Jefferies Top Value Stocks to Buy May Be the Best Ideas for Q4

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It’s one thing to buy a value stock, or shares of a company with a very low multiple that is trading below historical multiple levels. It’s quite another thing to buy a compelling value stock, because it is one in which value can be unlocked by earnings gains, a change in the macro environment or a headline event like a takeover or merger proposal. Those are companies that savvy experienced investors look for in frothy and potentially volatile markets.

A new Jefferies research report focuses on stocks the firm feels are compelling values for investors now. We like four of the companies, and their stocks are rated Buy at Jefferies.

BlackRock

Many on Wall Street love this firm’s growth potential near term and especially long term. BlackRock Inc. (NYSE: BLK) is the largest asset manager in the world, with more than $5 trillion in assets under management. Its acquisitions of Merrill Lynch Investment Management and iShares transformed it from a fixed income manager into a multi-product and multi-channel giant, with roughly 40% of its assets under management overseas. It has leading franchises in exchange-traded funds (ETFs), institutional fixed income, alternatives and cash. It also operates Solutions, a leader in risk analytics.

The company’s strong historical and prospective dividend growth is underpinned by the high-quality and diversified business model. Dividends have increased 18% annually over the past 10 years. Dividend growth likely will moderate but remains solid in the low teens, consistent with expectations for earnings growth in the years ahead.

The Jefferies report noted this:

Management has been able to drive +7.2% organic growth year to date, and tech revs are up 15.4% year over year. The company had record-breaking fixed income flows in the second quarter and we expect that momentum to continue into the third quarter. Shares trade at 14.5 times 2020 estimated EPS, which we view as an attractive entry point considering the positive secular trends supporting the company.

Shareholders receive a 3% dividend. The Jefferies price objective for the shares is $537, while the Wall Street consensus price target is $524.46. The stock closed Monday at $446.20 a share.

L3Harris Technologies

This recently merged company is now the sixth-largest U.S. defense company. L3Harris Technologies Inc. (NYSE: LHX) is an agile global aerospace and defense technology innovator, which engages in the provision of defense and commercial technologies across air, land, sea, space and cyber domains.

The company’s Integrated Mission Systems segment includes intelligence, surveillance and reconnaissance; advanced electro-optical and infrared; and maritime power and navigation. The Space and Airborne Systems segment includes space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare.

The Communication Systems segment consists of tactical communications; broadband communications; L3’s night vision; and public safety. And in the Aviation Systems segment, defense aviation products; security, detection and other commercial aviation products; air traffic management; and commercial and military pilot training.

Jefferies loves the recently merged company and said this:

We met with the management team last week and discussions were focused on the specifics around the revenue and cost synergies from the L3/Harris deal. The long-term upside from the deal is more likely to come from revenue synergies and we note that every $200 million in new business wins per year equates to 12c of earnings at segment margins. The company expects to accelerate margin expansion to 170 basis points or 1.7% in the second half (from 90 bps in the first half). Management is targeting $500 million of net synergies and there is likely upside to that figure.

Shareholders receive a 1.41% dividend. Jefferies has a $250 price target, while the consensus figure is $236.13. The stock closed at $213.30 on Monday.