There is one obvious result that always starts to spell the end of a momentum phase in the stock market. When a crowded momentum stock beats earnings estimates and guides higher but still gets sold off, then the saying is that “the train has left the station.” In a new report from Jefferies they point out that is exactly what happened to Tableau Software which got clobbered after reporting solid numbers and guiding higher.
In the report, Jefferies savvy consumer equity strategist John Black who has already pointed to momentum rolling over in previous commentary, expresses a preference for buying what he terms as “beat up value names”. While he focuses on hammered retail stocks, the research also highlights other sectors and stocks that have been hit.
We chose four from the list that are rated Buy at Jefferies.
This top electronics retailer has bounced back-and-forth as a Wall Street favorite, and could be set for a solid second half despite corporate guidance for sluggish sales. Best Buy Co., Inc. (NYSE: BBY) announced recently they would start selling the Apple Watch next month, becoming the first national retail chain to offer the device outside of Apple Inc.’s own stores. This could be just the kind of product to help lure consumers back to the retailing giant.
A lack of new and innovative product offerings has been hampering demand for the broader electronics industry, with the few bright spots being mobile phones. Last year’s release of Apple’s iPhone 6 and ultra-high-definition televisions drove customers to stores in big numbers. With Windows 10, the Apple Watch and an iPhone 6s on the way, things could really look up for Best Buy.
Best Buy shareholders are paid a 2.87% dividend. The Jefferies price target is posted at $49. The Thomson/First Call consensus is set at $42.05. The stock closed at $32.12, and is down over 20% since March.
Carrizo Oil & Gas
This company is a top energy stock for value buyers to consider and was upgraded to a Buy this week at Jefferies. Carrizo Oil & Gas, Inc. (NASDAQ: CRZO) is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States. Carrizo’s current operations are principally focused in proven, producing oil and gas plays primarily in the Eagle Ford Shale, the Utica Shale in Ohio, the Niobrara Formation in Colorado, and the Marcellus Shale in Pennsylvania.
Many on Wall Street see the company as one of the best positioned due to the low breakeven costs, solid operating scale, and a very good balance sheet with ample liquidity. The analysts also think they company may take advantage of difficult situations for others, and make acquisitions, especially in the Eagle Ford.
The Jefferies price target on the stock is $65. The consensus target is posted at $58.44. Shares closed Thursday at $39.10.
This top chip company has been in the doghouse this year but is still a Franchise Pick at Jefferies. Intel Corp. (NASDAQ: INTC) is one of the companies that is regarded as having among the highest shareholders cash returns at approximately 8%, but has lagged high growth specialty chip stocks. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales, but this year has been a far different story. Despite the positive second quarter earnings report, the stock is down a gigantic 18.4% year-to-date.
The Jefferies team notes that Intel’s pending acquisition of Altera would put it into the traditional fabless market of programmable logic devices, but ultimately by 2020 50% of Altera’s product line could be manufactured at Intel facilities. This acquisition expands the product offerings and helps move the company farther away from PC dependence.
Intel investors are paid an outstanding 3.31% dividend. The Jefferies price target for the stock is 36. The Thomson/First Call consensus target is posted at $33.87. Shares closed Monday at $28.91.
This company is a leader in the total addressable hard disk drive (HDD) market at a very impressive 43.6% and is another Franchise Pick at Jefferies. Western Digital Corporation (NASDAQ: WDC) reported earnings that were better than expected on the earnings-per-share side but missed on revenues. During the second quarter, Western Digital shipped 48.5 million hard drives at an average selling price (ASP) of $60. While selling prices for the quarter were down from $61 in the previous quarter, the $60 level was up from $56 in the year-ago quarter.
The drop off in the PC business has helped 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 2.6% dividend. Jefferies has a $123 price target, and the consensus figure is set much lower at $103.95. Shares closed Thursday at $86.44, up almost 10%.
When these kind of top stocks are put on sale, there is very little risk for long-term patient investors. With solid and mature franchises, each could have big return potential and less downside risk than crowded momentum stocks.