Investing

4 Jefferies Top Value Stocks to Buy Now

Ares Capital

This company is a high-yielding business development company (BDC) 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.

The Jefferies team believe the strength of company’s origination platform, sizable balance sheet and ample liquidity position them favorably in a very competitive investing environment. Other Wall Street analysts also believe that with current spread environment, Ares Capital has the scale and industry relationships to continue to make competitive, high-credit-quality investments.

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With $5 billion in capital, an outstanding management team, a tailwind from potential higher interest rates and a cheap valuation, the company is Jefferies top BDC pick.

Shareholders are paid a very competitive 9.21% dividend. The Jefferies price target is $17.50, but the $18.08 consensus target is higher. Shares closed Monday at $16.54.

Westrock

This recently completed merger of two top companies could be an outstanding opportunity for investors. Westrock Co. (NYSE: WRK) is the completed and merged company between the old Rock-Tenn and MeadWestvaco. Westrock becomes the second-largest U.S. packaging company, valued at $16 billion, trailing only International Paper with a market capitalization of $22.4 billion. Westrock is expected to generate net sales of $15.7 billion and adjusted EBITDA of $2.9 billion. This includes the impact of $300 million in estimated annual synergies to be achieved over three years.

The Jefferies analysts note that the company announced a stock repurchase program of 40 million shares, equal to 15% of the shares outstanding. They also announced a very generous 17% increase in the company dividend. The current dividend will be $1.50 per shares, or 0.375 cents per quarter,

Westrock investors will receive a 2.35% dividend. The Jefferies price target is $84, but a consensus target is not posted yet. Shares closed Monday at $63.75.

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Western Digital

This company is a leader in the total addressable hard disk drive (HDD) market at a very impressive 44%, and should experience lower shipments if PC trends stay the same through the balance of the quarter. Western Digital Corp. (NASDAQ: WDC) attributed much of the gain in revenue growth in recent quarters to the consumer electronics/gaming unit, which saw the biggest upside last year, shipping 10.9 million units, up 67% year over year. This could help temper the PC decline.

Many analysts have pointed out that PC shipment trends thus far in 2015 do not bode well for HDD vendors that are looking to try and reach their 2015 total shipment growth targets, which are currently in the low single digits. The horrible numbers from Micron tend to reinforce that even more.

The drop off in the PC business helps to spur initiative in the company’s cloud business, and the Jefferies analysts estimate that the company’s gross profit contribution from Business Critical (cloud) drives will exceed that of PCs by the second half of next year. Of all the stocks beaten down due to the poor PC environment, the Jefferies team feels Western Digital may have the most upside potential.

Western Digital investors are paid a 2.53% dividend. Jefferies has a $116 price target, and the consensus figure is lower at $113.29. Shares closed Monday at $79.81, down over 2%.

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If there was ever a time to look for value in the markets, it is now. With multiples stretched and volatility spiking, we could be in for a rough ride, and these stocks may have a far better chance of riding the storm out.

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