Typically, large Wall St. firms suggest a broad asset allocation portfolio for their clients. Within the portfolio, they use a designated weighting for each stock that makes the cut. For the individual investor, the benefit of a selected portfolio versus indexing and just buying the SPDR S&P 500 (NYSEMKT: SPY) is a chance to add return above what the index performance is.
The equity analysts at Bank of America Corp.’s (NYSE: BAC) Merrill Lynch unit have constructed a 10-sector Core Portfolio for the top clients at the firm. We screened each sector for the stock that had the highest percentage weighting. If the weightings matched, we then screened for the stock with the largest market capitalization. We left out three sectors that had very low weightings in the portfolio of 3% or less.
The following are the top names to buy from the Merrill Lynch Core Portfolio.
In information technology, which is the sector with the largest weighting within the portfolio, credit card giant Visa Inc. (NYSE: V) is the top choice. The Thomson/First Call price target for this widely held stock is $176.
The financial sector is led by banking and investment powerhouse J.P. Morgan Chase & Co. (NYSE: JPM). The Wall St. consensus price target estimate for the bank is $54.
In the health care sector, Gilead Sciences Inc. (NASDAQ: GILD) is at the top of the list. Pouring research and development into its drug pipeline has kept this top-ranked company hitting on all cylinders. The consensus price target for Gilead is $49.
In energy, independent oil and gas exploration and production leader Occidental Petroleum Corp. (NYSE: OXY) makes the grade. It has oil and gas operations across the United States and superior long-term reserves in California. The consensus estimate for the stock is $98. This could be a top pick, as the price target represents an almost 30% move from where the stock is currently trading.
In the industrial sector, Honeywell International Inc. (NYSE: HON) ranks at the top. It is getting a huge boost from a booming construction revival, and the consensus price target for this widely held name is $77.
In the consumer discretionary category, another stock benefiting from the increase in construction across the United States makes the Core Portfolio list. Home Depot Inc. (NYSE: HD) has a consensus price target of $75.
The winner in the consumer staples category is another mega cap retailer. Benton, Ark.-based Wal-Mart Stores Inc. (NYSE: WMT) is the top pick to buy. The consensus price target is $80.
Investors looking to beat the indexes have always relied on Wall St. firms to flex their research muscle and deliver data and stock picks that will outperform. One clear reason many investors like model weighted portfolios, as is the case with the Merrill Lynch portfolio, is out-of-favor sectors can be avoided, or underweighted, to a very low percentage. This can help drive much higher portfolio performance.