Stop 'groupthink': 5 out-of-consensus buy ideas

Published Thu, Apr 14 20161:07 PM EDTUpdated Thu, Apr 14 20161:13 PM EDT

Successful investors like Ray Dalio and Howard Marks will tell you the only way to beat the market is to find money-making ideas that are very different from what everyone else is thinking. SunTrust Robinson Humphrey used that alpha generation theory in presenting almost 40 stocks to clients where the firm holds an out-of-consensus opinion. "Our experience at STRH is that conventional wisdom, along with consensus opinions and estimates, are often times wrong," read Thursday's research report. "Groupthink and recency/traditional bias can permeate an environment such that not enough independent, creative, thought-provoking 'real' research is conducted." Here are five names where the investment firm believes it has an edge. Source: FactSet SunTrust believes the threat of cloud computing to Oracle 's traditional software business is overstated. "Although caution is warranted regarding ORCL's increasing mix of cloud vs. software revenue, we believe enterprises will increase their technology spending as they adopt cloud solutions, giving Oracle a unique opportunity as a consolidator," wrote analyst John Rizzuto. Read More Morgan Stanley: Top earnings plays So far this year, shares of the software maker are up 13 percent compared with a return of 3 percent for the S & P technology sector. Analysts at SunTrust Robinson Humphrey predict the stock could trade as high as $48 in the next 12 months, implying a 16 percent gain from here. They get that target by applying a 17 times price-earnings ratio on 2017 earnings estimates. Source: FactSet " APD has a robust view on new project opportunities in the U.S. and China which should replenish the backlog as new projects come online," wrote analyst James Sheehan, noting how the Street underestimates the value of the firm's long-term earnings power. Based on his analysis, Sheehan believes accelerating operational improvements, expanding profit margins, a $2.4 billion project backlog, a transforming corporate culture in regards to execution and attractive valuations in comparison to its piers should all bode well for the stock. A pending spinoff of APD's Materials technologies segment in September 2016 could also unlock value in the company's gas business, according to Sheehan. Year to date, shares of APD are up 11 percent compared with a return of 5 percent for the S & P industrial Sector. In the next 12 months, however, analysts at SunTrust Robinson Humphrey expect the firm to trade as high as $175, representing a gain of 21 percent from here. Source: FactSet "Our Buy rating is based on our belief that SMG will post solid top- and bottom- line growth benefitting from a strong start to the 2016 L & G [Lawn & Garden] season, favorable commodities, and the divestiture of its LawnService and European businesses," wrote analyst William B. Chappell Jr. As potential catalysts, Chappell notes how the company is starting to benefit from a significant drop in its commodity inputs over the past couple of years, while locking in future costs at the current depressed levels. The analyst also notes how the company is divesting its European business and transitioning to a U.S.-focused consumer base, which could drive its multiple closer to its peers. Lastly, Williams believes a stock repurchase program is in the cards, further bolstering the shares. Year to date, shares of SMG are up 11 percent compared with a return of 5 percent for the S & P MidCap 400 index. In the next 12 months, the stock could trade as high $85, a gain of 19 percent from here, analysts at SunTrust Robinson Humphrey said. Source: FactSet Nautilus , a consumer fitness product company with a market cap of about $600 million, announced in December the purchase of one of its competitors, Octane. "In addition to a contemporized legacy product portfolio and go-to-market platform, the recent Octane acquisition is a game-changer, in our view," wrote analyst Michael A. Swartz. Read More Oil surges through key threshold. Don't buy it "We not only expect meaningful revenue synergies over the coming 24 months, but also potential for significant cost savings as NLS integrates distribution, warehousing, sourcing and marketing functions," added Swartz. Year to date, shares of NLS are up 11 percent compared with a flat return for the Russell 2000 index. Analysts at SunTrust Robinson Humphrey, however, believe investors don't fully appreciate Nautilus' business model, which could take the stock to $24 a share, or 30 percent higher from here. Source: FactSet "We find WageWorks ' highly scalable, predictable and growing business of administering consumer directed benefits (CDBs) very attractive," wrote analyst Tobey Sommer. According to his analysis, Sommer believes the management services company has the potential for greater organic growth and margins as it expands its businesses. A potential acquisition of one of its competitors could also bode well for the stock. "WAGE has not consummated an acquisition since CONEXIS in August 2014 despite a goal of 1-3 per year," Sommer said, hinting at potential mergers ahead. Additional business partnerships could also bode well for the stock, he said. Year to date, shares of WageWorks are up 13 percent, but analysts at SunTrust Robinson Humphrey predict the stock could rally another 16 percent in the next 12 months, trading at around $60.

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Successful investors like Ray Dalio and Howard Marks will tell you the only way to beat the market is to find money-making ideas that are very different from what everyone else is thinking.

SunTrust Robinson Humphrey used that alpha generation theory in presenting almost 40 stocks to clients where the firm holds an out-of-consensus opinion.

"Our experience at STRH is that conventional wisdom, along with consensus opinions and estimates, are often times wrong," read Thursday's research report. "Groupthink and recency/traditional bias can permeate an environment such that not enough independent, creative, thought-provoking 'real' research is conducted."

Here are five names where the investment firm believes it has an edge.