Investing

Jefferies Has Very Compelling Value Stocks to Buy Now

Anyway you look at it, the market is starting to get pricey. With a huge rally off the second low that matched the late August sell-off, the S&P 500 is now up almost 12%. While that rally pretty much got most of the indexes back to even or slightly up for the year, the real question is what can possibly push things higher.

In a new research report, Jefferies looks for stocks it considers to be compelling values at current levels. This makes sense for growth investors looking to stay long the markets, but wanting to rotate out of high beta or momentum companies. Four compelling value stocks with growth not fully appreciated are good adds to growth portfolios now, and they are all rated Buy at Jefferies.

CBS

This large cap broadcaster has taken a beating this year but has bounced off the lows and could be an incredible value. CBS Corp. (NYSE: CBS) may be in the best position of all the broadcast networks. With an outstanding prime time lineup, solid sports franchises like the NFL, March Madness College Basketball, The Masters and other top programming, the venerable network could once again be an outstanding stock for shareholders.

The company is leading again in the fall ratings, and is poised to continue the network’s programming dominance in 2015. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect CBS to shrink its share base by 25% over the next two years.

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Jefferies points out that network advertising and strong content licensing revenue drove the upside in the third-quarter earnings, which beat consensus estimates despite a slight revenue miss. Similar to the broadcasting giant’s rivals, many analysts expect CBS to look to book content licensing more evenly over the year and into 2016. Trading at just 12 times 2016 estimated earnings, the stock is cheap.

CBS shareholders receive a 1.25% dividend. The Jefferies price target for the stock is $62, and the Thomson/First Call consensus price target is a tick higher at $63. Shares closed Wednesday at $47.95.

Cerner

This is a solid health care company that has good upside potential, and Jefferies thinks the growth potential is not appreciated. Cerner Corp. (NASDAQ: CERN) solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients’ clinical, financial and operational needs.

Jefferies surveyed hospitals recently and found that only about 25% have replaced their electronic health record systems. An electronic health record is a digital version of a patient’s paper chart. They are real-time, patient-centered records that make information available instantly and securely to authorized users. The analysts feel that quality vendors like Cerner will continue to take share in these replacements.

The company reported a third-consecutive revenue miss on Tuesday and the stock got hit Wednesday. On the bright side, the bookings were much stronger than expected. Jefferies reports that a record 39% of bookings were generated from new clients. While forward guidance also disappointed, it’s clear this is a work in progress and patient investors will be rewarded.

The Jefferies price target is $76, and the consensus target is $75.42. Shares closed Wednesday at $61.63.

T-Mobile

Jefferies believes this carrier should be bought on any near-term weakness. T-Mobile US Inc.’s (NASDAQ: TMUS) advanced nationwide 4G LTE network delivers outstanding wireless experiences to approximately 59 million customers through its subsidiaries and operates its flagship brands, T-Mobile and MetroPCS. While T-Mobile had preannounced solid subscriber trends, it delivered mediocre third-quarter earnings and the stock sold off 6%.

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Jefferies feels this is the dip investors need to take advantage of. The analysts think that the forward guidance may end up being very conservative, and trading at a low five times 2016 enterprise value/EBITDA, the stock offers a compelling entry point at current levels. The current trading area is a bottom the stock has tested numerous times since the spring.

The Jefferies price target is $45, but the consensus target is higher at $46.70. Shares closed Wednesday at $38.86.

AMAG Pharmaceuticals

The company posted weak sales of a top drug and got hit recently. AMAG Pharmaceuticals Inc. (NASDAQ: AMAG) has a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care. It continues to work to expand the impact of these and future products for patients by delivering on its aggressive growth strategy, which includes organic growth, as well as the pursuit of products and companies that align with AMAG’s existing therapeutic areas or those that could benefit from its proven core competencies.

The stock has hit 52-week lows recently and is down huge since July. Jefferies notes that the company reported very slow Makena sales, and the current valuation implies no sales at all after the exclusivity expires in 2018. Jefferies attributed the weakness to salesforce integration issues and higher Medicaid mix. The stock also has been pressured by its pipeline acquisition model.

The bottom line, at current levels down a huge 58% in four months, not only is there upside, but it’s possible at these levels the company becomes a takeover target. It should be noted purchase of these shares would only be suitable for very aggressive, risk tolerant accounts.

The Jefferies price target is a gigantic $70, and the consensus target is $66.43. Shares closed on Wednesday at $30.60.

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While compelling value and a lack of appreciation for growth potential are good reasons to buy stocks, it’s important to remember that turnaround stories can take time. These stocks may be best suited for very patient long-term horizon accounts.