UBS has some high conviction stock ideas to ride out the many market currents into year-end

Published Fri, Sep 25 20203:35 PM EDT

(This story is for CNBC Pro subscribers only.) Between the race for a Covid-19 vaccine and a presidential election in November, volatility is expected to be high for the rest of 2020. UBS found a handful of stocks it believes can navigate the cross currents of these risks. The Wall Street firm screened from S & P 500 stocks that score high in production rebounds, pricing power, sensitivity to vaccine news and election risk based on potential tax impacts. UBS also looked for stocks with strong free cash flow and dividends and strong 2020 earnings estimates. "With so many cross-currents and two-sided risks, last week we laid out a framework for investing that capitalizes on themes we think offer better asymmetry, accounting for risks," UBS strategist Keith Parker told clients. "We introduced a list of stocks that screened well within their sectors for exposure to those themes." Even after rallying more than 60% in 2020 as a major beneficiary from Covid-19, UBS said Amazon can continue to drive top line momentum through strong Prime member growth. The firm has a $4,000 per share price target on Amazon. "We continue to believe that COVID-19 will have a profound impact on consumer/enterprise behavior over the medium-to-long term, UBS analyst Eric Sheridan, told clients. "Amazon's business mix positions the company to be a beneficiary of sustained long-term behaviors that are likely pulling forward prior multi-year industry adoption curves in eCommerce, cloud computing, media consumption, digital ad & AI voice assistants." UBS likes Concho Resources for its strong balance sheet. The firm said the oil producer is well positioned to generate free cash flow in the current environment. "CXO is a top pick given its scale, acreage position, management expertise and expectation for continued capital efficiency as it moves to a stabilized pace of development," UBS analyst Lloyd Byrne told clients. UBS has a $99 per share target price on Concho Resources. UBS's main thesis on Constellation Brands is that the beer and wine producer is undervalued, making its current level a good entry point into the stock. The firm see's the stock reaching $208 per share in the next 12 months. The Wall Street firm likes Deckers Outdoor as Covid-19 continues to benefit athleisure companies as consumers like "casualization and healthy lifestyles," the firm's analyst Jay Sole told clients. UBS has a $260 per share price target on Deckers. Another beneficiary of Covid-19 was the gaming industry, with millions of Americans stuck in their homes with no where to go. UBS said investors are discounting Electronic Arts ' ability to retain and monetize new cohorts during the pandemic. "In many ways, the 'shelter in place' dynamic has accelerated these themes as individuals & households dedicate increased media consumption time toward gaming content," said Sheridan. "Against the backdrop of solid topline momentum and improving margins, we see a compelling risk/reward in EA." UBS has a $170 per share price target on Electronic Arts. The Wall Street firm also likes chip stock Nvidia for its gaming and data center strength. The firm has a $625 per share price Target on Nvidia. "Gaming is driving most of the upside and continues to be supported by a virtual cycle of new technology and content," analyst Timothy Arcuri told clients. UBS is bullish on Lowe's thanks to the boom in home improvement. The firm see's Lowe's stock reach $195 per share in the next 12 months. "The company is likely to be a prime beneficiary of wallet share shifts to home for the foreseeable future," said UBS analyst Michael Lasser. UBS analyst Brennan Hawken said Morgan Stanley 's acquisition of retail broker E-Trade should increase earnings and enhance deposit funding and stability. Hawken expects the stock to re-rate on the bank's growth push into wealth management. "We believe MS's current valuation does not reflect its more attractive mix vs peers. Currently, just under half of MS's earnings are generated by wealth and asset management, and that will expand to about 55-60% of earnings over the next several years," said Hawken. UBS has a $57 per share price target on the stock. UBS said NextEra Energy is the "best in class regulated utility operator" in North America, which warrants a $312 per share price target. Lastly, the firm chose ServiceNow for its high conviction list based on the fact that the software company can achieve $10 billion in revenue by 2025. "ServiceNow is successfully evolving into a multi-product company which we think sustains a Salesforce-like revenue growth curve and puts the company on track to exceed $10B of revenue in 2025," analyst Jennifer Lowe told clients. "The current pandemic is further accelerating customers' digital transformation plans, creating additional favorable growth tailwinds for ServiceNow." UBS has a $511 per share price target on ServiceNow. — with reporting from CNBC's Michael Bloom.

An employee secures the lid of a Valspar Corp. paint can for a customer inside a Lowe's store in Burbank, California.

Patrick T. Fallon | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Between the race for a Covid-19 vaccine and a presidential election in November, volatility is expected to be high for the rest of 2020. UBS found a handful of stocks it believes can navigate the cross currents of these risks.

The Wall Street firm screened from S&P 500 stocks that score high in production rebounds, pricing power, sensitivity to vaccine news and election risk based on potential tax impacts. UBS also looked for stocks with strong free cash flow and dividends and strong 2020 earnings estimates.

"With so many cross-currents and two-sided risks, last week we laid out a framework for investing that capitalizes on themes we think offer better asymmetry, accounting for risks," UBS strategist Keith Parker told clients. "We introduced a list of stocks that screened well within their sectors for exposure to those themes."