5 Top Jefferies Value Stocks to Buy With Significant Upside Potential

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On Wall Street concern is growing that the Federal Reserve is behind the curve and should be ramping up rate increases sooner rather than later. Also a growing number of pundits think that the Fed is just trying to get past the election without a 20% drop in the stock market. One thing is for sure, many people are selling, and will continue to do so. One solid course of action is to start moving to value stocks.

The Jefferies analysts put out weekly calls on some of the top value stocks that the company has rated Buy. We screen their calls weekly looking for the companies with the best potential upside that may also fare better in the event of a sizable market sell-off. This week we found five that look very attractive.

AT&T

This company had an outstanding first quarter from a stock price standpoint and could be poised to go higher. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.

With its shares trading at a very cheap 12.5 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The company’s first-quarter revenue rose 24% versus the year-earlier period primarily due to the July 2015 acquisition of DirecTV for $49 billion in equity value. The company added 2.3 million wireless subscribers during the first quarter. About 328,000 of the additions were DirecTV net adds. The company’s Entertainment Group broadband grew with 186,000 IP broadband net additions.

Jefferies noted that after evaluating three scenarios that address and combat cannibalization, certain new initiatives should be impactful. As over-the-top (OTT) video becomes more prevalent, the analysts examined the per-subscriber economics relative to that of traditional video, and highlight key implications in a streaming video world. With AT&T set to launch new offerings later this year, the analysts provide a case study highlighting potential opportunities and risks. They see the potential for modest accretion in 2020, with further upside should AT&T successfully minimize cannibalization within its existing base.

AT&T investors receive a 4.94% dividend. The Jefferies price target for the stock is $42, and the Thomson/First Call consensus target is $39.54. Shares closed Thursday at $38.84.

CBS

This large cap broadcaster has bounced nicely off the lows and still 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 in the spring ratings, and is poised to continue the network’s programming dominance in 2016. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect the company to shrink its share base by around 25% over the next two years.

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 this year and into 2017.

The Jefferies team sees the company as a big winner as viewership changes and cord cutting start to affect viewership. In fact they see a 10 million subscriber decline by 2015, and they believe that CBS remains a winner as re-transmission rates will continue to climb and offset the subscriber declines, especially at strong broadcast networks like CBS.

CBS shareholders receive a 1.1% dividend. Jefferies has a $62 price target, and the consensus figure is $63. Shares closed Thursday at $55.40.