4 Jefferies Top Value Stock to Buy as Market Recovers

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Face it, if we wanted to go on a crazy roller-coaster ride we would go to the Disney World. With ups and downs that have rarely ever been seen, investors are looking away from momentum stocks, and thinking quality and value. In a new report, Jefferies is out with its top value calls for this week, and we found four that make good sense now. We also highlighted the firm’s top growth stocks to buy earlier this week.

The markets were up this year on the strength of a handful hot momentum stocks, that was all wiped out in the last week and many investors are smart to sell those companies and rotate to value. Here are four value stocks with good upside and some safety.

Community Health Systems

This company is a top value at Jefferies and is well like across Wall Street. Community Health Systems Inc.’s (NYSE: CYH) large asset base provides geographic diversification and scale advantages. Community Health is one of the stocks that many analysts see as most levered to the states where Medicaid expansion could be the greatest. It is also more exposed to health care reform than almost any other company in the sector, and coverage expansion under ACA may be providing a substantial boost to earnings in 2015 and beyond.

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The Jefferies team point out that the stock trades at a larger discount to industry peers, and they think that earnings multiple has room to expand and push the stock price higher. They also point out that company announced it will be spinning out its portfolio of hospitals in smaller markets, which are a drag on earnings. Some analysts feel the spin will generate as much as $12 of incremental equity value.

The Jefferies price target for the stock is raised to $85. The Thomson/First Call consensus target is lower at $71.86. The stock closed Tuesday at $51.56.

Hewlett-Packard

This old-school tech stock has been sold off all year as investors feel that the personal computer (PC) slowdown in sales could continue to hurt earnings. Hewlett-Packard Co. (NYSE: HPQ) stock is down a whopping 25% year to date and trades at a very low 8.2 times 2015 estimated earnings. Some Wall Street analysts feel that weak PC demand could continue to negatively impact revenue and free cash flow. The company again posted so-so earnings last week. Profits declined 13% in the quarter, further promoting a company split in order to reduce costs. HP’s net income dwindled to $900 million from $1 billion in the same quarter last year. Total sales for the company decreased 8% to $25.3 billion.

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The company is focused on splitting into two entities, a move that the Jefferies analysts feel will be a very positive catalyst event for the company. One company, to be named Hewlett Packard Enterprise, will focus on selling technology, like servers and data center gear, to businesses. The other, to be called HP, will sell printers and personal computers. The Jefferies team feels that the company has the least downside risk of those featured in the report.

HP investors are paid a 2.74% dividend. Jefferies has a very solid $40.50 price target. The consensus target is set at $37.57. Shares closed Tuesday at $25.69.

Packaging Corp. of America

This company has seen some insider selling recently. Packaging Corporation of America (NYSE: PKG) manufactures and sells containerboard and corrugated packaging products in the United States, Europe, Mexico and Canada. The company’s Packaging segment offers various corrugated packaging products, such as conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays that help to merchandise the packaged product in retail locations, and honeycomb protective packaging. This segment also produces packaging for meat, fresh fruit and vegetables, processed food, beverages and other consumer and industrial products. Two other segments also contribute significant revenue.

The company posted solid second-quarter revenues of $114 million and had net income of $1.16. Earnings, adjusted for one-time gains and costs, came to $1.18 per share. The results topped Wall Street estimates of eight analysts. The Jefferies analysts also noted that the company’s Boise purchase in 2013 is still yielding benefits as it continues to improve operations.

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Investors are paid a solid 3.45% dividend. The Jefferies price target is $82, and the consensus target is $79. The stock closed most recently at $63.81.

Wells Fargo

This large cap bank may be a great stock for value investors to look at now. Wells Fargo & Co. (NYSE: WFC) was hit hard in the sell-off as investors feel that the possibility of interest rate increases may get pushed out yet again. The Jefferies analysts like the bank’s diverse business model, which protects against current low rates.

Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line, which the analysts feel could aid a big return in capital to shareholders. The stock remains a top Warren Buffett holding and has been for years.

Jefferies likes the stability, yield and some asset sensitivity that the big bank offers, and investors looking to add financials to their portfolio could do well buying shares, as well as knowing that the bank has little exposure outside of the United States.

Wells Fargo shareholders are paid a solid 3% dividend. The Jefferies price target is $62, above the $60.05 consensus target. Shares closed Tuesday at $50.02.

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As brutal as the selling was over the past week, it did put some quality companies on sale for investors. With the possibility of another leg down always there, investors may want to buy partial positions now and watch the market as we creep toward the Labor Day holiday.