With the market hitting a wall this week, many investors may be looking at their portfolios and wondering if it isn’t time to make some year-end moves. Dividend stocks have suffered this year, and most of the positive upside in the S&P 500 has come from three momentum stocks.
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 four of this week’s value stocks to buy from Jefferies. All are rated Buy.
AT&T
This company posted very solid third-quarter numbers, and many on Wall Street think the fourth quarter will be good as well. AT&T Inc. (NYSE: T), the world’s largest provider of pay-TV, has TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.
Trading at a very cheap 11.7 times estimated 2016 earnings, AT&T continues to expand its user base, and strong product introductions from smartphone vendors has not only driven traffic but increased device financing plans.
The outstanding third-quarter results were accompanied by reiterated 2015 guidance for double-digit revenue growth and continued consolidated margin expansion. Management expects capital spending to increase sequentially and they also estimate that free cash flow could be better than $4.5 billion. Third-quarter wireless subscriber additions came in higher than many Wall Street estimates, and DirecTV saw positive video additions where many expected losses.
AT&T investors receive an outstanding 5.55% dividend. The Jefferies price target for the stock is $40, and the Thomson/First Call consensus price target is $37.12. Shares closed Tuesday at $33.85.
Best Buy
This is the Jefferies team’s top pick for the holiday season. Best Buy Inc. (NYSE: BBY) has become the retail rags-to-riches story over the past three years as it not only have survived, but most of the big-box retail competition has gone to the graveyard as Best Buy has grown its brand smartly. The company continues to combat challenging conditions by reducing costs, pricing competitively, optimizing stores and enhancing distribution. The store-within-store partnerships it has with suppliers like Samsung, Apple and Google continue to drive more store traffic and product sales. Best Buy’s online channel growth also looks very promising, as it continues to battle Amazon.
The company is expected to grow overall 2015 earnings by a very solid 27%. One other huge tailwind for the electronics giant is lower gasoline prices that are continuing to put more money in consumers’ wallets. That could start to push discretionary buying even higher this year as wage growth also kicks in. New products from the top vendors are also luring customers in for holiday shopping.
Best Buy investors receive a solid 3% dividend. The $47 Jefferies price target is well above the consensus target of $38.94. Shares closed Tuesday at $30.86.
Gulfport Energy
This company also was added to the Franchise Picks list recently, and it is a favorite around Wall Street. Gulfport Energy Corp. (NASDAQ: GPOR) is an independent oil and natural gas exploration and production company with its principal producing properties located in the Utica Shale of Eastern Ohio and along the Louisiana Gulf Coast. In addition, Gulfport holds a sizable acreage position in the Alberta Oil Sands in Canada through its 24.9% interest in Grizzly Oil Sands.
Gulfport is a favorite of hedge fund managers. In fact, according to Insider Monkey, 36 hedge funds currently own positions in the stock. Jefferies notes that the shares have been weak on gas prices and a lower growth outlook, a move lower the firm believes is overdone. With a multiple in line with peers and an expected ramp up in production next year, the stock may be a great value at current levels.
The Jefferies price target is $36, but the consensus price objective is higher at $43.82. Shares closed Tuesday at $22.41.
Liberty Global
This media company has struggled this year and may be offering investors an outstanding entry point. Liberty Global PLC (NASDAQ: LBTYA) is the largest international cable company, with operations in 14 countries. Its self-described market-leading products are provided through next-generation networks and innovative technology platforms that connected 27 million customers subscribing to 57 million television, broadband Internet and telephony services, as of September 30, 2015. In addition, it serves 5 million mobile subscribers and offers Wi-Fi services across 6 million access points.
Liberty Global’s consumer brands include Virgin Media, Ziggo, Unitymedia, Telenet, UPC, VTR and Liberty. Operations also include Liberty Global Business Services and Liberty Global Ventures. Jefferies notes that the stock is down 11% this year, and really rolled over after reporting a bad third quarter. The firm thinks the results are actually better than they looked and sees solid upside potential.
Jefferies has a $54 price objective, and the consensus target is $57.15. The stock closed most recently at $41.98.
These four stocks offer investors outstanding entry points into companies with well-established franchises. In what may be a still pricey market, they make good sense for growth accounts looking to add value, and they are far safer than high-volatility momentum stocks.
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