Investing

Jefferies Has 3 Value Stocks to Buy Now for Strong 2016 Potential Gains

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One area of investing that suffered last year was value as momentum stocks, especially the FANG quartet that were responsible for most of the S&P 500 gains. Given that we have had two 10% corrections in the market in just over six months, the sheer selling alone has pushed some growth names into the value arena. While the recent positive action in the markets is encouraging, investors may do well to move some portfolio dollars to value.

In the weekly report from Jefferies that highlights top value picks, we found three companies that also should be somewhat resistant to spike in volatility and make good sense for investors to consider now. All are rated Buy at Jefferies.

Cisco

This is a top mega-cap technology stock pick on Wall Street, and the company recently posted outstanding earnings. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells Internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.

The company provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications. Cisco is also one of the 24/7 Wall St. top 10 stocks to own for the next decade.


Analysts across Wall Street point to an estimated double-digit bookings momentum for Cisco’s Meraki Cloud Services. Many think that Meraki likely will be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate. A jump from 40 GE to 100 GE data center switching and next generation security are also adding to the total sales profile and product mix.

Jefferies cites the very compelling valuations, trading at just 6.4 times the base business 2017 estimated earnings per share estimates. The stock has proven to be an outstanding value over the years when most of Wall Street is negative. Increasing the dividend is also a positive for shareholders.

Cisco shareholders receive a solid 3.93% dividend. The Jefferies price target for the stock is $27.50, and the Thomson/First Call consensus target is $29.10. The stock closed Thursday at $26.43.

CSC

while this company reported solid quarterly numbers, weak guidance took a toll. Computer Sciences Corp. (NYSE: CSC) provides innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. The company serves leading commercial and international public sector organizations throughout the world.

This is another top technology company that, despite the lower guidance, is now providing aggressive accounts a very compelling entry valuation. Trading at a very reasonable 12 times earnings per share at the midpoint of the company’s updated guidance, Jefferies sees the possibility for margin expansion over the balance of this year and beyond.

CSC investors receive a 2.05% dividend. The $37 Jefferies price objective is higher than the consensus target of $33.91. The stock closed Thursday at $27.53.

KeyCorp

This smaller large cap bank makes good sense now. KeyCorp. (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses. The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.

Jefferies feels that with the stock being sold off on the First Niagara Financial Group purchase, which was pegged at $4.1 billion, the valuation is incredibly cheap at eight times 2017 estimated earnings. They also note it lowers the exposure to investment banking fees. Investors should note that New York Governor Andrew Cuomo is urging regulators to block the deal.

Investors are paid a nice 2.82% dividend. Jefferies has a $15.50 price target. The consensus target is $14.19. The shares closed Thursday at $10.64.


All these top companies offer good value for investors still wary about the overall health of the market. While value stocks remain perhaps the best investment avenue now in stocks, the volatility we have experienced this year is probably here to stay.

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