In the past two years, investors have seen plenty of companies that made little or no money, burned through available cash and regularly posted disappointing numbers. SPAC conversions, electric vehicle fringe players, sports gambling, over-the-top streaming startups, marijuana companies and a host of other stocks went from heroes to zeroes. Now, 70% of all the initial public offerings from 2021 are trading below their IPO pricing, and that silo has come to a screeching halt in 2022. Practically no deals are coming from the Wall Street bankers.
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What should investors do now? Given the current volatility and market conditions, it makes sense to look at value. Nobody knows that arena better than the analysts at Jefferies. They screened their research universe looking for companies poised to offer inventors the kind of metrics that drive stocks higher and said this in a new and comprehensive research report that highlights the firm’s 23 highest conviction stock picks:
Value is back in vogue, and whether it’s due to persistent inflation, the prospect of higher rates or a cyclical-boosting economic backdrop, the outperformance could last for some time. With this in mind, we parsed Jefferies’ coverage universe for stocks that fit a value framework and for which our analysts forecast above-consensus EPS. We offer investment theses for 23 stocks, highlighting what the Street is missing and key catalysts for potential rerating.
They had this to say when discussing the methodology for picking the 23 stocks:
To help identify value stocks that might be uniquely positioned for upside, we searched among Jefferies’ ~1,300 company coverage universe. Qualifying companies are: 1) Buy rated, 2) trade at a lower than S&P 500 sector average forward price to earnings, 3) trade with a higher than S&P 500 sector average forward free cash flow yield and 4) Jefferies earnings-per-share estimates for 2022 and 2023 are higher than consensus.
We screened the 23 stocks, all of which are outstanding ideas, and found six that investors looking to stay long the market, but concerned over the current volatility and geopolitical issues, should consider now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
24/7 Wall St.Ciena
This is a great tech idea for more aggressive investors. Ciena Corp. (NASDAQ: CIEN) provides network hardware, software and services that support the transport, routing, switching, aggregation, service delivery and management of video, data and voice traffic on communications networks worldwide.
Its Networking Platforms segment offers hardware networking products and solutions optimized for the convergence of coherent optical transport, optical transport network switching and packet switching. The segment also sells operating system software and enhanced software features embedded in each of its products. The Blue Planet Automation Software and Services segment provides multi-domain service orchestration, inventory, route optimization and analysis, network function virtualization orchestration, analytics and related services.
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Its Platform Software and Service segment offers OneControl unified management system and platform software services, as well as manage, control and plan software. The Global Services segment provides consulting and network design, installation and deployment, maintenance support and training services.
The Jefferies price target for Ciena stock is $88. The consensus target is lower at $81.49, and shares closed trading on Thursday at $69.03 apiece.
Freeport-McMoRan
This is one of the top picks across Wall Street in its sector and an outside way to play the electric vehicle trend. Freeport-McMoRan Inc. (NYSE: FCX) is the world’s largest publicly traded copper and moly producer, as well as the eighth largest gold producer. Its key operating and development assets are in Indonesia, North America, South America and Africa.
Highly leveraged toward copper mining, the company could be a big player in a scenario of rebuilding and repairing old and battered projects, and it clearly would benefit from stronger demand and higher prices for industrial commodities.
Many across Wall Street see significant further upside potential to commodity prices over the next one to three years. In particular, this is due to accelerating demand growth excluding China and supply constraints. Top analysts feel that this cycle is in very early stages as key demand drivers, such as pent-up consumer demand, accelerating global capital spending and massive stimulus in the United States, have yet to fully kick in.
Freeport-McMoRan stock investors receive a 0.69% dividend. Jefferies has a $55 price target, well above the $44.85 consensus target. Shares closed at $43.21 on Thursday.
IBM
This old-school tech giant still offers investors a very solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions.
The company integrates its hardware products with its software and services offerings to provide high-value solutions. Analysts have cited the company’s potential in the public cloud as a reason for their positive outlook going forward.
The company posted a very solid fourth quarter. The cloud proved to be big in the earnings reports, as did Red Hat, the software giant the firm bought in 2019. Red Hat’s open hybrid cloud technologies are now paired with the unmatched scale and depth of IBM’s innovation and industry expertise and sales leadership in more than 175 countries.
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Investors receive a 5.13% dividend. The $165 Jefferies price target compares with the $143.68 consensus target for IBM stock. Thursday’s closing share price was $124.97.
Microchip Technology
This company is a huge Internet of Things benefactor, and the stock has been very strong recently. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.
The company acquired Microsemi in June of 2018, and most analysts believe that purchase and earlier acquisitions afford Microchip Technology ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).
Microchip’s sales, margins and earnings per share are somewhat more levered to the cyclical stabilization and recovery that is now upon us than many peers, owing to its relatively more vertically integrated manufacturing network, significant channel inventory reduction over the past seven quarters and elevated financial leverage.
Investors receive a 1.34% dividend. The Jefferies price target of $109 tops the consensus target of $96.68. Microchip Technology stock closed Thursday at $71.17, after retreating almost 6% on the day.
24/7 Wall St.Molson Coors
While the iconic American beer company did merge with a Canadian beer giant, it is still based in Denver. Molson Coors Beverage Co. (NYSE: TAP) is one of the world’s largest brewers (more than a 3% global share) with core brands Coors Light, Miller Lite, Carling, Molson Canadian and Staropramen.
Molson and Coors merged in February 2005 and added StarBev in 2012, and it serves markets including the United States, Canada, Eastern Europe and the United Kingdom and Ireland, with exposure to other markets through its Molson Coors International division. It acquired the remainder (58%) of the U.S. joint venture (MillerCoors) in mid-October 2016.
Back in the spring, the company provided a fiscal 2021 financial outlook that implies a significant step up in marketing spending that should help support sales growth. With summer almost over, but fall and football ramping up, things could look much brighter by the end of the year.
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Molson Coors Beverage stock comes with a 1.37% dividend. The Jefferies price target is $80. The consensus target is $54.94, and shares closed most recently at $48.75.
Nike
This is one of the most recognizable companies in the world, and a shift in production to the United States would be a gigantic move. Nike Inc. (NYSE: NKE) designs, develops, markets and sells athletic footwear, apparel, equipment and accessories worldwide. The company offers Nike brand products in six categories, including running, Nike basketball, the Jordan brand, football, training and sportswear.
The company also markets products designed for kids, as well as for other athletic and recreational uses, such as American football, baseball, cricket, golf, lacrosse, skateboarding, tennis, volleyball, walking, wrestling and other outdoor activities. It has apparel with licensed college and professional team and league logos.
Nike also sells a line of performance equipment and accessories comprising bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment and other equipment for sports activities, as well as various plastic products to other manufacturers. Further, it provides athletic and casual footwear, apparel and accessories under the Jumpman trademark; casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark.
Shareholders receive a 0.79% dividend. Here too, the Jefferies price target is well above the consensus figure, which is $183.44. The shares closed at $142.80 on Thursday.
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