Editors' pick: Originally published April 6.
As the second quarter gets going, Deutsche Bank strategists have overweight ratings on the health care, technology and financial sectors, while the German bank is underweight industrials, materials and energy sectors, according to a U.S. equity insights report on April 1 wrapping up the first quarter.
But what about when it comes to specific stock selections?
TheStreet culled Deutsche Bank's rolling list of favorite large-cap stocks to find nine stocks with significant upside potential.
The S&P 500 stocks on this list are all rated buy by Deutsche Bank, with market caps above $8 billion, price-to-earnings multiples on 2016 earnings that are less than 22 times and price upside that is greater than 30%. They are ranked here by price upside.
TheStreet excluded the airline stocks included in Deutsche Bank's list, as the covering equity analyst downgraded three companies -- American Airlines, United Continental and Delta Air Lines -- to hold from buy on the same day that the report was issued.
We've paired the list with commentary from Jim Cramer if the stock is owned by his Action Alerts PLUS charitable trust portfolio.
Market Cap: $511.5 billion
P/E on 2016 EPS: 21.9
Price Upside: 45%
Deutsche Bank rates Alphabet a buy, with a price target of $1080. The analysts believe Alphabet's stock price also has a 45% upside.
"Google shares have recovered nicely from the oversold territory a year ago, but we still see the current move as just over halfway complete," Deutsche Bank analyst Ross Sandler wrote in an April 3 note to clients. "The biggest driver of the re-acceleration is simply the math behind mobile search crossing 50% of queries, and the steady monetization improvements, a trend that should last for several more quarters, if not years. For 1Q, we expect a 'strong revenue, but mixed EPS' print, which the street is largely prepped for. GOOGL remains our top name in large cap Internet."
GOOGL is a holding in Jim Cramer's Action Alerts PLUS charitable trust portfolio.
"Alphabet is the cheapest of the FANG stocks, and if the dollar stays weak, as it has been, I think there could be a massive upside surprise," said Cramer. "Ever since CFO Ruth Porat, late of Morgan Stanley, stepped in, this thing's been humming, and I think it will just get better and better."
Market Cap: $23.6 billion
P/E on 2016 EPS: 9.4
Price Upside: 42%
Deutsche Bank rates Mylan a buy, with a price target of $66. The analysts believe Mylan's stock price also has a 42% upside.
Mylan's generic form of Advair, which is used to treat asthma and airflow obstruction and reduce exacerbations in patients with chronic obstructive pulmonary disease, was approved by the FDA in February.
"At $4.8bn of IMS sales, Advair is the eighth largest branded drug in the U.S., and represents a particularly valuable pipeline asset for MYL, which expects to be first to market with a substitutable generic (there are no other known filers)," Deutsche Bank analyst Gregg Gilbert wrote in a Feb. 22 note to clients. "We are not changing our estimates, which already include contribution from gAdvair starting in 2017, but note that our assumptions could prove conservative depending on the timing of additional generic entrants and market dynamics. We continue to like the risk/reward for MYL shares and are maintaining our buy rating."
Market Cap: $203 billion
P/E on 2016 EPS: 12.9
Price Upside: 38%
Pfizer (PFE - Get Report) is a biopharmaceutical company that discovers, develops and sells health care products worldwide. The New York-based company is in the news on Wednesday following the termination of its $150 billion merger with Allergan following new rules unveiled by the U.S. Treasury to make it more difficult to merge with foreign rivals when they seek to reduce their domestic tax bills.
Deutsche Bank currently rates Pfizer a buy, with a price target of $41. The analysts believe Pfizer's stock price also has a 38% upside.
TheStreet reached out to the Deutsche Bank equity analysts covering Pfizer for an updated view. We have yet to hear back at press time.
Market Cap: $78.7 billion
P/E on 2016 EPS: 20.4
Price Upside: 37%
Eli Lilly (LLY - Get Report) is a global pharmaceutical company headquartered in Indianapolis, operating two segments: human pharmaceutical products and animal health products. Eli Lilly's biggest drug seller is Humalog, an insulin product used to treat people with diabetes. The company also sells Cialis, which treats erectile dysfunction in men.
Deutsche Bank rates Eli Lilly a buy, with a price target of $99. The analysts believe Eli Lilly's stock price also has a 37% upside.
Eli Lilly announced on March 22 that it received FDA approval of Taltz, which treats adults suffering from moderate-to-severe psoriasis (launch is anticipated in early 2016).
"While the psoriasis market is crowded with multiple therapeutic options, we believe that Taltz's strong efficacy/safety profile may position it well relative to its competitors," Deutsche Bank analyst Gregg Gilbert wrote in a March 23 note. "LLY is awaiting regulatory action in the EU for psoriasis and in Japan for psoriasis and psoriatic arthritis. While we acknowledge that the outcome of the sola trial in 4Q can be a 'make or break' stock event this year, our buy rating is based on the emergence of new growth drivers such as Taltz.'
Eli Lilly will report first-quarter results on April 26. Analysts, according to Thomson Reuters, expect the company to post a profit of 84 cents a share on revenue $4.8 billion, down 3% and up 4%, respectively, over the prior year's quarter.
Market Cap: $19.7 billion
P/E on 2016 EPS: 12.3
Price Upside: 37%
Delphi Automotive (DLPH - Get Report) is a U.K.-based company that manufacturers auto components and provides electrical and safety technology solutions to the automotive and commercial vehicle markets worldwide.
Deutsche Bank rates Delphi Automotive a buy, with a price target of $103. The analysts believe Delphi Automotive's stock price has a 37% upside.
"We recently met with management of Delphi and came away encouraged that business trends support our near-term and longer-term expectations. Management continues to believe that their full-year 2016 organic growth is on track for the company's 8-10% target," Deutsche Bank analyst Rod Lache wrote on March 10. "We believe that Delphi specific growth is being driven by a large number of new business launches (SsangYong, Shanghai GM, Chrysler, and others), as automakers are shifting from port-injected to direct-injected gasoline engines."
Market Cap: $18.8 billion
P/E on 2016 EPS: 13.4
Price Upside: 34%
Deutsche Bank rates Perrigo a buy, with a price target of $172. The analysts believe Perrigo's stock price has a 34% upside.
Perrigo reported fourth-quarter results with "lower revenue, margins, EPS, and cash flow than we and the market expected," Deutsche Bank analyst Gregg Gilbert wrote on Feb. 18. "Some stock weakness may persist in our view, but we are hopeful that investor sentiment and the stock are in a bottoming process, and still believe that PRGO is a unique asset with good value creation potential over the longer term. Needless to say, execution in the coming quarters (especially on the newly-acquired Omega business) is of paramount importance."
Market Cap: $55 billion
P/E on 2016 EPS: 18.2
Price Upside: 33%
Twenty-First Century Fox (FOXA) , a diversified media and entertainment company, produces and licenses news, sports, entertainment, television and movie programming for distribution through cable television, direct broadcast satellite operators, telecommunications companies and online video distributors. It also broadcasts network programming and operates 28 broadcast television stations, among other businesses.
Deutsche Bank rates Fox a buy, with a price target of $37. The analysts believe Fox's stock price has a 33% upside.
"After making large cuts to our F2017+ estimates to reflect foreign currency weakness, lower domestic and international (constant currency) cable network affiliate revenue growth, higher cable network expense/lower margins, and lower studio profits, we still arrive at a $37/share 12-month valuation for Fox," analyst Bryan Kraft wrote in a Feb. 17 note. "We think that Fox shares are pricing in a worse outlook than is reflected in our estimates or consensus."
Market Cap: $12.4 billion
P/E on 2016 EPS: 13
Price Upside: 32%
Deutsche Bank rates Alliance Data a buy, with a price target of $291. The analysts believe Alliance Data's stock price has a 32% upside.
Alliance Data's stock pulled back following its first-quarter earnings results in late January. Investors became concerned that the company's revenue trajectory is slowing following its revenue miss and weak guidance for the first quarter as well as a possible turn in the credit cycle, according to Deutsche Bank.
But Deutsche Bank analyst Ashish Sabadra is more optimistic. "Revenues missed due to FX headwinds and mix shift in card services while weak guide was due to tough [year over year] comps in BrandLoyalty," the analyst wrote on Jan. 29. "Delinquencies, which are early indicators of credit cycle, actually improved in December 2015 and we will continue to monitor the credit cycle."
As well, the company reiterated its charge-off forecast for 2016 of 5% "due to lower recoveries, seasoning of receivables, as well as some conservatism, in our view, which provides some downside protection," the note said. "In addition, we believe the company could aggressively buyback stock (potentially even raise authorization from current $500m) providing support to the stock and upside to the guidance."
Alliance Data did increase its stock repurchase authorization program by $500 million to $1 billion, according to a Feb. 18 announcement.
"This increased authorization reflects a shift in our focus for 2016 to utilizing our free cash flow primarily for stock repurchases rather than a mix of repurchases and M&A, enabling us, as we have done historically, to acquire shares of our common stock at prices that we believe understate the value of our business," Alliance Data's CFO Charles Horn said in a press release.
The company is expected to report first-quarter earnings results on April 21. Analysts, according to Thomson Reuters, expect the company to post a profit of $3.83 a share on revenue $1.69 billion, up 5% and 6%, respectively, over the prior year's quarter.
Market Cap: $10.4 billion
P/E on 2016 EPS: 8.7
Price Upside: 31%
Western Digital (WDC - Get Report) develops, manufactures, sells and provides data storage solutions that enable consumers, businesses, governments and other organizations to use digital content worldwide. The Irvine, Calif.-based company is slated to acquire SanDisk, which is expected to be completed in the second quarter, however the road to deal closing hasn't been a smooth one.
Western Digital originally agreed to buy SanDisk in October for $19 billion, but it recently lowered the price to $16.2 billion. The company will be taking on more debt in order to finance the deal after China's Unisplendour terminated its agreement in February to purchase a 15% stake in Western Digital.
Deutsche Bank rates Western Digital a buy, with a price target of $62. The analysts believe Western Digital's stock price has a 31% upside, as of April 1.
"We believe the SanDisk acquisition creates longer-term benefits for WDC, and have estimated annual deal accretion could conservatively be in the $1.10-$1.60 range," Deutsche Bank analyst Sherri Scribner wrote in a Feb. 23 note following the Unisplendour announcement.
"With WDC's share price having declined post the deal's announcement, we view the higher equity consideration as a more favorable outcome, given it reduces the overall cash consideration for the deal and lowers the overall purchase price. We remain positive on WDC's position in the storage market and on management's track record on integrating acquisitions," the note said.