With a market that has been on fire as of late taking a little breather, many investors who want to stay long equities are looking for stocks to rotate to that are better values at current trading levels. With the S&P 500 not all that far from the all-time highs printed last year, looking for value makes sense now, as completely leaving the stock market for either cash or fixed income is not an option.
A new Jefferies research report features three compelling value stock picks that look like outstanding plays now, especially considering where the stocks are trading. While somewhat more aggressive, they are good plays for patient long-term growth investors.
This is a high-yielding business development company to buy. Ares Capital Corp. (NASDAQ: ARCC) is a leading specialty finance company that provides one-stop debt and equity financing solutions to U.S. middle market companies, venture capital backed businesses and power generation projects. Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Its investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies.
Jefferies believes the strength of company’s origination platform, sizable balance sheet and ample liquidity position it favorably in a very competitive investing environment. Other Wall Street analysts also believe that with current tight spread environment Ares Capital has the scale and industry relationships to continue to make competitive, high-credit-quality investments.
It has a diversified portfolio, totaling $9.1 billion at fair value, that consists of investments in 218 portfolio companies. The company made a total of $972 million in new investment commitments in the fourth quarter of 2015. In the March quarter, originations are expected to rise on increased programs and opportunities.
Ares Capital shareholders receive a very rich 10.03% dividend. The Jefferies price target for the stock is $17. The Thomson/First Call consensus target is $16.22. Shares closed Thursday at $15.04.
Bank of America
The company posted a slight miss on first-quarter earnings and revenues, but the overall trend looks better. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers, online and mobile banking platform.
The company is one of the larger lenders to the oil and gas industry, and it told analysts that it has set aside 30% more money for coverage of loans to the industry that may go bad. Overall credit quality remained strong, the bank said, while consumer portfolios continued to improve and commercial portfolios remained stable except in the energy sector.
Bank of America investors receive 1.44% dividend. Jefferies has a $16 price objective, but the consensus target is higher at $17.40. The shares closed Thursday at $14.14.
Hit hard since late July, this stock has bounced back and may be the perfect value financial for a growth portfolio. Synchrony Financial (NYSE: SYF) is one of the nation’s premier consumer financial services companies. It is the self-described largest provider of private label credit cards in the United States, based on purchase volume and receivables. It provides a range of credit products through programs established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and health care service providers to help generate growth for the company’s partners and offer financial flexibility.
The Jefferies team has noted in the past that private label cards are gaining share, and their research suggests a continuation of that trend. They also note that retailers continue to push back on rates, and private label cards offer more of a symbiotic relationship for retailers. The analysts also believe that Synchrony offers the potential for solid capital returns after the spin-out from General Electric.
The analyst feels Synchrony is well positioned for loan growth, that private label cards will continue to outpace general purpose, and the company will begin to offer shareholders a dividend and perhaps announce a share repurchase program.
The Jefferies price target is $42. The consensus estimate is $37.05, and shares closed Thursday at $29.08.
These stocks are more suited for aggressive growth accounts. They all could have some serious upside, and trading where they are now, the downside looks limited.