Heading into the fourth quarter of this year, investors who have been long the stock market are poised for the best gains since the market exploded off the lows in 2009. While the momentum remains in place, multiples have ticked up to more historical levels, although nowhere near the highs of 2000 and 2007. Simple indexing may not be as easy of an answer as it was at the beginning of the year. We may have turned the corner to the true stock picker’s market.
The Bank of America Merrill Lynch America’s Edge top ideas are screened by analysts looking for solid earnings and revenue growth. In a research report out today, they have a list of top names to buy and sell short.
AOL Inc. (NYSE: AOL) makes the Merrill Lynch list as a top name to buy. The company expects to release earnings early next month, and it could contain a major upside surprise. The reason would be Adap.TV, a video ad platform and marketplace that AOL acquired in September. AOL paid $405 million for Adap.TV, and comScore reports that the platform delivered 3.7 billion video ads in the United States during the month, topping even Google, which had 3.2 billion. Merrill Lynch initiates coverage with a Buy rating and a price target of $47. The Thomson/First Call estimate $42, and AOL closed Wednesday at $37.08.
Biogen Idec Inc. (NASDAQ: BIIB) is the top biotech name to own at Merrill Lynch. Biogen Idec develops treatments for multiple sclerosis, cancer and autoimmune inflammatory diseases. It has shown remarkable growth going back to the 1990s. The company has a return on equity of 23% in the most recent year. Return on equity is a measure of how well management is using available capital. Anything above 17% is considered good. The pretax margin was 38%, another high number. Merrill Lynch has a $275 price target for the stock. The consensus objective is posted at $265. Biogen closed Wednesday at $251.12.
Comcast Corp. (NASDAQ: CMCSA) is hitting on all cylinders. The Merrill Lynch analysts argue that the company trades at a significant discount to peers, despite having robust scale, superior IP infrastructure, content hedge, top management and a consistent financial outperformance. Investors are paid a 1.7% dividend. Merrill Lynch has a $60 price target for the stock, while the consensus stands at $52. Comcast closed Wednesday at $46.96.
Dicks Sporting Goods Inc. (NYSE: DKS) is a top name to own in front of the holiday shopping season. The company is gearing up for huge growth and intends to significantly build its store base to more than 800 — a greater-than 300 store increase. Investors are paid a 1.0% dividend. The Merrill Lynch price target is set at $60. The consensus is at $58. Dicks closed Wednesday at $51.72.
Eli Lilly & Co. (NYSE: LLY) is a top drug stock to buy at Merrill Lynch. The analysts see a number of strong catalysts for the stock in 2014. Much of Wall Street has focused on patent expiration and enthusiasm has been muted. The Merrill Lynch team sees increased share buybacks as a strong support for the stock. Investors are paid a very solid 4% dividend. The Merrill Lynch price target is set at $65, while the consensus is at $58. Eli Lilly closed Wednesday at $50.31.
Equinix Inc. (NASDAQ: EQIX) had an outstanding third quarter and raised guidance for the fourth quarter. With 28% short interest underlying the stock, Merrill Lynch sees the possibility of a huge short squeeze. The stock remains the top data center pick. The Merrill Lynch price target is an incredible $250. The consensus is high as well at $231. Equinix closed Wednesday at $168.65. A move to the price target would be an almost 50% gain for investors.
Starwood Hotels Inc. (NYSE: HOT) is a top America’s Edge name to buy. The company reported earnings Thursday that fell more than 7% from year-ago results that included a one-time gain. Its latest results beat Wall Street expectations, and it raised its full-year guidance. The company best known for hotel brands like Sheraton, Westin and St. Regis said Thursday it earned $157 million, or $0.81 per share, in the quarter that ended Sept. 30. That is down from $170 million, or $0.87 cents per share, last year, when it booked a $23 million gain. Investors are paid a 1.25% dividend. Merrill Lynch has a $78 price target for the stock. The consensus price target is at $73. Starwood closed Wednesday at $70.45.
TripAdvisor Inc.‘s (NASDAQ: TRIP) value proposition continues to increase to hoteliers and consumers, as evidenced by accelerating website traffic growth of 59% year-over-year to 260 million and mobile traffic now 40% of total traffic. The Merrill Lynch target for this top name is $90, while consensus is much lower at $78.50. TripAdvisor closed Wednesday at $75.21.
United Continental Holdings Inc. (NYSE: UAL) is a name to sell short at Merrill Lynch. More and more on Wall Street are warming up to the possibility that the U.S. Airways Group Inc. (NYSE: LCC) and American Airlines merger may be approved by the Department of Justice, if some significant concessions are agreed upon. The immediate headline risk for competition is a factor. Plus, United has had a big run and may be fully valued. There was no Merrill Lynch target for the short. The consensus price target for the stock is $35. United closed Wednesday at $30.95.
Merrill Lynch remains bullish on the markets for the rest of the year. The analysts stress that investors need to seek out growth names with strong catalysts for the quarter and 2014. As the market goes higher, fundamentals become that much more important.