Google's foray into artificial intelligence could be revolutionary
Analyst: Carlos Kirjner, Sanford Bernstein
Sector: The internet
Top Buy: Google (GOOG): "Google's investments in artificial intelligence, above and beyond the use of machine learning to improve character, photo, video and sound classification, could be so revolutionary and transformational to the point of raising ethical questions."
Top Sell: No comment.
The most important theme for the industry: No comment.
What we're watching and some are missing: Google's foray into artificial intelligence, which "nobody is paying attention to because it is not an issue that will play out in the next few quarters. But longer term it is a big, big opportunity for them."
It is too late to be negative on energy stocks
Analyst: Doug Terreson, ISI Evercore
Sector: Integrated oil
Top Buy: ConocoPhillips (COP)
Top Sell: "It's too late to be negative on Energy stocks."
The most important theme for the industry: The price of crude oil.
What we're watching and some are missing: "Forthcoming mergers and acquisitions in the sector, which will likely put in the bottom for the oil market and the Energy stocks in the next few months."
Avoid Macau
Analyst: Joseph Greff, JPMorgan
Sector: Gaming and lodging
Top Buy: Hilton Worldwide Holdings (HLT), because the company is likely to announce a strategic plan in the next few months that will unlock value related to fees and timeshare segments.
Top Sell: No comment.
The most important theme for the industry: "Can Macau stabilize from its recent downward trend over the last 12 months? Lots of uncertainty there. [It is] Easier for us and we think investors to focus and become more comfortable with the positive trends in Las Vegas and the US regional markets."
What we're watching and some are missing: "We are more selective now than in the last few years and think that non high-end, largely US-focused portfolios with strong brands can grow attractively and can offset the impact of modestly accelerating traditional hotel supply growth and the impact of shared accommodations (Airbnb)."
Buy Coca-Cola
Analyst: Ali Dibadj, Sanford Bernstein
Sector: Beverage, household, and personal-care products
Top Buy: "Coca-Cola, given commodity benefits and defensiveness."
Top Sell: No sells, but "cautious about Clorox."
The most important theme for the industry: No comment.
What we're watching and some are missing: "Walmart's changes and the impact on personal care and household product companies."
Increased wages are going to impact retailers
Analyst: Matthew Boss, JPMorgan
Sector: Retailing, broadlines, and department stores
Top Buy: Dollar General (DG), Nike (NKE), and TJ Maxx (TJX) because all three have compounding earnings growth.
Boss told Business Insider to look toward NKE because it is an under-earning model with international margins still below peak. The company's relaunch is also a promising catalyst for further growth.
Top Sell: No comment.
The most important theme for the industry: "We are seeing a flight to quality given market fears — with higher multiples awarded to growing pie markets such as off-price, Athletic Apparel and the Dollar stores."
What we're watching and some are missing: "The effect of increased wages, which were seen in Q2 and Q3, on low-end customers."
Avoid the reinsurance industry
Analyst: Joshua Stirling, Sanford Bernstein
Sector: Nonlife insurance
Top Buy: "Our two favorite stocks are ACE Limited (ACE) which just bought Chubb insurance, has been a compelling long-term investment for investors, and American International Group (AIG), which is below 80% of its book value, a D-risk company with growth of 10 to 15% a year. It's also well positioned if interest rates rise."
Top Sell: "We don't have any formal underperforms at the moment, but we're generally telling investors to avoid the reinsurance industry, because it's seeing alot of prices declines."
The most important theme for the industry: "How much insurance companies are charging for insurance and interest rates. If interest rates rise, that's going to be a much better operating environment for insurance company."
What we're watching and some are missing: "People think uniformly about stocks by thinking about sectors, which causes them to miss alot of the robust varieties of stories that you have at the individual level."
Academic spending could benefit the life sciences sector
Analyst: Tycho Peterson, JPMorgan
Sector: Life sciences and diagnostics tools
Top Buy: Thermo Fischer Scientific Inc. (TMO), which trades at less than 16x price-to-earnings ratio and remains one of the leading consolidators in the space, with a strong balance sheet and diversified customer base, and Illumina Inc. (ILMN), which is the best growth story in tools.
Top Sell: No comment.
The most important theme for the industry: "Much of the growth for our companies has come from BioPharma, as growing R&D spending and an increasing number of drugs advancing through the pipeline have led to healthy demand for tools, while the recent budget deal in DC should drive through a modest ($1.5-2B) NIH increase, thereby benefiting US academic spending."
What we're watching and some are missing: "Fears over rolling China/industrial/applied/
It is all about the oil price
Analyst: James West, Evercore ISI
Sector: Oil services and equipment
Top Buy: The merged Baker Hughes (BHI) and Halliburton (HAL) entity, which filed a $35 billion takeover proposal four months ago.
Top Sell: Transocean Ltd. (RIG)
The most important theme for the industry: Oil prices and its trajectory.
What we're watching and some are missing: "The upcoming oil supply losses from outside of OPEC and North America."
The macro environment is challenging
Analyst: Jimmy Bhullar, JPMorgan
Sector: Life insurance
Top Buy: Prudential (PRU). "Our positive view on PRU reflects expected high returns (we're forecasting a mid-teens ROE versus our 10-11% expectation for the sector), a positive outlook for business trends, ongoing share buybacks, and an attractive valuation."
Top Sell: No comment.
The most important theme for the industry: Interest rates and credit spreads. A rise in interest rates would be a positive for the industry, while deterioration in credit spreads would be a negative as it could mean an uptick in credit losses.
What we're watching and some are missing: "The macro environment is challenging with low rates and lackluster equity market trends. Meanwhile, companies' returns remain depressed, and we're projecting the sector to generate a 10-11% ROE over the next two years."
It is all about mobile payments
Analyst: Tien-tsin Huang, JPMorgan
Sector: Computer services and IT consulting
Top Buy: "PayPal(PYPL) because it offers top decile growth potential as a pure play digital payment service provider with operating leverage and high strategic value, trading at a slight premium to slower growth merchant acquirers. We like VeriFone(PAY) because... it is a beneficiary of growing merchant card acceptance."
Top Sell: Xerox and IBM, which are lagging in the digital revolution.
The most important theme for the industry: The shift toward digital, and the impact on the adoption of mobile payments from the merchant and consumer sides.
What we're watching and some are missing: Investors should monitor merchants as they start using card readers that accept chip-and-pin as well as mobile payments.
The timing of the Fed lift-off is key
Analyst: Steven Alexopoulos, JPMorgan
Sector: Mid- to small-cap banks
Top Buy: First Republic (FRC). JPMorgan expects the Fed to lift off in December — albeit the rate of normalization will be slow. That means JPMorgan prefers banks where returns don't hinge on higher rates. In 2016, FRC is expected to post growth of 20% despite low rates.
Top Sell: No comment.
The most important theme for the industry: "The timing of Fed lift-off and the eventual path of rate normalization."
What we're watching and some are missing: No comment.
Watch the USD-EUR exchange rate
Analyst: Michael Weinstein, JPMorgan
Sector: Medical supplies and devices
Top Buy: "Boston Scientific (BSX) is a top pick due to accelerating top-line growth, multiple new product launches, and the potential for significant margin expansion over the next several quarters."
Top Sell: No comment.
The most important theme for the industry: Improved R&D productivity, the leveraging of existing franchises into adjacent end markets, multiyear investments in emerging markets, and mergers and acquisitions.
What we're watching and some are missing: "The USD-EUR. If the Euro goes to parity vs the dollar, it's going to make 2016 a tough year for large cap multi-nationals; two, the US capital equipment market, following the recent downturn in performance at US for-profit hospitals; and three, the uptake of several new technologies, which are launching right now in the US."
The 'old playbooks' may now be out of date
Analyst: Stacy Rasgon, Sanford Bernstein
Sector: Semiconductors
Top Buy: NXP Semiconductors NV (NXPI).
Top Sell: None at the moment.
The most important theme for the industry: "The most important thing in semiconductors right now (at least for the short term) is the macro situation, which is also the thing that it is hardest to get a handle on."
What we're watching and some might be missing: "The overall maturation of the industry as revenue growth slows, technology advancement becomes more costly, and traditional drivers, like PCs or smartphones, begin to ebb. The interesting thing for me is what this might mean for how one invests in the sector, and whether the 'old playbooks' still have relevance."
Forget cord-cutting ? focus on cord-shaving
Analyst: Philip Cusick, JPMorgan
Sector: Telecom services, cable, and satellite
Top Buy: Time Warner Cable (TWC), allowing consumers to tap into the "tremendous" consumer demand for bandwidth. T-Mobile (TMUS), which, according to Cusick, is "the best of the wireless players and should see continued growth as it takes share as the best value offer in the market." Lastly, Cusick named Level 3 (LVLT).
Top Sell: No comment.
The most important theme of the industry: The movement from video to the web, especially the on-demand nature of the web. One of the most important issues to watch is cord-cutting — i.e., consumers dropping their cable in favor of Hulu, YouTube, and Netflix.
What we're watching and some are missing: While the rate of cord-cutting has been slow, cord-shaving, where customers decide to downgrade their TV packages for fewer channels, "seems to be accelerating, and we believe will change the relationships among consumers, carriers, and media companies in the next few years."
Higher oil prices might actually help airline stocks
Analyst: Jamie Baker, JPMorgan
Sector: US airlines
Top Buy: "American Airlines(AAL) has the potential to become the most profitable hub-and-spoke airline in the world, assuming merger synergies can be profitably achieved. For those that are less risk-tolerant, Southwest Airlines(LUV) is positioned for upside potential well into the $50 range, despite its recent rally from a Summer low."
Top Sell: No comment.
The most important theme of the industry: "The US airline industry has never experienced its current level of prosperity before. The key for investors is whether returns can be reasonably sustained over an entire cycle. We believe they can, suggesting that Airlines will increasingly trade in-line with high quality industrial transports."
What we're watching and some are missing: "Domestic revenue trends are uninspiring, so we constantly monitor for any uptick in airfares. Paradoxically, higher oil might actually improve sentiment for Airlines given that fuel surcharges and a potentially weaker dollar could help boost international revenue."
The 2016 presidential election will be critical
Analyst: Lisa Gill, JPMorgan
Sector: Healthcare services
Top Buy: "CVS Health(CVS) is our favorite stock... we believe CBS is a core long-term holding," Gills told Business Insider. She said the pharmaceutical distributor is well-positioned to benefit from underlying drivers in the sector: an aging population, new drug development, managing specialty drug spending, and increased use under the Affordable Care Act. CVS's recent acquisition of Omnicare and proposed acquisition of Target Pharmacies will also help the company expand its footprint.
Top Sell: No comment.
The most important theme of the industry: The 2016 presidential election and what it can mean for potential changes to the Affordable Care Act.
What we're watching and some are missing: "We are watching for healthcare and more specific prescription utilization going into the end of the year."
Watch for convergence
Analyst: Andrew Steinerman, JPMorgan
Sector: US business and information services
Top Buy: Nielsen(NLSN), for its "strong brand and dominant market position and its high percentage of subscription revenues about 70%, which causes its revenue growth to be rather steady even through end market fluctuations."
Top Sell: No comment.
The most important theme of the industry: "More recently, we have seen an important trend of synergistic convergence between data subscriptions and software/SAAS offerings, whereby proprietary data/analytics vendors have increasingly amplified their services through improved content distribution channels."
What we're watching and some are missing: "We expect investors to continue shifting capital to steady, less cyclical names such as Info Services firms and foresee the group's valuation premium to persist or expand as growth compounds."
Yieldco investing is volatile
Analyst: Patrick Jobin, Credit Suisse
Sector: Renewable energy
Top Buy: "SunEdison(SUNE), SolarCity(SCTY) and Sunrun(RUN) because solar energy is now becoming cost-competitive versus traditional sources of power generation generation."
Top Sell: Yingli Green Energy (YGE) because the company faces an overleveraged, unhealthy balance sheet in a module-manufacturing industry that continues to show oversupply. "We perceive acute liquidity concerns for Yingli."
The most important theme of the industry: "Public market equity (Yieldco) investing for downstream project development, which has been very volatile."
What we're watching and some are missing: That costs are continuing to come down in the solar market as well as "the disruptive potential of energy storage for solar, which would dramatically improve where solar can be adopted."
Investors also focus too much on oils.
"It does not impact fundamentals, though there's a significant impact on stocks."