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Jefferies Has 4 Top 2020 Value Picks to Buy That All Pay Big Dividends
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During the almost 11-year run of this bull market, one thing has been painfully obvious to long-time investors: value stocks, and indeed the entire value arena, have woefully underperformed growth. Value stocks are those that tend to trade at a lower price relative to their fundamentals (including dividends, earnings and sales). Given the market uncertainty, most of which is tied directly to the current trade and domestic political issues, it makes sense to look at value and perhaps shift some capital there.
Each week, Jefferies presents some of its top value ideas, and this week’s group is chock full of well-known companies that, for a variety of reasons, have landed in value territory. All make sense for accounts looking to stay in equities but that are nervous about the potential for market turmoil. In addition, all pay healthy and dependable dividends.
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Digital Realty Trust
This top data center company is a solid play on the huge cloud and streaming content revolution, and Jefferies recently upgraded it to Buy. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.
Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, as close to 9% of the market cap of the company is in institutional hands.
The analysts cite the company’s solid dividend and the potential for dividend growth. They also feel that data center pricing is still favorable, and the growth in adoption of the cloud is a positive going forward.
Digital Realty investors receive a very solid 3.44% distribution. The Jefferies price target for the shares is $141. The Wall Street consensus price target is $126.19. Shares were last seen trading at $125.73 apiece.
Equitrans Midstream
Jefferies recently added this high distribution paying C corporation structured energy play to its Franchise Picks list. Equitrans Midstream Corp. (NYSE: ETRN) primarily engages in natural gas transmission, storage and gathering in the Appalachian Basin. The company’s only asset is its controlling 60% interest in EQM Midstream Partners.
The analysts are positive on the large payout to shareholders and noted this in a report earlier this month:
The company was added to the Franchise Pick list in December 2019. Shares offer a yield, and the analyst forecasts modest dividend growth ahead and sees a catalyst-rich 2020 as the company works to bring the ~$5.5 billion Mountain Valley Pipeline into service (90% complete today), renegotiates gathering contracts with its largest counterparty (EQT), and adapts to a significantly moderated Northeast production profile.
The analysts also said this in a new research piece:
We were out with our fourth quarter preview for the midstream and refining names. The topical fourth quarter items include: concern over E&P counterparty health amid weak commodity prices and declining rig activity, narrowing basis differentials, low interest rates and IMO 2020 effects along with weak cracks. Broadly, we expect 2020 guidance will focus on capital expenditure discipline, project execution and deleveraging.
The current distribution is a massive 14.55%. Jefferies has a $20 price target, while the consensus target was last seen at $16. The stock closed at $12.37 a share on Tuesday.
24/7 Wall St.Huntsman
This top stock to buy offers intriguing potential for value expansion. Huntsman Corp.’s (NYSE: HUN) portfolio of businesses represents a diversified set of chemical products touching an even broader set of end markets.
The company reports across four business segments (Polyurethanes, Advanced Materials, Performance Products and Textile Effects) representing the revenues and profits from the company’s exposure to five primary chemical chains. Across many of these platforms, Huntsman operates a vertically integrated footprint from upstream commodities to downstream derivatives.
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Jefferies is very positive on the company and noted this:
The company now has one of the strongest balance sheets in the chemical sector. Combined with progress reducing cyclical risk, ample opportunity to grow faster than GDP due to innovation, we expect this to drive a re-rating in shares. On our sum-of-the-parts, using 6x forward EBITDA for Huntsman’s lower-quality businesses and 9x for the downstream businesses would support $32 a share in late 2020/first half of 2021 The lingering risk of a large M&A transaction remains, though our analysis suggests that even a large transaction could prove to be a net positive over the long-term.
Huntsman pays shareholders a respectable 2.85% dividend. The $32 Jefferies price target compares with the $26.88 consensus target and the most recent close at $22.77.
24/7 Wall St.Ventas
This is one of the top health care real estate investment trusts, and it may be one of the safest plays for more conservative accounts. Ventas Inc. (NYSE: VTR) is a fully integrated and self-administered equity REIT that acquires, invests and manages a portfolio of health care real estate across the United States, Canada and the United Kingdom.
The company’s diverse portfolio of approximately 1,200 assets consists of senior housing communities, medical office buildings, university-based research and innovation centers, inpatient rehabilitation and long-term acute care facilities, and health systems. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.
The analysts recently upgraded the shares to Buy and noted this:
Ventas has been dealing with a supply glut in its markets but the data shows a pronounced decline in construction in the company’s markets since first quarter 2019 suggesting a turnaround in results ahead. We conducted various demographic analyses on the portfolios of the Healthcare REITs (population, income, etc.) and the results suggest only modest differences in the portfolio quality among the “Big Three” and implies the 4x valuation discount that Ventas trades to competitors is unwarranted.
Ventas shareholders receive a very strong 5.33% distribution. Jefferies has set a price target of $68. The posted consensus target is $71.69, and the stock closed most recently at $59.47.
These are four strong value plays that all pay significant dividends. One thing is for sure: the market is very rich and decidedly overbought, and it won’t take much to shake out a significant sell-off. Note how the coronavirus threat shook things up on Tuesday. Taking profits on momentum growth and moving some capital to these safer value plays may be a very timely move.
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