With the second quarter off to a great start for the market, Piper Sandler reshuffled its list of best ideas for stocks that have good fundamental prospects and an attractive entry point going by the charts.
The firm's "Alpha Alignment" Index, which outperformed the broader market in the first quarter, is made up of buy-rated names that Piper Sandler believes are strong companies (fundamentals) that are ripe for purchase (technicals).
Piper Sandler screened the 900 equities in its coverage universe and filtered for stocks with a buy rating, a market value over $750 million and a minimum of 10% upside based on its 12-month price target.
Then, the technical filter weeded out the stocks without momentum, uptrends and strong improvement relative strength.
The Alpha Alignment Index generated a total return of 9.6% in the first quarter of 2021, outperforming the S&P 500 by 2.6%.
Take a look at Piper Sandler's second quarter list here.
Ride-hailing company Lyft is one of Piper Sandler's Alpha Alignment Index members.
"We remain well above consensus in 2021 and especially 2022, because we still think other firms are missing Lyft's improving ability to translate urban vehicle miles traveled into revenue," Piper Sandler noted.
"Shares have pulled back from overhead resistance and are currently retesting the rising 10-week [week moving average]," on a technical basis, the report states. "A close above $67.50 should open the door to a new leg higher; add to positions on a topside breakout."
Piper Sandler has an $88 per share price target on the stock; Lyft ended Thursday at $62.01.
Oakland-based beauty company elf Beauty is another top pick for Piper Sandler. The firm said it sees elf "as one of the best ways to play stimulus to the lower to middle-income consumer given its value price positioning," senior research analyst Erinn Murphy told clients.
Last week, Piper Sandler upgraded shares of elf Beauty to overweight from neutral. The stock has about 10% upside to its $30 per share price target.
"Shares have pulled back from the upper end of a rising price channel and are currently retesting the 10-week [week moving average]," the report states of elf' technicals. "Use pullbacks within the price channel to accumulate shares."
NextEra Energy is one of three energy names on Piper Sandler's list. The firm said the clean energy stock is a great way to own exposure to the decarbonization megatrend.
Piper Sandler said the pullback in shares of NextEra Energy has created an attractive entry point into the stock.
"Shares have bounced off support and are retesting the upper end of a declining price channel," the report said. "Add to positions on a confirmed downtrend reversal."
The firm gave NextEra a 12-month price target of $91 per share. Shares traded at $77.76 when the market closed on Thursday.
Piper Sandler also looked favorably on Lowe's. The firm said it liked the home improvement retailer's executive commentary that the first quarter is off to a strong start following 2020's banner year for home retailing due to the pandemic.
"With strong home price appreciation, a healthy homeowner balance sheet, and continued cash-out refi activity, we expect remodel trends to remain strong," senior research analyst Peter Keith told clients.
Lowe's has about 7% upside to Piper Sandler's $208 per share price target.
"Shares have broken out from a multi-month consolidation range," the report said about Lowe's' technicals. "Add to positions, as we suspect a new leg higher is now unfolding."
Piper Sandler is also bullish on Workday, the leading provider of enterprise cloud applications for finance, human resources and planning.
The firm said solid fourth quarter guidance and positive commentary about a robust pipeline ahead is being overshadowed by Workday's conservative guidance.
"We remain bullish on WDAY as a cloud software pure-play with laggard to leader potential in 2021 that could benefit from a broader economic reopening and secular back-office modernization tailwinds," senior research analyst Brent Bracelin told clients.
Workday has about 11% upside to its $285 per share 12-month price target from Piper Sandler. Shares were valued at $257.04 on Thursday when markets closed.
"Shares have bounced off the lower end of an emerging price channel and recaptured the 10-/30-week [moving averages]," the Jefferies report said about Workday's technicals. "Add to positions, a retest of the '21 highs near $282 appears likely."
— with reporting from CNBC's Michael Bloom.