Among the biggest winners in Tuesday’s early trading are Jefferies (NYSE: JEF), Lloyd’s (NYSE: LYG) and Lincare (Nasdaq: LNCR).

Jefferies Posts a Great Quarter, but…

Investment bank Jefferies (NYSE: JEF) delivered impressive quarterly results on Tuesday morning, and shares up +8%. Sales rose a moderate +13% from a year ago, while net income jumped a hefty +37%. Per-share profits of $0.41 were more than +10% ahead of forecasts. All of the upside came from a white-hot investment banking business, which carries much higher profit margins than traditional brokerage activities. And therein lies the rub.

During the past month, the initial public offering (IPO) market has become very quiet, which we wrote about last week. If the market can stay at or above the current range for the rest of the summer, the IPO market should re-open. But any further market weakness could lead this part of the market to stay closed until after Labor Day. Jefferies also derives a steady profit from debt-underwriting, but credit market conditions are also less favorable in recent months. (Credit spreads between government debt and high-yield corporate debt have been widening since late April). So this quarter’s results could well represent the high water mark for the year.

Action to Take –> Jefferies showed real momentum, but major headwinds remain in place. Shares trade for nearly 20 times this year’s profit forecast, which might be too high a multiple given the cyclical nature of operations.

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Lincare’s New Dividend

Many companies have been building a growing pile of cash, saving their earnings for potential acquisitions, or share buybacks. Lincare Holdings (Nasdaq: LNCR), which provides oxygen and other respiratory services to the homebound, decided a new dividend is the most prudent use of its cash. The company just announced that it will start paying out a $0.20 quarterly dividend, good for a 2.4% annual yield. That news is lifting shares nearly +7% in Tuesday trading.

Lincare has generated roughly $400 million in annual cash flow during the past three years, and will be paying out roughly a quarter of that in dividends, for a 25% payout ratio. Which leads to the question of how high should a dividend be to hold real appeal for fixed income investors. For example, Lincare could boost its payout ratio to 50% and offer a more compelling 4.8% dividend yield. At that rate, investors would be heartened that shares possess lesser downside (as any downward move in the stock would push the dividend yield closer to 6% or 7%, enticing a fresh set of value investors to support the stock).

Action to Take –> If you are in search of a high yield, you can do better than Lincare. As for value in the stock, today’s upward move, which puts shares at 15 times next year’s earnings, makes this a fully-valued name, as long-term revenue growth is unlikely to ever top 10%. Deutsche Bank just upgraded the stock to “buy,” with a $37 target price, roughly 10% above current levels, but it’s hard to see upside above that price.

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Bankers Cheer a Prudent Fiscal Move

Shares of U.K. financial services firm Lloyd’s Group (NYSE: LYG) are getting a solid +4% boost after the U.K. government enacted a series of spending cuts and tax hikes that are expected to eliminate that country’s structural deficit during the next six years. By contrast, the Obama administration’s long-term budget forecasts anticipate that the U.S.’ structural deficit will still be -4% by the end of the President’s second term. (A structural deficit is one that persists even after the economy is at a normal growth rate and tax and spending levels are at historical ratios).

The U.K. experienced serious social unrest in the 1970s when similar austerity measures were enacted. If this round of belt-tightening sits better with voters, then it may embolden other governments to make similar tough choices.

Action to Take –> The U.K. economy, which is saddled with debts and deficits that are even higher than found here in the United States (on a relative basis), is not out of the woods. By closing the deficit quickly, the government is creating an economic drag by reducing any government-led spending boost while taxing the economy to a greater extent. For example, the Value Added Tax (VAT) will rise from 17.5% to 20%, which could crimp consumer spending. A more sober government approach reduces the risk of even deeper economic woes, but also implies lower potential growth as the global economy rebounds. And that should keep Lloyd’s investors on edge. This is too risky a stock in this environment for most investors.