During the long bull market that began in 2009 and restarted off this year’s run off the March lows, one thing has been painfully obvious to long-time investors. Value stocks 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, much of which is tied directly to the current trade 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 very well-known stocks that for a variety of reasons have landed in value territory. All make sense for investors looking to stay in equities but who are nervous about the potential for market turmoil. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Activision Blizzard

This remains a top gaming pick on Wall Street, and Jefferies remains very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.

The company develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers. Its legacy franchise Call of Duty continues to be hugely popular.

The analysts said this about the stellar second-quarter earnings:

Company reported better than expected results and guided 2020 EPS ahead of consensus. The second quarter growth rate of 72% was the highest we’ve ever seen, and we believe COVID-19 may have accelerated the company’s current momentum. We continue to see a path to three straight years of EPS growth, with the potential for 2022 to accelerate from 2021 depending on the success of Diablo 4. While we expect bears to focus on flat Blizzard monthly active users  and soft fourth quarter guidance, we noted that additional content is coming, Blizzard was still able to grow revenue 20% in the quarter and conservative guidance is likely due to macro uncertainty.

Investors receive just a 0.51% dividend. The Jefferies analysts have a $105 price objective, well above the $92.53 Wall Street consensus figure. Activision Blizzard stock traded at $81.00 early Friday.

Citigroup

This leading money center giant has been trading at some of the lowest levels since 2016. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 7.7 times estimated 2021 earnings, Citigroup stock looks very reasonable in what remains a volatile market and in a sector that has lagged dramatically.  The company reported solid third-quarter results and Jefferies feels a lot of bad news is currently priced into shares, which are trading at 61% of current total book value. While the firm lowered the 2021 and 2022 earnings estimates, this was largely due to higher costs as investments for remediation are accelerated.

Another reason for the lower numbers is that the Federal Reserve Board recently announced an enforcement action against Citigroup that requires it to correct several longstanding deficiencies. The bank has been slapped with a $400 million penalty by the Office of the Comptroller of the Currency for longstanding deficiencies in its risk management and internal controls processes. Both the OCC and the Federal Reserve have accused the bank of failing to implement effective risk and internal controls measures that complement its size, complexity and risk profile.

While this action may seem harsh, for interested investors who have been waiting for the judgment, it should take some weight off the stock as it does not seem overly punitive to the bank.

Investors receive a 4.74% dividend. Jefferies raised its price target to $56 from $52. The consensus target is $52, and Citigroup stock was trading at $44.35.

Costco

This has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses and it buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend as gasoline prices have dropped, this major retailer may continue to see large revenue gains.
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Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model could bode well for international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations. It is among America’s most popular stores for grocery shopping.

Wall Street loves the company’s pricing authority on key items and the leading merchandising offerings, and the relatively new Costco co-branded card with Visa is a real positive. Add in the company’s growing online presence and the future looks bright.

Jefferies upgraded the stock to Buy and noted this:

We assumed coverage of the club channel names, and pointed out that Costco, BJ and WalMart’s/Sam’s Club account for 95%+ of US Club Channel share. As a result, we recommend relatively balanced exposure to all three. With few options in growth retail and strong undercurrents, we expect Club Channel retailers to outperform and to command higher multiples. We see Costco as the undisputed leader within the space.

Shareholders receive a 0.74% dividend. The $430 Jefferies price target is well above the $363.37 consensus target. Costco Wholesale stock traded at $376.10 on Friday.

Procter & Gamble

The company offers a very dependable dividend, which was raised to $0.79 back in the spring. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.

The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.

Jefferies noted this about the company’s prospects:

We see a strong setup into fiscal first quarter results driven by continued strength in the US market and sustained momentum in China, the company’s second largest market. For the US, we forecast +8% sales growth in the quarter. As for China, we see a +7% revenue growth rate versus. a tough +13% comp. Importantly, we also expect P&G’s portfolio should see structurally higher long-term demand from COVID-19 “mega-trends”, including: At home, on-line shift, focus on health/hygiene and big brand focus.

Shareholders receive a 2.21% dividend. Jefferies has a price target of $166. The consensus target is $139.01, and Procter & Gamble stock traded at $141.80.

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Shares of these four top large-cap companies offer investors with a longer time horizon solid value and outstanding entry points. All make good sense for those looking to leave pricier growth companies, and all four are leaders in their specific market sectors.

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