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Analysts Top Value Stocks to Buy Include Biotech and Technology Blue Chip Giants
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During the almost 11-year run of the bull market, and since the market lows that were posted in March, one thing has remained painfully obvious to long-time investors: value stocks, and indeed the entire group, 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). While the market has performed surprisingly well lately, with potential lockdowns due to the COVID-19 increase and to election uncertainty, it makes sense to look at portfolios and possibly make some adjustments for 2021.
Each week, Jefferies presents some of the top value ideas that the firm has. This week’s group is chock full of very well-known companies that, for a variety of reasons, have landed in value territory. All make sense for investors looking to stay in equities but nervous about the potential for market turmoil.
While they are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Biogen
This mega-cap biotechnology leader is giving investors an outstanding entry point. Biogen Inc. (NASDAQ: BIIB) develops, manufactures and markets therapies for multiple sclerosis (MS), oncology and inflammatory diseases. The company markets three products, Avonex, Tysabri and Tecfidera, that combined have a considerable share of the worldwide over $20 billion MS market.
In addition, the company offers Rituxan for treating non-Hodgkin’s lymphoma, chronic lymphocytic leukemia (CLL), rheumatoid arthritis, two forms of ANCA-associated vasculitis and pemphigus vulgaris. Its Rituxan Hycela is for non-Hodgkin’s lymphoma and CLL, its Gazyva treats CLL and follicular lymphoma, and its Ocrevus is for the treatment of relapsing MS and primary progressive MS. It also has other anti-CD20 therapies.
Jefferies is very bullish and noted this in a recent research report:
The FDA Adcom voted against aducanumab for Alzheimer’s disease last week. We think the stock will get hit towards $220-250 leaving some aducanumab priced in. We remain bullish on shares and highlighted several key factors that might lead to aducanumab’s approval:
1) positive briefing documents show the FDA’s hand and their understanding of the limitations of the data.
2) The complaints seemed focused on the questions and not the answers.
3) The FDA worked closely and frequently with BIIB through this whole process.
4) The committee was basing arguments over statistics but didn’t care about the big picture.
5) The FDA could approve it and use a vague label and have lots of REMS. We would use a major share price dislocation to Buy shares in anticipation of an early approval by 12/31.
Jefferies has a huge $450 price target, well above the Wall Street consensus target of $290.20. Biogen stock ended Tuesday at $248.81 a share.
Brinker International
Almost every investor has likely dined at one of the company restaurants over the years. Brinker International Inc. (NYSE: EAT) owns, develops, operates and franchises casual dining restaurants in the United States and internationally. As of June 24, 2020, it owned, operated, or franchised 1,663 restaurants, including 1,610 restaurants under the Chili’s Grill & Bar name and 53 restaurants under the Maggiano’s Little Italy banner.
Like most companies in the restaurant arena, 2020 has been rough for Brinker, but the Jefferies analysts are very positive on the prospects for 2021:
We were out with our takeaways from meeting with management. We pointed out that the tone was upbeat and the company is very focused on growing organically, driving innovation and proving its ability to execute, while taking down leverage. Additionally, its It’s Just Wings concept continues to exceed expectations, while margin and development upside appears meaningful and underappreciated by the Street. Net-net, we believe the progress the company has made will be recognized with a more premium valuation over time.
Shareholders receive a 1.50% dividend. The Jefferies price target is $56, while the consensus target is $52.15. Brinker International stock closed at $51.19 on Tuesday.
Cisco
This is a mega-cap tech leader for more conservative investors to consider. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Cisco’s cybersecurity products give clients the scope, scale and capabilities to keep up with the complexity and volume of threats. Putting security above everything helps corporations innovate while keeping their assets safe.
Last week, the company reported better than expected fiscal first-quarter 2021 results, though both revenue and earnings were lower than a year ago.
The Jefferies analysts broke down the earnings:
The company reported solid quarterly results and provided above-Street guidance. In our view, these results offered a significant improvement versus fundamental business trends three months ago. Particularly, we highlighted that the company generated 5% year-over year growth in Public Sector product orders during the quarter with strength seen across both U.S. and overseas governmental organizations with particular strength from the U.S. Federal, Department of Defense, and K-12 schools.
Holders of Cisco Systems stock receive a 3.40% dividend. The $51 Jefferies target price compares with the $47.39 consensus target and the most recent close at $41.88.
24/7 Wall St.Lowe’s
This home improvement retailer has a low 6% of foreign sales and remains a top pick at Jefferies. Lowe’s Companies Inc. (NYSE: LOW) is a leading home improvement retailer with more than 2,000 stores in North America. The company has tempered its new store opening plans and is focusing investments on technology and e-commerce capabilities, in addition to improving its retail store productivity.
Lowes offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under the categories of kitchens and appliances, lumber and building materials, tools and hardware, fashion fixtures, rough plumbing and electrical, lawn and garden, seasonal living, paint, home fashions, storage and cleaning, flooring, millwork, and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
Jefferies analyzed the company’s new tool rental business and they see a $1.5 billion revenue opportunity as a catalyst for multiple expansion. The analysts said this ahead of the earnings report:
We were out with our third quarter preview for the home improvement space, and took estimates higher based on bullish geolocation data, website traffic and vendor checks. Specifically, total US year-over year site visits sequentially accelerated 5% for Home Depot and 11% for Lowes, suggesting e-Commerce. sales growth might surpass the second quarters high-water mark. Our new third quarter EPS estimate for the company is 7% ahead of consensus. While we recently saw rotation out of Home Depot and Lowes, we continue to see a strong fundamental tailwind driven by rising homeownership.
The company reported disappointing results Wednesday morning. While the adjusted earnings per share were a 40.4% increase from the same period last year, they were a penny shy of the consensus forecast. While group revenues rose 28.2% and topped analysts’ estimates, a disappointing holiday season outlook sent shares sharply lower in premarket trading.
Investors receive a 1.48% dividend. The Jefferies price target is set at $205. The consensus target is $185.22, and Lowe’s stock was last seen at $159.86 per share. Shares were almost 8% lower in the premarket action.
These four top stocks offer investors with a longer time horizon solid value and outstanding entry points. They are outstanding ideas for those looking to leave pricier growth companies but wanting to keep their chips on well-known large-cap leaders. With the prospects for 2021 looking very good, rotating some capital to value plays makes good sense now.
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