 2015. Drivers include Rockwood deal accretion, a tighter MDI market in ’14, normalization of TiO2, restructuring savings, and growth projects. We see $4.00 in EPS in a "blue sky" case.

Ingersoll-Rand Plc (NYSE: IR) ($68 Target Price): The company should benefit from both an improved HVAC cycle, and productivity programs which should enhance margins. Street looks for only 4% 2014 growth in the Climate business, which is likely conservative given pent-up residential demand, and improving commercial demand. Believe they could earn as much as $4.50-$5.00 per year this cycle.

Intel Corporation (INTC) ($32 Target Price): Well positioned to capture share in low-cost mobile devices after three years of flat to down growth. We don’t think lower priced chips will hurt gross margins. There's further support from better corporate PC growth, strong enterprise PC and bottoming consumer markets in NA and Western Europe.

Jack in the Box Inc. (NASDAQ: JACK) ($53 Target Price): We expect continued SSS outperformance at Jack in the Box (JIB) via speed of service & new food news. Meanwhile, we see substantial upside opportunity at Qdoba as the topline accelerates & margins move higher. Assuming the JIB business trades at about 10.5x C14 EBITDA (vs. peers like SONC at 11x or more), this implies a trough-multiple of about 5x for Qdoba vs. fast casual peers trading at 10-20x.

Kohl's Corp. (NYSE: KSS) ($65 Target Price) - We see upside to C2014 comps and EPS on improved merchandising (new teams introduced product in spring of ’13), an expanded loyalty program, and an improved marketing message from their new Chief Customer Officer. Additionally, management has the opportunity to increase share buybacks given robust free cash flow and better inventory management.

ManpowerGroup Inc. (NYSE: MAN) ($89 Target Price): Company benefits from a combination of an improvement in Europe, and a restructuring program which can drive EBITA margins to 4% — a level still well below Randstad's 5-6% goal. We believe they can hit 4% EBITA margins which equates to proforma 2015 EPS of $6.50-$7 vs. consensus of $5.35.

Micron Technology Inc. (NYSE: MU) ($30 Target Price): Our 2014 EPS estimates are nearly 50% ahead of the Street, based largely on our outlook for muted DRAM supply. We believe that Samsung is less interested in expanding DRAM capacity, as a less competitive TSMC in Foundry would enable them to reap even larger profits in their semi and smartphone businesses longer term.

Microsoft (NASDAQ: MSFT) ($42 Target Price): – Our analysis on Office 365 suggests it could add ~3% CAGR to Office revenue over the next nine years; Office is 55% of our enterprise value estimate. We see compelling restructuring opportunities given low revenue per employee and high cost per employee. Recent signs of improvement in corporate PCs are yet another positive.

Newfield Exploration Co. (NYSE: NFX) ($41 Target Price): We believe investors underappreciate the Cana Woodford opportunity, as investors instead focus on the Bakken, Utica and the Eagle Ford. Cana exposure is increasing through acquisitions and as they sell international assets. The next catalyst is the 2013 reserve report in Feb, and the possible sale of their Chinese acreage in mid-2014.

Oceaneering International, Inc. (NYSE: OII) ($41 Target Price): We're above the Street for both ’14 and ’15. We’re less concerned than the market about the Gulf of Mexico, where we expect 15% growth in active rigs in ’14, and point out that orders for OII’s production related equipment lag those for subsea trees, a positive given strength in subsea trees in ‘13

Restoration Hardware Holdings, Inc. (NYSE: RH) ($88 Target Price): Our real estate transformation analysis gives us confidence in our four-year EPS CAGR of 36% and we believe $6 in EPS is attainable in F18 (vs F15 cons of $2.18). Early indications of the real estate plan show at least 2x the sales new full line design galleries versus the stores they replaced. We model 10% comps in F15 (Jan) our EPS are ahead of the Street, and we believe comps could be as high as 15%

SolarWinds, Inc. (NYSE: SWI) ($45 Target Price): Company has missed numbers twice this year, and recently guided CY14 margin guidance below consensus, which now embeds a 900-1000bps decline in operating margins. We believe revenue and margin guidance are very conservative, and that the company has taken recent steps including sales capacity expansion to position for growth reacceleration in CY14. We also point out that the stock trades at about 15x FCF, despite 15-20% FCF growth – rare for a growth company.

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