Jefferies Has 4 Top Value Stocks to Buy With Solid Upside Potential

More and more you can see that the rest of 2016 could be absolutely crazy from a volatility aspect. With the match-up for the president looking to be Hillary Clinton versus Donald Trump, you can count on some big swings in the market as opinion shifts back and forth and the rhetoric gets ratcheted up. One thing that makes sense is to shift portfolios toward more conservative stocks that have value characteristics.

A recent research report from Jefferies focuses on stocks that not only have very solid franchises but remain priced at a level that puts them into a value category. Again, with the potential for volatility to spike over the remainder of this year, shifting to stocks that are a touch more stable makes good sense. All four of the Jefferies value stocks are rated Buy.

AT&T

This company had an outstanding first quarter from a stock price standpoint and could be poised to go higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with 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.

With its shares trading at a very cheap 12.5 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

AT&T has been focusing on the IP VPN and Ethernet services. This outstanding business model, along with the decline of Verizon’s market share in the arena, has helped the company meaningfully grow its revenues from strategic business services. Apart from taking appropriate technical measures, the company has collaborated with big cloud service providers like Amazon Web Service and data center operators to provide Ethernet connections.

The company reported adjusted first-quarter earnings of $0.72 per share on revenue of $40.5 billion back in April. Its revenue rose 24% from the year-earlier period primarily due to the July 2015 acquisition of DirecTV for $49 billion in equity value. The company added 2.3 million wireless subscribers during the first quarter. About 328,000 of the additions were DirecTV net adds. The company’s Entertainment Group broadband grew with 186,000 IP broadband net adds.

AT&T investors receive a huge 4.96% dividend. The Jefferies price target for the stock is $44, and the Thomson/First Call consensus estimate is $39.55. Shares closed Thursday at $38.74.
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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 likes the larger regional banks, noting that valuations look very reasonable and cost saving plans are helping to make forward estimates look very achievable. While overall credit remains solid, they do note that some banks have more issues with energy than others.

Investors receive a 2.53% dividend. The Jefferies price target is $15.50, and the consensus target is $14.16. The shares closed Thursday at $11.87.

NXP Semiconductors

This company is considered a top play for investors looking for a chip stock with Internet of things exposure and is also added to the Franchise Picks list. The NXP Semiconductors N.V. (NASDAQ: NXPI) merger with Freescale Semiconductor was widely applauded on Wall Street, and many analysts believe the merger is transforming the company into a powerhouse. It made NXP the fourth largest semiconductor company in the industry. It is also important to note that the combined company would be the number one supplier in auto semiconductors, number one supplier in global microcontrollers and a dominant supplier in mobile payments.

NXP is getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile-phone charging, increased cellular data consumption and LED lighting. Trading at solid discount to some of its peers, many analysts are very positive on the faster earnings growth potential relative to their competition. The company reports earnings after the close Monday.

The Jefferies team added NXP to the Franchise Picks list as they see the company as having among the highest free cash flow per share in the sector for this year and 2017, a metric they feel is extremely critical in charting performance. They also see the potential for multiple expansion as capital reruns lift. Lastly, the analysts feel that we are heading into a supply chain restock this year, an obvious positive for sales.

Jefferies has a whopping $130 price target, and the consensus target is $107.88. The stock closed Thursday at $85.24.

T-Mobile US

This is a carrier that many Wall Street analysts believe should be bought on an increasing cash flow and valuation thesis. T-Mobile US Inc. (NYSE: TMUS) provides mobile communications services in the United States, Puerto Rico and the U.S. Virgin Islands. It offers voice, messaging and data services in the postpaid, prepaid and wholesale markets. It also provides wireless devices, including smartphones, tablets and other mobile communication devices, as well as accessories that are manufactured by various suppliers.

The company offers services, devices and accessories under the T-Mobile and MetroPCS brands through its owned and operated retail stores, as well as through its websites. T-Mobile also sells its devices and accessories to dealers and other third-party distributors for resale through independent third-party retail outlets and websites. It serves approximately 63 million customers.

Jefferies notes that the stock faded after earnings were posted, despite the quality of the print, and that the selling makes for a good entry point. Meetings recently with top management were positive, and the analysts think the network appears well positioned. The executives at the company stressed that they are not concerned by bad debt expense, and promotional activity makes the difference with consumers, not price discounting. They also see further organic and inorganic growth, the latter potentially through spectrum opportunity with Dish Network.

The $45 Jefferies price objective for the company is less than the consensus price target of $46.93. The stock closed Thursday at $39.25.
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These four solid value stocks should do well even in a higher volatility environment. As we have noted before, uncertainty is what drives volatility on Wall Street. Regardless of who wins the presidency, at least the issue will be settled in November.