Compared to some of the previous years in the market, 2018 so far has been akin to the proverbial paint drying. While the S&P 500 did eke out a small 2.6% gain in the first half, it took a solid two-month lift from the secondary lows in April to get there. One thing is for sure, the mega-cap stocks in the index paved the way, and there is a good chance that could remain the case the rest of the year.
A new research report from Savita Subramanian and her team at Merrill Lynch noted that only three sectors outperformed on a total return basis in the first half: discretionary, which was up 11.5%; technology, up 10.9%; and energy, up 6.8%. In a rather disturbing trend, without the FAANG stocks, the total return for the index would have been negative in the first half.
With mega-caps leading the way, the 50 largest companies in the S&P 500 were the winners, and it makes sense to stay there going forward. We screened the Merrill Lynch research universe for companies that were Buy rated, mega-cap size and had solid upside to the price targets.
Coca-Cola
This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Coca-Cola investors receive a 3.45% dividend. The Merrill Lynch price target for the stock is $52, while the Wall Street consensus target is $49.67. The stock closed Tuesday at $45.25.
DowDupont
This result of a blockbuster merger in 2017 has emerged bigger and stronger, and the stock is on the Merrill Lynch US 1 list. DowDupont Inc. (NYSE: DWDP) is a diversified chemical company with $79 billion in sales in 2017, and it was formed as a result of the merger of Dow and DuPont.
The company is organized in three principal divisions: Agriculture (20% of EBITDA), Material Science (55%) and Specialty Products (25%). It intends to separate these into three public entities by 2020.
The stock has underperformed this year, and the concerns over the trade issues with China are continuing to keep shares under pressure. The stock is down over 15% from highs that were printed in January.
Shareholders receive a 2.27% dividend. Merrill Lynch has an $84 price objective, and the consensus price target is $81.79. The stock closed Tuesday at $67.06.
24/7 Wall St.Exxon Mobil
This remains a top Wall Street energy pick and is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
Exxon posted first-quarter 2018 earnings of $4.7 billion, compared with $4.0 billion a year earlier. Cash flow from operations and asset sales was $10 billion, including proceeds associated with asset sales of $1.4 billion. The second quarter results are due on July 27.
With Americans hitting the road in record numbers this summer, you can bet that plenty of gasoline will be sold to get everybody to their destination, regardless of the somewhat higher prices this summer.
Exxon recently raised its dividend by a nickel to $0.82 per share, or a 3.98% dividend. The $100 Merrill Lynch price objective is well above the $89.58 consensus estimate. The stock closed Tuesday at $82.31.
Kraft Heinz
This consumer staples stock makes sense for nervous investors. Kraft Heinz Co. (NYSE: KHC) is the third-largest food and beverage company in North America and the fifth-largest in the world, with eight $1 billion-plus brands. A globally trusted producer of delicious foods, Kraft Heinz provides high quality, great taste and nutrition for all eating occasions whether at home, in restaurants or on the go.
The company’s iconic brands include Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.
You can also bet that consumers will flock to the stores to buy the company’s products for 4th of July picnics and outings.
Shareholders receive a 3.97% dividend. Merrill Lynch has set its price target at $85. The consensus target is $67.81, and shares closed Tuesday at $63.05.
24/7 Wall St.Microsoft
This top old-school technology stock has posted all-time highs this year and has a massive $132.7 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.
Many Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the recent earnings report which was outstanding.
Microsoft also is expected to be a winner in the government JEDI cloud project, as the company and its dedicated Azure Government segment appear to be the main challenger to AWS, with industry checks barely mentioning IBM and Google, and countering that Oracle has little traction as a provider of modern cloud infrastructure services to the U.S. federal government.
Shareholders receive a 1.6% dividend. The Merrill Lynch price target is $130. The consensus price objective is $112.47, and shares closed Tuesday at $105.95.
Five mega-cap companies to buy that should have great sales and look poised to continue to be solid investments for the second half of 2018. With second-quarter earnings coming in fast, it may be smart to buy partial positions now and see how the results come in.
Smart Investors Are Quietly Loading Up on These “Dividend Legends”
If you want your portfolio to pay you cash like clockwork, it’s time to stop blindly following conventional wisdom like relying on Dividend Aristocrats. There’s a better option, and we want to show you. We’re offering a brand-new report on 2 stocks we believe offer the rare combination of a high dividend yield and significant stock appreciation upside. If you’re tired of feeling one step behind in this market, this free report is a must-read for you.
Click here to download your FREE copy of “2 Dividend Legends to Hold Forever” and start improving your portfolio today.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
