Analysts name the top 'high conviction' stocks for playing the market turbulence

Published Sat, Sep 24 20229:09 AM EDT

Wall Street analysts are doubling down on a bunch of stocks they see as well positioned to weather the macro uncertainty. CNBC Pro combed through top Wall Street research to find analysts' top "high conviction" ideas. These companies have strong growth prospects and top-notch management, analysts said. The stocks include: CrowdStrike, Atlassian , Medifast , Thermo Fisher and DaVita. Medifast DA Davidson analyst Linda Bolton Weiser said in a note earlier this week that the nutrition and weight loss company is firing on all cylinders. With a Street high price target of $278, the stock is one of DA Davidson's top "high conviction" small cap ideas. Shares hit a fresh 52-week low Friday and are down more than 45% this year, but Bolton Weiser said the "misunderstood" stock is well-priced and likely close to a bottom. "Our analysis indicates y/y sales growth should resume in 4Q22 representing a sequential acceleration in growth, which has historically correlated with a rising share price," she said. Medifast's management also has an impressive track record of growth, she added, and the company's direct selling model is far "superior to competitors" and not given enough credence by investors. Add in a high dividend yield and Medifast presents a very "unique" opportunity for shareholders, she wrote. DaVita The kidney and dialysis care provider was recently upgraded to a buy rating from neutral by investment firm UBS. Analyst Andrew Mok said in the note that he has "high conviction" in DVA's ability to deliver $200 million to $300 million of operating income growth next year. The firm is betting on the passage of a bill in Congress known as H.R. 8594 , which would restrict providers from discriminating against dialysis patients. Mok said he sees "30% upside to current levels from EPS growth alone" if the bill passes, which could "catalyze a multiple re-rating later this year." The analyst called DaVita's EPS growth "underappreciated," adding that the company has also undertaken numerous cost savings initiatives that haven't been fully realized by investors. In fact, Mok said the company has not done an adequate enough job communicating this to investors. "Given the inflationary environment, we believe investors are skeptical of that level of cost savings and Street estimates anchor to the bottom half of the range," he wrote. Still, the firm is urging clients to buy shares. UBS has a Street high price target of $117 per share, which implies a nearly 38% gain from the stock's current level. Thermo Fisher Scientific Investment firm Redburn recently named the scientific and medical instrumentation company as a "high conviction" and top long idea. The company undoubtedly benefited from the pandemic; however, analyst Ed Ridley-Day said Thermo Fisher Scientific is even more well-positioned going forward. "The business has been a major COVID beneficiary, but it is the strong underlying growth that interests us," he said. Thermo Fisher has unique exposure to biologics, the firm said, which offers "significantly improved patient outcomes, with fewer side effects and a greater chance of success through clinical trials." Biologics are drugs developed through natural methods such as cell development and genomics. "We model the market growing at an 11% CAGR and see TMO as one of the best plays on this structural growth theme," Ridley-Day added. The analyst also praised Thermo Fisher's management and execution, calling it "razor sharp," and said investors should buy the stock now. "This is an exciting compounder underpinned by structural growth and operational excellence," he wrote. Shares are down about 22% since the start of the year. CrowdStrike — Needham, Buy rating "We think investors will be rewarded for buying and holding onto these shares. We recognize the potential for downdrafts in CRWD from time to time as the company moves with market swings given its high beta, but we are long-term buyers of CRWD for multi-year outperformance. While a period of consolidation is possible, we have high conviction that CRWD is a unique investment vehicle as the modern security cloud, with exceptional long-term value creation potential." Atlassian — Wells Fargo, Overweight rating "Longer term, high conviction regardless — as in any environment, there exist some cos whose multi-yr opportunity presents favorably regardless of macro, and are thus worth leaning into in any broad-based downturn. For us, TEAM and HUBS remain firmly planted on that list given meaningful multi-yr growth cycles in motion, significant pricing power and more balanced financial profiles." Medifast — DA Davidson, Buy rating "We chose MED because management has a track record of growing the company, we see several drivers of continuing long-term growth, the stock is particularly inexpensive with a high dividend yield, & there has been a sudden change in near term fundamentals, which may be misunderstood by investors, presenting a unique opportunity. ... Our analysis indicates y/y sales growth should resume in 4Q22 representing a sequential acceleration in growth, which has historically correlated with a rising share price. ... Direct selling model that is superior to competitors." DaVita — UBS, Buy rating "Attractive EPS Growth Underappreciated. ... While most providers in our coverage are subject to negative earnings revisions in 2023, we have high conviction in DVA's ability to deliver $200-300 million of OI growth next year & model $1,808 million of EBIT supported by strong visibility into cost savings initiatives. We see 30% upside to current levels from EPS growth alone & think that passage of H.R.8594 could catalyze a multiple re-rating later this year. ... Given the inflationary environment, we believe investors are skeptical of that level of cost savings &