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Jefferies Has 4 Very Bold Value Calls This Week

By Lee Jackson Updated Jan 13, 5:17PM EST · Published Nov 11, 10:55AM EST

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Jefferies Has 4 Very Bold Value Calls This Week — © Thinkstock

As we start to close in on the end of the year, with just seven trading weeks left in 2015, many investors are staring at portfolio statistics that are discouraging. With the Nasdaq the only index up solidly, and the Dow Jones Industrial Average actually down for the year, aggressive accounts are looking for ideas to help jump-start stagnant performance.

A new research report from Jefferies takes some bold shots this week with the firm’s top value calls. While all the companies have solid upside potential, they also have headlines swirling around them to some extent. We suggest that this week’s values calls are best suited for much more aggressive accounts.

AMAG Pharmaceuticals

The company posted weak sales of a top drug and got hit recently. AMAG Pharmaceuticals Inc. (NASDAQ: AMAG) has a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care. It continues to work to expand the impact of these and future products for patients by delivering on its aggressive growth strategy, which includes organic growth, as well as the pursuit of products and companies that align with its existing therapeutic areas or those that could benefit from its proven core competencies.

The stock has hit 52-week lows recently and is down huge since July. Jefferies notes that the company reported very slow Makena sales, and the current valuation implies no sales at all after the exclusivity expires in 2018. The firm attributed the weakness to sales force integration issues and a higher Medicaid mix. The stock also has been pressured by its pipeline acquisition model.

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The bottom line, at current levels, down a huge 58% in four months, not only is their upside, but it’s possible the company becomes a takeover target. It should be noted that purchase of these shares would only be suitable for very aggressive, risk-tolerant accounts.

The Jefferies target price is a gigantic $70, and the Thomson/First Call consensus target is $72.14. Shares closed on Tuesday at $29.34.

CBS

This large cap broadcaster has taken a beating this year but has bounced off the lows and could be an incredible value. CBS Corp. (NYSE: CBS) may be in the best position of all the broadcast networks. With an outstanding prime time lineup, solid sports franchises like the NFL, March Madness College Basketball, The Masters and other top programming, the venerable network could once again be an outstanding stock for shareholders. CBS is now in the midst of a significant stock repurchase process, and many on Wall Street expect it to shrink its share base by about 25% over the next two years.

Jefferies points out that network advertising and strong content licensing revenue drove the upside in the third-quarter earnings, which beat consensus estimates despite a slight revenue miss. Similar to the broadcasting giant’s rivals, many analysts expect CBS to look to book content licensing more evenly over the year and into 2016. Trading at just 12 times 2016 estimated earnings, the stock is cheap.

CBS shareholders receive a 1.25% dividend. While the Jefferies price target is $62, the consensus figure is a tick higher at $63. Shares closed Tuesday at $49.75.

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Valeant Pharmaceuticals

Valeant Pharmaceuticals International Inc. (NYSE: VRX) has taken a headline beating as one raising prices way too much, and multiple charges by a short-seller that many of the accounting practices at the firm are sketchy and the company has engaged in a series of sham transactions to inflate its drug sales. It is a gigantic holding in Bill Ackman’s Pershing Square hedge fund.

The company develops, manufactures and markets pharmaceuticals, over-the-counter products and medical devices worldwide. It has an extensive list of products that treat everything from severe acne to Wellbutrin XL for major depressive disorder in adults; Jublia for onychomycosis of the toenails; Xenazine for chorea; Targretin for cutaneous T-cell lymphoma; Arestin, a subgingival sustained-release antibiotic; and Provenge for the treatment of prostate cancer.

Jefferies notes that the company has cut ties with controversial specialty pharmacy company Philidor. While the analysts do reduce estimates as Philidor accounted for 7% of revenues, they are still looking for 2016 earnings to be a whopping $14.78. That is an incredible low six times earnings at the current price level.

The stock is off a gigantic 65% since August, and it’s very important to note that sentiment is still very negative and, if any of the charges against the company end up being proven, there could be substantial additional downside risk here.

The Jefferies price target is a massive $172, and the consensus is much lower at $52.38. Shares ended Tuesday at $83.68.

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Western Digital

This is a leader in the total addressable hard disk drive (HDD) market and a long-time innovator in the storage industry. Western Digital Corp.’s (NASDAQ: WDC) storage solutions help to create, manage, experience and preserve digital content. It is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

The most compelling news is that the company made a stunning $19 billion purchase of SanDisk. This could be a strong addition to Western Digital’s current offerings, and it could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market.

The drop off in the PC business helps to spur initiative in the company’s cloud business, and analysts estimate that the company’s gross profit contribution from business critical (cloud) drives will exceed that of PCs by the second half of next year. Of all the stocks beaten down due to the poor PC environment, the Western Digital may have the most upside potential — especially when Jefferies notes that in 2016 enterprise HDDs will have an average three-year cost of $100 per year, versus $500 for NAND.

Investors receive a 3.15% dividend. The $95 Jefferies price target is less than the consensus target of $97.59. Shares closed Tuesday at $63.58.

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All these top value picks at Jefferies have some degree of either headline risk or just headline overhang. That is why we strongly note that these are really only suitable for extremely aggressive accounts that can handle severe loss of capital. With that in mind, the upside potential if the analysts are correct, especially on Valeant, is huge.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.