With summer less than a month away, the markets seem to be flexing back and forth, trying to find a direction. One thing is for sure: investors most likely will encounter waves of volatility as the 2016 presidential election is now less than six months away. One solid idea is to shift some of the focus in portfolios to value plays, which may fare better if the market waters remain choppy.
Each week the Jefferies team highlights the firm’s top value picks, and this week’s group is sure to catch some attention. We found four companies that have some outstanding upside potential and could bring a summer boost to more aggressive portfolios with a patient bent. All are rated Buy at Jefferies.
This company recently reported solid quarterly numbers and new business is growing faster than some renewals. CA Inc. (NASDAQ: CA) provides information technology (IT) management software and solutions that help organizations plan, develop, manage and secure applications and IT infrastructure in the United States and internationally.
The better-than-expected fiscal fourth-quarter earnings were accompanied by guidance that was also better than expected. While revenue was slightly lower than last year, it also came in higher than expected.
The Jefferies analysts feel that with growth outpacing renewals, which is a requirement for revenue growth, their main thesis on the company has been that the stock is not priced for growth, having little downside if it does no achieve growth, but good upside if it does, and this has played out well since last fall.
CA investors are paid a solid 3.25% dividend. The Jefferies price target for the stock is $36, and the Thomson/First Call consensus target is lower at $31.70. The stock closed near that level on Monday at $31.49.
This is the Jefferies top pick among the data center stocks. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.
Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like CyrusOne. The company trades at numerous lower multiples than its bigger competition, and the Jefferies team feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company has also exhibited faster deployment times, rapid new market expansion and low churn among customers — all bullish reasons for buying the stock.
CyrusOne unitholders are paid a 3.11% distribution. Jefferies recently raised its price target to $57, and the consensus target is set at $52.77. The shares closed Monday at $49.65.