Analyst Has 5 Top Value Stock Calls for This Week

With the market seemingly ready to roll over, investors and traders need to be looking for stock ideas where the value is truly solid. Given that we are now trading at a historically high 18 times trailing earnings, if yields spike higher on any whiff of inflation and rate increases, we could be in for a nasty correction.

In a recent research piece, the team at Jefferies has scoured the market for stocks that become the firm’s value calls for this week. Looking for a low price relative to valuation and peers is essential, but they are also looking for stocks with meaningful upside potential. Here are this week’s five top value stocks to buy.

Ally Financial

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.

The Jefferies analysts feel that in comparison to peers, which there are actually few structured like Ally, the stock is very cheap. Trading at a low nine times estimated 2016 earnings and at a miniscule one times book value, the analysts feel that there is room to run. In fact, their work indicates the stock should trade more like 1.25 times book value.

With the capital structure optimized and management having diversified the originations platform ahead of expectations, the stock has tremendous value at current levels. The Jefferies price target for the stock is $27. The Thomson/First Call consensus price target is at $26.54. Shares closed on Tuesday at $22.63.

Avago Technologies

This company recently made big headlines with a blockbuster buyout of chip giant Broadcom. Avago Technologies Ltd. (NASDAQ: AVGO) was originally a part of Hewlett-Packard and gets a huge chunk of its business from Apple and Samsung. It is a big provider in the cloud/hyperscale data center and networking arena. In fact, the company recently announced it will demonstrate its latest optical transceiver technologies for next generation data center and enterprise storage applications. As data center networks transition to 100G speeds to support higher bandwidth demands, technical challenges emerge across various levels of the network from storage endpoints to servers to top-of-rack and core switches.

The Jefferies team feels that the purchase of Broadcom could potentially add a whopping $14 of earnings-per-share power to the company. They also think that with the addition of the company, the market should reward the company with a higher multiple. A higher multiple would ultimately equal a higher stock price.

Jefferies lifts the stock’s rating to Buy from Hold and has a $179 price target. The consensus target is set at $169.19. Shares closed on Tuesday at $144.16.

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