Is Jefferies Financial Group (JEF) A Smart Long-Term Buy?

GoodHaven Capital Management, a concentrated portfolio investment management firm, published its fourth quarter 2020 investor letter – a copy of which can be downloaded here. A return of 7.93% was recorded by the fund at year end of 2020, below its S&P 500 benchmark that delivered a 17.46% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

GoodHaven Capital Management, in their Q4 2020 investor letter, mentioned Jefferies Financial Group Inc. (NYSE: JEF) and emphasized their views on the company. Jefferies Financial Group Inc. is a New York,-based financial services company that currently has a $7.7 billion market capitalization. Since the beginning of the year, JEF delivered a 26.26% return, impressively extending its 12-month gains to 116.60%. As of March 25, 2021, the stock closed at $31.57 per share.

Here is what GoodHaven Capital Management has to say about Jefferies Financial Group Inc. in their Q4 2020 investor letter:

“Jefferies has now reported a string of stellar results. Our thesis here has been well articulated and straightforward – we expected Jefferies to navigate the spring 2020 downturn, continue improving its return on equity and opportunistically repurchase stock. In their just reported Q4 2020 results the core business earned a 26%+ return on tangible equity, while they repurchased 9.5 million shares and raised the cash dividend. Prior to that in Q3 2020 they earned a 23%+ return on tangible equity in the core business and repurchased 7.9 million shares. Over the last three years they dramatically reduced their fully diluted shares outstanding from 373 million to 274 million (at attractive prices). Jefferies appears to be growing market share in key categories and even after gaining in the period the shares remain undervalued with tangible book value now north of $27/share. Jefferies’ shareholder letters from Rich Handler and Brian Friedman convey in a unique way their earnest passion and aspirations for all the firm’s key constituents. While our decision to maintain a well-run Wall Street firm as a top holding meets with nods today, as the recent capital markets climate has led to a surge in banking and trading activity, that was not what most expected the near-term to bring last spring when we drew that conclusion.”

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Our calculations show that Jefferies Financial Group Inc. (NYSE: JEF) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Jefferies Financial Group Inc. was in 33 hedge fund portfolios. JEF delivered a 31.73% return in the past 3 months.