4 Top Jefferies Value Stocks to Buy With Big Upside Potential

May 17, 2016 by 247lee

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.

CA

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.


CyrusOne

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.

Jack in the Box

New items at this fast-food favorite could prove to be big again this year. Jack in the Box Inc. (NASDAQ: JACK) has sold off over the past year, and the entry point here looks very solid. The company operates and franchises Jack in the Box restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.

Last week the company posted solid earnings and same-store-sales results. The company had given conservative guidance for the quarter, so it did beat low expectations, but costs came in better to aid the numbers. The analyst also noted that Qdoba trades considerably cheaper than peers and the brand revitalization is continuing.

Shareholders of the company receive a 1.58% dividend. Jefferies has an $87 price objective, and the consensus figure is posted at $83.31. The stock closed most recently at $76.10.

NXP Semiconductors

This is considered a top play for investors looking for a chip stock with Internet of Things exposure. The NXP Semiconductors N.V. (NASDAQ: NXPI) merger with Freescale Semiconductor Ltd. was widely applauded on Wall Street, and many analysts believe the merger is transforming the company into a powerhouse. It made NXP the fourth largest semiconductor company in the industry.

It is also important to note that the combined company becomes the number one supplier in auto semiconductors, number one supplier in global microcontrollers, as well as a dominant supplier in mobile payments.

NXP is getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile-phone charging, increased cellular data consumption and LED lighting. Trading at solid discount to some of its peers, many analysts are very positive on the faster earnings growth potential relative to the competition.

The company reported outstanding first-quarter results, and many see the company as having among the highest free cash flow per share in the sector for this year and 2017, a metric they is extremely critical in charting performance. The Jefferies team recently met with management and they feel that the shares trade below intrinsic value, and therefore plan to return all excess cash to shareholders through aggressive share buybacks.

Jefferies has set its price target for the stock at an aggressive $130, while the consensus target is posted at a mere $109.13. The stock closed Monday at $84.97 per share.


All these companies are generating solid earnings, and their stocks have the ability to trade substantially higher. While maybe a touch too aggressive for some accounts, for others these top Jefferies picks may be just the ticket.