After years of relatively benign volatility, investors are getting a taste of something they are not very accustomed to. The Volatility Index (VIX) has been elevated since the start of the trading year, and with China, oil and other issues still stirring the pot, this could be the norm for the near future. One good idea is for investors to consider adding value stocks to their portfolios.
Each week we cover the new value calls from the analysts at Jefferies, and increasingly some of the calls may look surprising as some solid larger capitalization companies are becoming so cheap on a multiple basis they are ending up in the value arena. This is the best of both worlds for investors when large cap growth companies become inexpensive enough to have a value call.
Hewlett Packard Enterprise
This company was recently part of the big split in operations at the iconic Hewlett-Packard. Hewlett Packard Enterprise Co. (NYSE: HPE) is now an industry leading technology company that enables customers to go further, faster. With the industry’s most comprehensive portfolio, spanning the cloud to the data center to workplace applications, the company’s technology and services help customers around the world make IT more efficient, more productive and more secure.
Earlier this year, the company announced a new partnership with Microsoft to offer new innovation in hybrid cloud computing through Microsoft Azure and Hewlett Packard Enterprise infrastructure and services, as well as new program offerings. The extended partnership appoints Microsoft Azure as a preferred public cloud partner.
Jefferies liked the company’s solid first-quarter earnings, which were in line with estimates. Hewlett Packard Enterprise posted impressive profitability in services, where operating margins were 8.2%, versus Wall Street’s 6.8% estimate. The analysts also note the company could increase the dividend this year, and networking is likely to remain the biggest revenue growth driver for the near term. Trading at just eight times the Jefferies 2017 estimates, which is below the group average of 10 times earnings, shares remain very reasonable.
Shareholders are paid a 1.16% dividend. The Jefferies price target for the stock is $25, and the Thomson/First Call consensus target is $20.23. The stock closed Friday at $19.04.
This is a top industrial that could really jump with an economic pickup. 3M Co. (NYSE: MMM) is a diversified, global manufacturer. Its businesses are technology-driven and organized under five segments: Consumer, Safety and Graphics, Electronics and Energy, Healthcare, and Industrial. Its popular brands include Scotch, Post-It, 3M and Thinsulate. The company also holds over 500 U.S. patents.
The company slightly lowered estimates for the second quarter, which tagged the shares at the end of June, but they have rebounded nicely and the iconic blue chip giant remains a solid addition for long-term growth portfolios.
3M investors are paid a solid 2.51% dividend. The Jefferies price target is posted at $185, and the consensus target is lower at $171.87. Shares closed above that level on Friday at $177.12.