RBC Capital’s Top Investment Ideas for 2015: Amazon.com, Inc. (AMZN), and Yum! Brands, Inc. (YUM), Allergan plc (AGN)

RBC Capital Markets compiled a list in December 2014 of their top 30 global investment ideas for 2015 to shine light on the year ahead. The firm recently provided a quarterly update on each stock cited on the list. Three big players mentioned are Amazon.com, Inc. (NASDAQ:AMZN), Yum! Brands, Inc. (NYSE:YUM), and Allergan plc (NYSE:AGN). Highlights on these stocks from the report are as follows:


Amazon.com, Inc.

Amazon has shown serious signs of stock improvement throughout 2015, having increased 43.7% year-to-date. One of Amazon’s key drivers is Amazon Web Services (AWS), a collection of remote computing services that make up a cloud-computing platform. AWS remains the clear leader in the cloud computing market and recently started turning a profit this past April.

Amazon remains one of RBC’s top global ideas for 2015 with analyst Mark Mahaney giving the stock an Outperform rating with a $500 price target. The analyst sees significant growth for Amazon’s online retail business, anticipating “that Online will continue to rise by ~100 bps per year from the present 11% US Online Penetration level.” He also sees new revenue growth opportunities in “consumer staples, apparel, international expansion, Amazon Web Services, digital media offerings, office/industrial supplies, and advertising.”

Mahaney specifically thinks AWS will help boost the company’s margins and together with Amazon Prime are “likely catalysts for gross margin expansion.”

The analyst is also bullish on Amazon despite the stock’s high valuation, stating, “Even though AMZN has consistently traded at a premium valuation level its sector leading forward EPS growth outlook and its high EPS quality (very high FCF conversion) warrant, in our opinion, a considerable market multiple premium.”

When measured over a one-year horizon and no benchmark, Mark Mahaney has an overall success rate of 63% recommending stocks and a +21.7% average return per recommendation.

Yum! Brands, Inc.

Yum! Brands, owner of popular fast-food restaurants like Kentucky Fried Chicken (KFC), Pizza Hut, and Taco Bell, has been in recovery mode ever since the company went through an expired meat scandal in August of last year. While this initially hurt the stock, shares of Yum! Brands have jumped 25.5% year-to-date.

Yum! Brands made RBC’s top 30 global ideas for 2015 with analyst David Palmer rating the stock as his Top Pick with a price target of $103. The analyst believes the company’s “earnings growth can accelerate over the next 12 months as China division sales and margins recover from recent sales shocks.” He continued, “As China sales stabilize, we believe investors will also come to appreciate Yum! Brands’ sum of the parts value, which appears low cost compared to peers, particularly when considering Yum Brands’ improved global franchise business.”

The analyst also sees Yum! Brands as an undervalued stock and adds, “Yum! China can return to a high teens margin with a recovery in sales over the next two to three years.” Additionally, “This recovery, combined with average performance outside of China, would mean $4.00+ in EPS in 2016, and a 15% CAGR from 2014 EPS.” In the near-term, Palmer believes “sales trends will recover through 2015 as Yum! China benefits from: (1) food safety issue comparisons; (2) food safety advertising; and (3) innovation/marketing.”

When measured over a one-year horizon and no benchmark, David Palmer has an overall success rate of 75% recommending stocks and a +14.9% average return per recommendation.

Allergan plc

Biopharmaceutical company Allergen, formally known as Actavis PLC, has been on quite the roller coaster in 2015, ultimately jumping 46.7% year-to-date. The company recently changed its name after it acquired Botox maker, Allergan, earlier this year for $70.5 billion. The company also acquired Forest Labs (FRX) for $25 billion in 2014.

Allergan came in as one of RBC’s top global ideas for 2015 as RBC analyst Randall Stanicky rates Allergan as his Top Pick with a price target of $361. Stanicky believes that the company’s revenue can grow as much as 10% by the end of the year and cites four key drivers:

  1. “Solid core business trends in 2015 with potential for standalone EPS upside on several key products.”
  2. “Successful integration and attainment of synergy targets from both the [Forest Labs] and [Allergan] deals throughout 2015.”
  3. “Robust growth outlook with greater visibility as the business shifts more toward branded and global post the [Forest Labs] and [Allergan] deals.”
  4. “Valuation [that has the potential to] move higher on greater visibility around the core business and more stable and durable growth post the acquisitions.”

When measured over a one-year horizon and no benchmark, Randall Stanicky has an overall success rate of 59% recommending stocks and a +12.4% average return per recommendation.

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