Incredibly, the third quarter and the 4th of July holiday are upon us. While the stock market has had an up and down June, and for that matter, a second quarter, the S&P 500 is up almost 9% year to date. The problem for many investors is that almost every stock you look at seems to be hitting 52-week or all-time highs, and that makes stock picking, which is critical in an aging bull market, all that more critical.
We decided to screen the Jefferies Franchise Picks list, a portfolio of the firm’s highest conviction ideas, for stocks that are reasonably valued and offer some upside from current trading levels. We also screened for companies that paid consistent dividends and are not trading at highs. We found five outstanding picks that make good sense for the second half of 2017.
This company is the old financing arm of GM that was known before the great recession as GMAC. Ally Financial Inc. (NYSE: ALLY) has been rebuilt into a stronger and more solvent Internet-focused bank with no brick-and-mortar locations. Its customers do their banking solely through the bank’s website, its mobile application, and automatic teller machines.
Jefferies feels that in comparison to peers, though few are actually structured like Ally, the stock is very cheap. With shares trading at a low 9.12 times estimated 2017 earnings, and at a minuscule one times book value, the analysts feel that there is room to run. In fact, their work indicates the stock should trade at more like 1.25 times book value.
With the capital structure optimized and management having diversified the origination’s platform ahead of expectations, the stock has tremendous value at current levels.
Ally Financial shareholders are paid a 1.56% dividend. The Jefferies price target for the stock is $28. The Wall Street consensus target is at $25.44, and the shares closed on Monday at $20.76 apiece.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
The company reported solid earnings for the first quarter, and the Jefferies analysts have noted that the Permian Basin remains a key source of capital flexibility, and it is a key issue behind their relative preference for Chevron versus some of the other majors.
Chevron shareholders are paid an outstanding 4.11% dividend. Jefferies has a $135 price target for the stock, while the consensus price objective is lower at $122.48. The stock closed Monday at $104.14 a share.