Jefferies Makes Major Change to Franchise Picks Stock Portfolio

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The S&P 500 ended the first half of 2016 up just slightly, duplicating the very weak numbers from last year. This very mediocre showing hurts passive index investors, and it also has the top firms on Wall Street that we cover taking a look at their lists of high conviction stock picks. Almost all the firms are making some changes for the second half of 2016, and we are closely following those changes for our readers.

A recent report from Jefferies includes one big deletion from the firm’s Franchise Picks list of top stocks to Buy. While at this point the team at Jefferies looks reasonably comfortable with the rest of the companies in the portfolio, we will continue to monitor the holdings for changes and commentary.

Pfizer Inc. (NYSE: PFE) is a top pharmaceutical stock that recently made a gigantic bid for Anacor Pharmaceuticals, but Pfizer was removed from the Franchise Picks portfolio. The company has a very strong pipeline, and the fact that it is the world’s largest drug manufacturer by sales value supports the Wall Street notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years.

Jefferies continues to like the story but cites the arguments against a corporate separation, the fact that the company will not be able to complete the inversion it wanted to with Allergan and the increase in the stock’s price as reasons for the removal.

Pfizer investors receive a solid 3.43% dividend. The Thomson/First Call consensus price target for the stock is $38.67, and shares were trading at $35.52 Tuesday morning.

In addition, here are the three top yielding stocks in the Franchise Picks portfolio.

AT&T

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 14.3 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.

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 are paid a huge 4.42% dividend. The Jefferies price target for the stock is $44, and the consensus target is at $39.56. Shares closed Friday at $43.47.