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Jefferies Franchise Picks Still Crushing S&P 500: 5 to Buy Now
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All the firms that we follow here at 24/7 Wall St. keep a list for their institutional and retail clients of high-conviction stock picks. These are generally the stocks they not only like on a longer-term basis, but those that have big upside to the assigned target prices. These portfolios of top stock picks are often how brokerage firms and banks set themselves apart from each other.
We have covered the Jefferies Franchise list stocks since its inception back in December of 2013, and have watched as it brought home some huge winners for the firm’s clients. On a total return basis, the Franchise list has outperformed the S&P 500 by 17.7% since it was launched, and it beat the index in March by a full percentage point.
The current list has five sector-leading companies that look especially good now.
Alphabet
The search giant continues to expand and, while search is king, the cloud presence is growing fast. Alphabet Inc. (NASDAQ: GOOGL) is a global technology company focused on key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. It generates revenue primarily by delivering online advertising and by selling apps and contents on Google Play, as well as hardware products. The company provides its products and services in more than 100 languages and in 190 countries, regions and territories.
Alphabet offers performance and brand advertising services. It operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
Back in the fall, Google outlined expanding capabilities to facilitate commerce, capitalizing on the “treasure trove” of data provided by seven different properties, each with at least a billion active users (Android, Search, Chrome, Maps, Play, YouTube and Gmail). Smart shopping campaigns leverage machine learning to make sense of touch points along the consumer purchase path, including better offline attribution capabilities (locally oriented searches up 200% over past two years) and improved purchase conversion rates (20% on average).
Jefferies said this about the tech Goliath:
In our view, core search business is still attracting incremental ad dollars in the shift to digital and mobile. YouTube is the best positioned platform to take advantage of a huge online video opportunity. Google Cloud could represent the next break-out play for shares.
The Jefferies price target for the shares is $1,450, and the Wall Street consensus target is $1,343.80 The shares closed Thursday at $1,219.45.
Chevron
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. 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 and liquefied natural gas (LNG). Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
With Permian production and asset disposals targets reset, the company can raise its dividend 20% and buy back 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline, enabled by step change in capital efficiency and driven by doubling Permian production.
Jefferies remains bullish on this energy leader:
Most advantaged portfolio in the sector. Strong growth profile driven by high-margin projects tied to oil prices. Australian LNG and Tengiz are essentially no-decline assets and underpin financial performance. Industry-leading Permian Basin position provides short cycle investment opportunities to 2030+.
Chevron shareholders receive a 3.81% dividend. Jefferies has a $147 price target, and the consensus target is lower at $137.73. The shares closed at $124.80 on Thursday.
Hasbro
Toys and games rarely go out of favor, and this top company is among the best in the business. Hasbro Inc. (NASDAQ: HAS) engages in the provision of children and family leisure time products and services with a portfolio of brands and entertainment properties. The company’s brand names include Littlest Pet Shop, Monopoly, My Little Pony, Nerf, Play-Doh and Transformers.
The Entertainment and Licensing segment conducts movie, television and digital gaming entertainment operations, including the operations of Hasbro Studios and Backflip, as well as engages in the out-licensing of trademarks, characters and other brand and intellectual property rights to third parties for digital gaming and consumer products.
The analysts said this about Hasbro:
The company partners with major content owners to license brands for toy and collectible products. The company’s licensing of its own brands to other CP category specialists has directly benefited consumer engagement and profitability. Partnerships with key media brands on a global basis imply multi-level growth. We expect greater franchise economics from investments in films/TV.
Investors receive a 3.19% dividend. The $120 Jefferies price objective compares to the $98.64 consensus estimate. The stock closed most recently at $86.03.
KeyCorp
This midcap bank makes good sense for the second quarter and the rest of 2019. 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.
The top managers are attracted to the larger regional banks, as valuations look very reasonable and cost-saving plans are helping to make forward estimates look very achievable. With overall credit remaining solid, earnings and loan deposit and fee growth all are positive metrics for the bank.
Jefferies has stayed bullish on the shares:
We believe KEY has the potential to become a higher growth story, driven by synergies related to its acquisition of First Niagara in 2015, and recently elevated business investment. The bank has an attractive valuation, trading at a ~2x discount to its peer average on consensus price to earnings.
KeyCorp investors receive a 4.14% dividend. Jefferies has set an $18 target price. The consensus price target is $19.34, and shares closed Thursday at $16.48.
24/7 Wall St.Texas Instruments
This old-school chip tech play offers solid value at current levels is the lone semiconductor stock on the Jefferies Franchise Picks list. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components, to digital light-processing technology and calculators.
Some 65% of the company’s sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets. While the stock was hit hard recently as it is a big Apple supplier, the long-term outlook for this venerable leader makes it a safer bet for accounts with less risk tolerance.
Jefferies loves the potential for this long-time sector leader:
Texas Instruments is an Analog Renaissance and 4th Tectonic Shift in Computing beneficiary. The company benefits from secular and cyclical demand tailwinds over the next 5 years. A shift toward a Parallel Processing and IoT computing paradigm translates to secular demand growth for the company’s ICs sold into IoT devices, which will ship in the 10’s of billions of units. Continued consolidation of analog industry translates to better pricing and higher gross margins. The firm’s superior cost structure translates to higher gross margins and share gains.
The dividend yield is 2.72%. Jefferies has a $137 price target. The consensus target is $109.37, but shares were last seen trading at $113.24.
These five outstanding picks from the Jefferies analysts all have solid upside the firm’s price targets. While better suited for more aggressive growth accounts, they all look like good picks for the rest of 2019 and beyond.
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