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Jefferies Top Value Stocks to Buy Have Momentum Stock Upside Potential
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The past six months have seen a huge rotation out of traditional momentum growth stocks to cyclical and value stocks as the bull market ages. Traditionally, value stocks are those trading at levels that are perceived to be below the company’s fundamentals. Common characteristics of value stocks include high dividend yield and low price-to-book and price-to-earnings ratios. Sometimes though, stocks that are perceived as growth stocks slip into value metrics, and that can lead to some big gains for investors.
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Each week the analysts at Jefferies cover the firm’s top value stocks to Buy. When we screened the latest list, four companies with value metrics but momentum stock upside jumped out at us. While all four are rated Buy, 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 offers 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 five products: Avonex, Plegridy, Tysabri, Tecfidera and Vumerity. Combined, they have a considerable share of the worldwide over $20 billion MS market.
Biogen also provides Benepali, an etanercept biosimilar referencing Enbrel; Imraldi, an adalimumab biosimilar referencing Humiria; and Flixabi, an infliximab biosimilar referencing Remicade.
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 focused on the potential for a blockbuster approval:
We were out with a report analyzing the potential risk/reward skew for Biogen if Aducanumab is approved. We highlighted that the Street is factoring in only 25-30% on approval (PDUFA 6/7), but we’re higher at 50-60% and believe an approval would be transformational. In our bull case, we see the potential for $30 in peak earnings power, and noted that at a 18-20x P/E multiple it would suggest 100% upside to shares. Meanwhile, even if aducanumab is zeroed out of our model, we value the base business, the partnership with SAGE and some of the pipeline at $200-225 through 2025. In addition, we believe there is strategic value for the company’s more durable biologic assets in the event shares trade lower. While investors may want to wait until after the binary PDUFA event, we believe the risk/reward skew is compelling.
Jefferies has a massive $450 price target for the biotech giant. The much lower Wall Street consensus target is $288.90, and Wednesday’s final print for Biogen stock was $271.57 per share.
Citrix Systems
This company has come into the spotlight as a potential takeover candidate, and it gets 10% to 15% of revenue from government spending. Citrix Systems Inc. (NASDAQ: CTXS) is leading the transition to software-defining the workplace, uniting virtualization, mobility management, networking and software as a service (SaaS) solutions to enable new ways for businesses and people to work better.
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Citrix solutions power business mobility through secure, mobile workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. Strategic mergers and acquisitions and internal development have expanded Citrix’s addressable markets beyond access to legacy Windows applications to include desktop and server virtualization, team collaboration and application networking.
The Jefferies report said this:
We re-ran a previous survey in order to assess intentions among Citrix Systems customers to convert limited-use term licenses purchased during March-April 2020 to long-term contracts. The survey results were supportive and indicated that on average organizations plan to convert 75% of their limited-use licenses to recurring contracts and that a further 75% of these conversions will be deployed as term licenses. We noted that current year 2021 revenue growth guidance stands at +3-4% and we think that it can ultimately land in the high-single digits on the back of conversions which could add 3-4p points to growth and the Wrike acquisition which could add another 2-3pts to growth. Additionally, we have increased confidence in the calendar $10 free-cash-flow per share goal. Moreover, we pointed out that the company trades toward the bottom-end of its 13-18x free-cash-flow range.
The Jefferies price target of $180 is well above the posted consensus target of $158.85. Wednesday’s final Citrix Systems stock trade was at $119.18.
Freeport-McMoRan
This is one of the top picks across Wall Street in its sector. Freeport-McMoRan Inc. (NYSE: FCX) is the world’s largest publicly traded copper and moly producer, as well as the eighth largest gold producer. Its key operating and development assets are in Indonesia, North America, South America and Africa.
Highly leveraged toward copper mining, the company could be a big player in a scenario of rebuilding and repairing old and battered projects, and it clearly would benefit from stronger demand and higher prices for industrial commodities.
The Jefferies analysts have remained bullish on the company for some time and noted this:
The company reported solid 1Q results as it continues to meet its production targets and as commodity prices strengthened. We pointed out that they increased their net cash cost guidance for 2021 from $1.25/ per pound to $1.33/ per pound due to a higher assumed copper price in the guidance, a lower assumed gold price and higher assumed energy costs. This is clearly a positive trade off, and we expect more of this going forward as copper breaks out to the upside. The company also confirmed that it has a stability agreement with international arbitration provisions at Cerro Verde which is very important in our view given the political risk in the country. Moreover, while Freeport-McMoRan and Indonesian policymakers were not able to agree on a smelter project, we believe a third-party agreement is still the most likely as that would be in the best interest of Inalum and the Indonesian govt. We continue to recommend the stock as one of our top picks globally in mining.
Holders of Freeport-McMoRan stock receive a 0.72% dividend. The $55 Jefferies price target compares with a $39.29 consensus price target. The shares rose almost 6% on Wednesday to close at $41.54 a share.
Spotify
This music streaming giant could be poised to trade much higher. Spotify Technology S.A. (NYSE: SPOT) provides audio streaming services worldwide. It operates in two segments.
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The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers. The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers with no subscription fees.
The company also offers sales, marketing, contract research and development, and customer support services. As of December 31, 2020, its platform included 345 million monthly active users and 155 million premium subscribers in 93 countries and territories.
Jefferies feels that the company has almost unlimited potential:
The ability to make, distribute, and engage with an audience has never been more accessible, paving the way for the creator economy. We view Spotify as central to that trend, and management believes it will have 50,000 creators on its platform by 2025, a 6 times increase. We view the company as more of a platform than a streaming service. Spotify is quickly building the tools for the broader audio creator market that it has done for the music industry. We see these tool sets unlocking new and innovative ways to deliver audio content, which keeps the flywheel spinning: more content creators -> more subscribers -> more content creators -> more subscribers. We highlighted that the company is one of the cheapest platform names as it trades below the range of the group; 4.1 times versus the group’s 6.3x to 24.6x (forward Enterprise Value/ Sales). We expect shares to re-rate higher as growth and gross margins rise.
Jefferies has set a $360 price target. The consensus target is $325.10, and the last Spotify stock trade hit the tape on Wednesday was at $239.50 per share.
24/7 Wall St.These are four quality stocks to buy have value characteristics but also appear to have the hidden potential to have momentum stock upside. While not suitable for all investors, for value and growth stock buyers with a degree of risk tolerance, there could be some big gains in the future for all four stocks. Note that the two technology names have been hit hard this week and look especially attractive.
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