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The following stocks have been added to the Argus Focus List:
Activision Blizzard Inc. (ATVI)
Activision creates video games. The company’s top game franchises include “Call of Duty,” “Diablo,” and “World of Warcraft.” Activision acquired King Digital Entertainment, the producer of the “Candy Crush” mobile puzzle game, in February 2016. The ATVI shares were hit hard in 2018 by the phenomenal success of the “Fortnite” shooter game from competitor Epic. That phenomenon appears to have receded somewhat. We regard 2019 as a year of transition for Activision as it works to revitalize its videogame titles and grow new revenue streams.
Emergent BioSolutions Inc. (EBS)
Emergent makes vaccines and products intended to protect civilian and military populations from infectious diseases and chemical, biological or nuclear attacks. It generates most of its revenue from Narcan nasal spray, a treatment for opioid overdoses, as well as from ACAM2000 (for smallpox) and BioThrax (for anthrax). We believe the company is on track to post solid earnings growth, driven by strong U.S. military demand for its anthrax and smallpox vaccines, as well as continued sales of Narcan. We also expect it to benefit from its new product pipeline. Emergent relies heavily on sales to the U.S. government, but is working to diversify its revenue by developing new products and expanding internationally.
Restaurant Brands International Inc. (QSR)
Restaurant Brands was created in 2014 when private equity firm 3G Capital backed Burger King’s acquisition of Tim Horton’s. Restaurant Brands acquired the Popeye’s Louisiana Kitchen chain in 2017. As of mid-year 2019, it operated over 26,000 restaurants in more than 100 countries. We believe Burger King management can open new stores and drive comps higher through deliveries, daypart expansion and plant-based products. We think the acquired brands can also grow in international markets through master franchise joint-venture agreements. As well, we expect 3G to emphasize franchising and improve operations at all brands. Longer term, we expect management to integrate Popeye’s and improve the dining experience at Tim Horton’s.
Wells Fargo & Co. (WFC)
In addition to providing a full range of consumer-, commercial- and investment-banking services, Wells Fargo originates roughly one of every four residential mortgages in the U.S. We recently upgraded the shares to BUY following the appointment of Charlie Scharf as CEO. We expect Mr. Scharf to focus initially on regulatory issues and on restoring confidence to the sales culture. While the dynamic of lower interest rates remains an industry challenge, Wells’ mortgage business could benefit. We expect the valuation of the shares to improve from deep discounts related to reputational and regulatory challenges and to move up toward peer levels as the new CEO enacts cultural change.
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