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4 Event-Driven Stocks to Buy for the Rest of 2015

After seeing the market, and especially the crowded momentum stocks, get eviscerated last week, investors may be looking to shift away from those stocks to solid growth companies. Add in companies that have potential catalysts that can change investors’ negative sentiment and push the stock higher.

A new research note from Jefferies lists seven stocks that could have meaningful events happen in a reasonably short time. The stocks in some cases have sold off significantly, and the analysts view fundamental downside as limited. We screened the list and found four that look very timely.

Hewlett-Packard

This old-school tech stock has been sold off all year as investors feel that the slowdown in personal computer (PC) sales could continue to hurt earnings. Hewlett-Packard Co. (NYSE: HPQ) stock is down a whopping 25% year to date and trades at a very low 8.2 times 2015 estimated earnings. Some Wall Street analysts feel that weak PC demand could continue to negatively impact revenue and free cash flow at the company. The company again posted so-so earnings last week. Profits declined 13% in the quarter, further promoting a company split in order to reduce costs. HP’s net income dwindled to $900 million, from $1 billion in the same quarter last year. Total sales for the company decreased 8% to $25.3 billion from last year.

The company is focused on splitting into two entities, a move that the Jefferies analysts feel will be a very positive catalyst for the company. One company, to be named Hewlett Packard Enterprise, will focus on selling technology like servers and data center gear to businesses. The other, to be called HP, will sell printers and personal computers. The Jefferies team feels that the company has the least downside risk of those featured in the report.

HP investors are paid a 2.56% dividend. Jefferies has a very solid $40.50 price target for the stock. The Thomson/First Call consensus target is $37.80. Shares closed Friday at $27.47.

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Pfizer

This stock that could be offering investors the best value at current trading levels, and it is a Franchise Pick at Jefferies. Pfizer Inc. (NYSE: PFE) rocked Wall Street this year announcing a gigantic $15.2 billion purchase of Hospira, a top provider of sterile injectable drugs — including those used for acute care and cancer treatment — infusion technologies and biosimilars, which are subsequent versions of drugs whose patents have expired. Pfizer’s drug Ibrance was approved for advanced breast cancer by U.S. regulators more than two months ahead of schedule. Pfizer is working on expanding the Ibrance label further by targeting different segments of breast cancer patients. The company is also exploring the possibility of developing Ibrance for additional tumor types, including pancreatic and head and neck cancer.

With a strong pipeline and the fact that Pfizer is the world’s largest drug manufacturer by sales value, many analysts feel the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years, with Ibrance leading the way. The Jefferies team feels that the company will make an accretive acquisition between now and the end of the year.

Pfizer investors are paid a solid 3.35% dividend. The Jefferies price target is set at $47. The consensus target is $39.17. The stock closed Friday at $33.53.

Yum Brands

This stock is rated Hold at Jefferies, but toss in a catalyst, and it may move to a Buy rating. Yum! Brands Inc. (NYSE: YUM) is famous for the company’s Taco Bell, KFC and Pizza Hut brands. While the domestic business has been very solid for the most part, especially at the Taco Bell restaurants, the company has experienced numerous issues in China. As of last summer, the company had a total of 6,387 restaurant units — or 15% of the total system restaurants — in China. The majority of the restaurants were KFC, with 4,653 units. It was followed by Pizza Hut with 1,349 units.

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The Jefferies team feels that the company could announce the separation of the operation in China when they hold the company’s analysts day in December. This has continued to be a thorn in the Yum Brands overall corporate performance, and investors may be very open to the split.

Investors are paid a 2.06% dividend. The Jefferies price target is $80, lower than the consensus target of $94.05. The shares closed Friday at $79.70.

Yahoo

This company has continued to report so-so quarters, and some investors are starting to tire of Marissa Mayer’s stint as the CEO, as the stock is down almost 40% since last November. Yahoo! Inc. (NASDAQ: YHOO) provides search and display advertising services on Yahoo properties and affiliate sites worldwide. The company’s revenue growth has slightly outpaced the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 14.7%, and although the debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average.

Yahoo recently announced that it was acquiring Polyvore, a leading social shopping site. The acquisition is expected to help enhance Yahoo’s consumer and advertiser offerings. Polyvore will strengthen Yahoo’s digital magazines and verticals through the incorporation of community and commerce, and together Yahoo and Polyvore will power native shopping ads that drive traffic and sales to retailers.

The Jefferies team points to the tax-free spin-off of the company’s gigantic Alibaba stake as a very positive upcoming event for the company. Some Wall Street analysts have pointed out that to match the current Yahoo share price, Alibaba’s spin-off needs to be taxed at 38%, and no further upside in Alibaba’s share price would be expected.

The Jefferies price target is $61, and the consensus target is $51.06. The stock closed Friday at $2.92.

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All these upcoming events could help light a fire under four pretty good companies that have had a lousy 2015. They also have good upside potential, if and when some of the negative sentiment starts to fade.

By Lee Jackson


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