Investing

Jefferies Value Stocks to Buy This Week Have Large-Cap Stability

Lee Jackson

Published: November 17, 2015 9:10 am

Last Updated: January 13, 2020 5:07 pm

With the market experiencing a huge jump in volatility, one of the best things for investors to consider is a rotation in their portfolios to stocks that have value stock characteristics. Even though the Federal Reserve probably raises rates in December, stocks will remain a far better investment in 2016 than bonds. Value stocks may have the potential to outperform traditional growth, especially if the current volatility remains elevated.

Each week we cover the new value calls from the analysts at Jefferies and, increasingly, some of the calls may look surprising, as some solid blue chip companies are becoming so cheap on a multiple basis they are ending up in the value arena. This is the best of both worlds for investors, when large-cap growth companies become inexpensive enough to have a value call.

Here are three of this week’s value stocks to buy from Jefferies. All are rated Buy.

Bank of America

This true big money center bank has continued a methodical march back to financial health. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally.

Operating 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms, Bank of America continues to open new markets and expand share, which Jefferies feels it excels in. The Merrill Lynch brokerage arm has continued to supply the bank with outstanding revenues and growth.

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The Jefferies team met with CEO Brian Moynihan earlier this fall and came away feeling good about the overall outlook for the bank. With the potential for strong commercial lending and credit card originations, and trading at just under 11 times 2016 estimated earnings, the stock makes good sense now.

Bank of America investors are paid a 1.16% dividend. The Jefferies price target for the stock is $18, and the Thomson/First Call consensus target is $18.38. The stock closed on Monday at $17.43.
Mallinckrodt

This company has been on a mergers and acquisitions binge over the Past two years, but it got rocked last week over concerns about the company’s business model. Mallinckrodt PLC (NYSE: MNK) is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology; neonatal critical care respiratory therapies; and analgesics and central nervous system drugs.

Jefferies thinks that the sell-off last week offers an excellent opportunity to grab shares, and while the firm lowered estimates earlier this year, the stock still trades at an incredibly cheap 7.2 times 2016 numbers. The analysts also believe that Mallinckrodt has no ownership in any specialty distributors.

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The $130 Jefferies price target is higher than the consensus target of $101.40. The shares closed Monday at $57.22.

Synchrony Financial

Hit hard since late July, this company may be the perfect value financial for a value portfolio. Synchrony Financial (NYSE: SYF) is one of the nation’s premier consumer financial services companies. It is the self-described largest provider of private label credit cards in the United States, based on purchase volume and receivables. It provides a range of credit products through programs established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and health care service providers to help generate growth for the company’s partners and offer financial flexibility.

Jefferies notes that private label cards are gaining share, and their research suggests a continuation of that trend. The analyst also notes that retailers continue to push back on rates, and private label cards offer more of a symbiotic relationship for retailers. Jefferies also believes that Synchrony offers the potential for capital returns after the spin-out from General Electric, and with the GE exchange offer now underway, the firm believes the resulting volatility could present an outstanding buying opportunity.

The Jefferies price target is $42, and the consensus estimate is $38.50. Shares closed Monday at $30.29.

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While by many traditional metrics these may not look like true values stocks to some investors, Jefferies has indeed found stocks that at current trading levels offer investors great value and upside potential.