The waiting is over and the time for the second-quarter earnings reports is upon us. One thing is for sure, with a pricey stock market and an edgy investor crowd not wanting to give much leeway to stocks that miss expectations, it makes sense to look for companies that can deliver. With technology stocks having run hard and needing to deliver big numbers, many investors have turned their gaze to consumer and infrastructure companies to deliver performance.
A new Jefferies research note focuses on some consumer companies and a top mining stock for solid growth while displaying some value characteristics. The firm has five top stocks rated Buy this week that have low expectations but could deliver some very solid results and have big upside to the firm’s price targets.
Advance Auto Parts
A big player in this industry was mauled recently, and the Jefferies team likes the setup for the rest of 2017 for this company. Advance Auto Parts Inc. (NYSE: AAP) is the second largest auto parts retailer in the United States, Puerto Rico and the Virgin Islands. It operates more than 4,000 stores under the Advance Auto Parts brand, as well as nearly 200 AutoPart International locations. It sells to both do-it-yourself customers and professional installers.
With a competitor warning of sharply lower results, all the stocks in the industry, which has been red hot over the past few years, have been hit hard. The analysts noted this in the report:
We believe the company is relatively well positioned vs. online competition given the company’s 58% commercial mix, shares trade at 12.8x forward price to earnings and we believe there’s significant longer term margin potential, with profitability at less than 50% of peers. We believe that the second half of 2017 is likely an inflection point as savings initiatives take hold.
Shareholders receive a small 0.24% dividend. The Jefferies price target for the stock is $130, but the Wall Street consensus is much higher at $148.86. The stock closed Monday at $101.17.
Cliffs Natural Resources
This is a mining play that Jefferies recently initiated with a Buy rating. Cliffs Natural Resources Inc. (NYSE: CLF) is a producer and supplier of iron ore pellets, via its U.S. Iron Ore segment, to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. Its Asia Pacific Iron Ore operations are located in Western Australia and consist of its Koolyanobbing operation.
The analysts are bullish on the stock and said this in their report:
While the company is a pure play iron ore miner, Cliffs offers high leverage to US steel prices and production as US contracts are linked to a mix of seaborne iron ore and US steel prices. We see upside potential from domestic trade policy/Section 232, which would boost average selling prices and drive critical demand for the company’s pellets, which could cause idled capacity from core customers to be restarted.
Jefferies has a $9 price target, and the posted consensus target is at $6.79 a share. But note that the stock closed above that level Monday at $7.05.