The specialty pharmaceutical sector is exploding with news of takeovers, exchanges and possible mergers. The biggest is the possible deal between activist hedge fund manager Bill Ackman’s Pershing Square, Valeant Pharmaceuticals International and Botox maker Allergan. In an example of superb timing, the team at Jefferies initiates coverage on specialty pharmaceuticals with research on some of the top names in the industry. Some of them have already become players in the quickly growing mix of mergers and acquisitions.

Here are some of the top specialty pharmaceuticals stocks started with a rating of Buy at Jefferies.

Akorn Inc. (NASDAQ: AKRX) is a top name on the Jefferies list to buy. The company is a niche pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. It recently completed the purchase of Hi-Tech Pharmaceutical for $640 million in cash. The combination of Akorn and Hi-Tech will transform the company into a larger, more diversified generic player. This combination also brings critical mass and scale to Akorn’s business and strengthens its position with retail and institutional customers. Jefferies starts the company off with a $28 price target. The Thomson/First Call consensus target is $27.43. Akorn closed Monday at $23.65.

Nektar Therapeutics (NASDAQ: NKTR) is a top new name to buy at Jefferies. The company’s clinical pipeline and list of big pharma partners are impressive to say the least. Despite having a whopping eight late-stage candidates, Nektar’s market cap is a paltry $1.4 billion. Its top drug Naloxegol is being developed as a once-daily oral tablet for the treatment of opioid-induced constipation, and it is licensed out to AstraZeneca. The FDA panel reviewing the drug is scheduled to meet in mid-June. Approval could generate a giant payment to the company. Jefferies starts the stock with a $15 price target. The consensus target is $15.57, and Nektar closed Monday at $11.05.

Shire PLC (NASDAQ: SHPG) is a top large cap name to make the list at Jefferies. The company repositioned its business in 2013, undertaking a realignment program with strategic focus on rare diseases and greater operational discipline. Shire has drugs for ulcerative colitis and hereditary angioedema in its portfolio. It also has the top selling Adderall XR for the treatment of ADHD. The company recently suffered a setback when it announced the initiation of a voluntary recall in one batch of Gaucher disease drug Vpriv in the United States. The Jefferies price target is $180. The consensus target is at $181.87. Shire closed Monday at $151.27.

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Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA), one of the world’s largest generic drug manufacturers, is well positioned to take advantage of the high number and dollar amount of branded drugs going off-patent over the next few years. An increased commitment to capital redeployment combined with its low valuation should reward shareholders. The company could target smaller generic or orphan drug companies, or itself be a target. Stockholders are paid a 2.30% dividend. The Jefferies price target for this market leader is $61. The consensus price objective is $55.36. Teva closed Monday at $50.67.

Valeant Pharmaceuticals International Inc. (NYSE: VRX) makes the Jefferies list and is involved with the huge possible deal to acquire Allergan. Bill Ackman’s Pershing Square currently holds 9.7% of the outstanding Allergan stock. Valeant, according to reports, has proposed a merger with a cash component of around $15 billion, valuing the entire deal near $46 billion. Under the proposal, Valeant offers to pay $48.30 in cash and 0.83 shares of its stock for every Allergan share. With about 299 million Allergan shares outstanding, that works out to $14.4 billion in cash and Valeant stock that was worth about $32 billion as of Monday’s close. Each Allergan share is valued at $152.89 in the deal, a tidy premium over the closing price of $133.92. The Jefferies price target for Valeant is $153, and the consensus figure is posted at $52.38, but seems incorrect.

While the timing of the Jefferies initiation is superb, their selection of the top names already becoming involved is even better. Their in-depth report hints at the possible continuation of mergers in the sector, as money remains cheap for deal financing and stock prices are elevated, which helps to supply increased buying power for acquiring companies. Investors looking to add solid stocks to their portfolios that could be involved in the merger mix should consider these top stocks to buy at Jefferies.

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