While the run since the Trump election and now the inauguration has been solid, there are some storm clouds on the horizon. Volatility has drifted to historic lows, while price-to-earnings on a current and forward basis are at highs not seen in years. With yields still low, bonds are really not a place to put money, so what do equity investors do now? One Wall Street firm we cover thinks that cheap stocks may be a smart move now.

A new Jefferies research report makes the case that while market parameters are indeed expensive, there still are cheap stocks to buy that have a large enough market cap to provide some safety. They analysts noted in their report:

Though cheap stocks outperformed in the second half of 2016 and have outperformed thus far in 2017, valuation spreads between cheap and expensive stocks are still wide, meaning that cheap stocks remain relatively cheap. That’s particularly interesting given that value stocks tend to outperform in periods of rising Fed Funds rates and rising inflation.

Jefferies has spotted 40 stocks that offer a compelling investment thesis and inexpensive valuations. The following three in pharmaceuticals and biotech look particularly attractive. All are rated Buy and all pay dividends. Plus, we have added a fourth, bonus stock that the Jefferies analysts are bullish on as well.

AbbVie

This is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

Last May, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected next year. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock, which does give investors chances to pick up shares lower.

AbbVie investors receive a 4.2% dividend. The Jefferies price target for the stock is $90, and the Wall Street consensus target is $69.75. Shares closed Friday at $61.15.

Amgen

This biotech giant posted outstanding third-quarter earnings, and it remains a top stock for investors to buy. Amgen Inc. (NASDAQ: AMGN) focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, reaching millions of patients around the world and developing a pipeline of medicines with breakaway potential.

The company posted revenues above expectations and showed strong expense management. It also raised guidance for revenues and earnings, and many on Wall Street think the numbers could be conservative. Amgen also reaffirmed interest in mergers and acquisitions activity as a way to sustain long-term growth. Jefferies cites the cheap 13.4 times estimated earnings-per-share multiple for 2017 as a key reason to own the shares.

Amgen’s double-digit earnings and revenue growth rate is expected to continue for the foreseeable future because of the company’s very deep clinical pipeline, which includes potential blockbusters Repatha for high cholesterol and Kyprolis for relapsed multiple myeloma. Amgen also has one of the industry’s deepest biosimilar pipelines, which is expected to generate upward of $3 billion in annual sales in the years ahead.

Amgen shareholders receive a 2.73% dividend. Jefferies has a $198 price target. The consensus target is $181.73. Shares closed Friday at $154.67.

Gilead Sciences

This stock is trading at an astounding multiple of less than seven times estimated 2016 estimated profits. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific. Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

Gilead reported third-quarter total revenues were $7.5 billion in 2016, compared to $8.3 billion in 2015. Net income was $3.3 billion, or $2.49 per diluted share, compared to $4.6 billion, or $3.06 per diluted share, in 2015. Non-GAAP net income, which excludes amounts related to acquisition-related, up-front collaboration, stock-based compensation and other expenses, was $3.7 billion, or $2.75 per diluted share, in 2016 compared to $4.8 billion or $3.22 per diluted share in 2015.

The analyst’s thoughts on 2017 were positive:

Positive bictegravir data in 2017 could also help reaffirm out-year HIV revenue sustainability prospects. It may take a combination of these elements, along with M&A or a more meaningful strategic initiative, for the stock to reach its full potential, but at these levels the analyst believes the downside is limited and the reward/risk is attractive.

Shareholders receive a 2.65% dividend. The Jefferies price target is set at $93. The consensus price objective is $95.01. The stock closed Friday at $71.01.

Celgene

While this company was not in the list of the 40 cheap stocks, it is another top large cap biotech pick with big upside potential. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.

Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. Wall Street analysts have noted that the company has discussed at its recent conference the benefits of longer duration Revlimid.

Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.

Top Wall Street analysts feel that Celgene is best large cap, derisked growth story, with a possible 15% to 20% earnings growth over the next five years, two new growth drivers (two new oral pills for UC and Crohn’s) and a large pipeline of 25 or so partnerships of early-stage next-generation cancer drugs. So they feel it would not be surprising if the company were to remain a potential M&A target by big pharma, given it is the only large-cap growth story with visible growth over the next five years. Besides the significant pipeline, Celgene has high margins, and synergy with other major pharma players in cancer and immunology.

The $142 Jefferies price target compares with the consensus target of $138.29. The shares closed Friday at $119.52.

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Three ultra-cheap plays and another stock that make sense for more aggressive accounts. Investors need to be careful as the market is long overdue for a correction, so taking smaller positions now and waiting would be wise.

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