Baron Rothschild said it, or so the legend goes, “The time to Buy is when there is blood in the streets.” We all have seen plenty of blood in the streets since the beginning of 2016 and are probably tired of it. The bottom line is that lower stock prices puts multiples back in line with fair value, and when they are, portfolio managers look to add top stocks at reduced prices. Now many large cap growth companies are showing up as value picks, and that should spark some interest.
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 big blue chips 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.
CBS
This large cap broadcaster is off 20% since November 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 and the Masters; and other top programming, the venerable network could once again be an outstanding stock for shareholders.
CBS is leading in the winter ratings and is poised to continue the network’s programming dominance in 2015. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect the company to shrink its share base by around 25% over the next two years.
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 this year and into 2017. Trading at just 11 times 2016 estimated earnings, the stock is cheap and the analysts think estimates are low.
With Super Bowl 50 set to be shown on CBS, and strong ratings recently from both the NFL and prime time programming, CBS offers investors solid upside potential with minimum downside risk at the current time.
CBS shareholders receive a 1.36% dividend. The Jefferies price target for the stock is $62, and the Thomson/First Call consensus price target is $63. Shares closed most recently at $44.02.
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Chevron
This is very solid story for investors looking to stay long the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend, and has a solid place in the sector when it comes to natural gas.
Chevron management is aggressively pursuing cost saving initiatives and already has completed over 2,200 supplier engagements with more in progress. Cost savings and improving investor sentiment may be a key for the mega-cap integrated as it has struggled mightily over the past year.
While many on Wall Street concede that the oil market could be oversupplied for longer than most thought, massive overseas demand, and production slowdown should help pricing the rest of the year and into 2016. Some Wall Street analysts estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.
The company’s Permian Basin assets are a goldmine and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position.
Chevron investors receive a massive 5.42% dividend. Jefferies has a $115 price target, while the consensus target is $97.64. Shares closed on Wednesday at $78.98.
Newmont Mining
This gold mining leader has been crushed since the gold bear market took hold. Newmont Mining Corp. (NYSE: NEM) is the world’s second-largest gold miner and produces copper as a by-product. Newmont has mining operations in the United States, Canada, Australia and elsewhere. It is the only gold producer listed in the S&P 500 index.
Last summer the company completed the acquisition of the Cripple Creek & Victor gold mine in Colorado from AngloGold Ashanti for $820 million, plus a 2.5% net smelter return royalty on potential future gold production from underground ore.
The company is expected to generate a large amount of 2016 revenue from gold sales, but it has cut the dividend drastically over the past year and made huge capital expenditure adjustments to help mitigate costs and free cash flow. Jefferies notes that the stock trades at a cheap eight times 2016 EBITDA and also thinks its $1,100 price target for gold could be low.
Newmont investors receive a tiny 0.6% dividend. The $24 Jefferies price target is just above the consensus price objective of $23.15. The shares closed at $16.56.
Oracle
Oracle Corp. (NYSE: ORCL) stock trades at 14.2 times estimated 2016 earnings and sports a solid free cash flow yield. Combined sales in Oracle’s cloud software, infrastructure and platform-as-a-service businesses were solid, and the Jefferies team feels that this business has room to grow.
Co-Chief Executive Officer Mark Hurd has made almost all of Oracle’s services available via the Internet, as the database-software company changes its business model to fit a new competitive landscape. Revenue generated from software license updates and support constituted 52% of Oracle’s total revenue of $9.0 billion in fiscal second quarter of 2016, which Jefferies sees as in line with expectations.
The analysts also feel that as the company’s 12C database cycle starts to contribute during calendar 2016, the stock could very well be poised for what they term a breakout year. They also see the 2016 fiscal year that ends in May as the trough for the company, and after two years of poor price performance the focus on the cloud business should play out well later this calendar year.
Oracle investors receive a 1.77% dividend. The Jefferies price objective is $50. The consensus target is $44. Shares closed Wednesday at $33.94.
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If there was ever a time to look for value in the markets it is now. With multiples stretched and volatility spiking, we have been in a very tough market, and at current valuations these stocks may have a far better chance of riding out the storm.
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