The bull market entered its eighth year in 2017, and the Dow Jones Industrial Average and the S&P 500 have hit new all-time highs multiple times since the end of 2016. After gains of 200% from the V-bottom in 2009, many investors are considering how to invest new funds. This is as some market pundits and strategists have started to urge their clients to take a more cautious view. One option that investors often choose under this type of market is to look for defensive investment opportunities, rather than just chasing growth stocks that have performed so well.
Jefferies has recently taken a new approach at this stage in the bull market ahead of summer. The firm issued more than two-dozen top stock picks, and 17 of those stocks were shown to have high upside to the firm’s official price target, while having what the firm feels is generally about 10% in potential downside.
Investors need to understand that some of these companies picked by Jefferies have sold off handily from highs. The Jefferies target prices are also often the highest on Wall Street, but that was not universally the case from this list.
24/7 Wall St. screened the list of companies for trading volume and upside, and the list was narrowed to five stocks with implied upside of 25% or more to the Jefferies target prices. Just keep in mind that most analysts at top firms offer implied upside targets of 8% to 15% in most upgrades or new coverage on Dow or S&P 500 stocks at this stage in the bull market. After all, we wouldn’t want our readers thinking we just blindly follow analyst targets just because an aggressive call was made.
Jefferies has noted that many of these stocks have traded poorly and some may have poor fundamentals. Their view here is that their valuations are compelling when the firm also sees very little downside even under pessimistic scenarios. 24/7 Wall St. has compared the Jefferies targets to the consensus analyst target prices from Thomson Reuters or against other metrics.
Here are five of the top picks from Jefferies in which the firm’s own analysts expect upside of 25% or more while simultaneously seeing limited downside of closer to 10% from the current share price.
AT&T Inc. (NYSE: T) has a $48 price target at Jefferies, which is also a match for the highest analyst price target on Wall Street. This represents implied upside of about 25.5% from the recent $38.25 share price. AT&T also has a 5.1% dividend yield that would make for a total return of closer to 30%, if Jefferies is proven right. The Jefferies target is still about $6.50 higher than the $41.52 consensus analyst target, and AT&T’s 52-week trading range is $36.10 to $43.89.
Mike McCormack, the telecom analyst at Jefferies, sees limited downside in AT&T at the same time that he sees upside from improving/stabilizing wireless trends. DirecTV synergies are also expected to drive free cash flow growth while further media diversification (Time Warner) reduces overall risk to its U.S. Wireless fundamentals.
FNB Corp. (NYSE: FNB) has an $18 price target at Jefferies, about 33.5% higher than the $13.49 share price. FNB also comes with a 3.5% dividend yield and has a 52-week range of $11.69 to $16.43. As far as whether an $18 target is too ambitious, it is not much higher than the consensus analyst target price of $17.39.
Jefferies sees rather limited downside in FNB. While it has underperformed in 2017, the Yadkin buyout was closed, and they see cost removal as likely. Casey Haire of Jefferies points out that FNB is at a 17% multiple discount to the group, and that management is targeting 25% cost savings in the Yadkin deal.