Investing

With Volatility Set to Explode, 4 Jefferies Value Stocks to Buy Now

Lee Jackson

Published: August 12, 2019 6:30 am

Last Updated: January 30, 2020 5:33 pm

With the CBOE volatility index, or VIX, spiking as high as 25 last week, there is a true sense of nervousness among investors, and with good reason. In addition to the VIX jumping, the AAII net investors sentiment dropped a stunning 41 points, something that has happened only 10 times prior. Toss in the fact that last week also saw the biggest outflow from U.S. stocks into money markets since December, and it’s clear that concern now is very warranted.

With yields charging back toward historical lows, bonds are clearly not the route to go, but value stocks that pay a dividend may be a solid idea. The team at Jefferies posts the firm’s top value calls each week, and we found four that look like great ideas now. Jefferies rates them all at Buy.

Blackstone

Shares of this top money management company make sense for more aggressive growth and income investors. Blackstone Group L.P. (NYSE: BX) is one of the largest global alternative asset managers. Blackstone manages investments and provides services across four operating segments: Private Equity, Real Estate, Credit and Hedge Fund Solutions.

Blackstone also launches and manages private equity funds, real estate funds, funds of hedge funds and credit-focused funds for its clients. It invests in private equity, public equity, fixed income, and alternative investment markets.

Blackstone investors receive an outstanding 4.35% distribution. Jefferies has a $55 price target on the shares. The Wall Street consensus target is $52.17, and shares closed on Friday at $47.56.

Kar Auction Services

This off-the-radar stock makes good sense now for value players. Kar Auction Services Inc. (NYSE: KAR) is a leader in the whole car auction and financing industry, with two key operating segments: ADESA, the second-largest whole car auction operation in North America (roughly 30% market share), and Automotive Finance Corporation (AFC), a leading provider of used car financing to both franchised and independent dealers, as well as vehicle service contracts through Preferred Warranties.

The company reported mixed results last week, and the adjusted EBITDA of $136 million was below the Jefferies estimates and the Bloomberg consensus of $148 million. The miss seems to have been driven by inflated growth costs as core operating metrics at ADESA were OK, but AFC was a bit soft. The company reaffirmed its 2019 outlook, which implies somewhat of an acceleration in the back half of the year.

Investors receive a 3.09% dividend. The Jefferies price target is $31, and the consensus target is $33.60. The stock last traded at $24.63 a share.

Kennametal

This company is actually a Jefferies margin-expansion call, but it also looks like s solid value play. Kennametal Inc. (NYSE: KMT) develops and applies tungsten carbides, ceramics, super-hard materials and solutions for use in metal-cutting and mission-critical wear applications to combat extreme conditions related with wear fatigue, corrosion and high temperatures worldwide. It operates through three segments: Industrial, Widia and Infrastructure.

The company’s product offering includes a selection of standard and customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services for manufacturers of transportation vehicles and components, machine tools and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation.

Investors receive a 2.67% dividend. The stunning $50 Jefferies price target compares to the $37.73 consensus target and the most recent close at $30.01.

United Technologies

This is a very diversified company with large government contract exposure. United Technologies Corp. (NYSE: UTX) is an industrial conglomerate with four operating units:

1. Otis: the world’s largest elevator company
2. Climate, Controls & Security: includes Carrier, which has commercial and residential HVAC and commercial transport refrigeration equipment and fire and security
3. Pratt & Whitney: military and civil aircraft engines and service operations
4. Aerospace Systems: aviation controls and systems

On June 9, United Technologies and Raytheon agreed to merge their businesses to create a new aerospace and defense powerhouse. The two companies have received unanimous approval from their respective boards. The new company will be called Raytheon Technologies.

Jefferies looked at the merger in-depth and noted this:

We take a deeper dive look at the technology opportunities from the merger. We see four meaningful technology opportunities including: 1) Hypersonics, 2) Directed Energy weapons, 3) the broadening of GaN technology and 4) COL GPS navigation capabilities. In addition, we estimate United Technologies Defense portfolio (25% of Aerospace sales) provides oppty for 13% growth driven by F-35, communications equipment and ISR capability.

The dividend yield is 2.25%. Jefferies has set its price objective at $185. The consensus target is $152.44, and the stock ended Friday trading at $131.24.

These four top companies for investors to consider pay dividends and offer a value posture. The coming months could continue to be volatile, so it makes sense to review portfolios and look for ideas that can weather the potential coming storm.