With 2013 in the record books, we continue scanning our Wall Street firms for their top stock picks for 2014. The U.S. equity strategy team at UBS is out with their prognostications for 2014 in a new research report. The firm has a positive view on stocks heading into 2014 with a six-month rolling price target on the S&P 500 of 1,850, as both valuation and earnings risks appear skewed to the upside. The UBS team, like many on Wall Street that we cover, expect cyclical sectors — particularly technology, financials and industrials — to outperform the overall market.
The UBS list is very extensive, with more than 80 top stock picks from every S&P 500 sector. We have gone through this list and selected the names that were highlighted as the “Highest Conviction Calls.” These are the names they feel have the absolute greatest chance to outperform in 2014.
Comcast Corp. (NASDAQ: CMCSA) is a top consumer discretionary name for 2014. The largest cable company in the United States continued its push to be a top entertainment name. The UBS analysts think 2014 will be another banner year for entertainment stocks with continued strong pricing power, advertising spending growth and new digital platforms. Comcast shareholders are paid a 1.5% dividend. The UBS price target is $60. The Thomson/First Call Target is $54. Comcast closed Tuesday at $51.96.
Ford Motor Co. (NYSE: F) is another consumer discretionary name to buy for 2014. From a valuation standpoint, the company fares very well as a result of the earnings per share (EPS) growth from -$3.60 in 2008 to an estimated $2.07 for 2013. This is significant growth and far outpaces the negative growth implied by the market at this time. The venerable U.S. automaker pays shareholders a 2.6% dividend. The UBS price target is $18. The consensus is $18.50. Ford closed Tuesday at $15.43.
Coca-Cola Co. (NYSE: KO) is a high conviction consumer staples name on the UBS list. The sector underperformed the overall market in 2013 and may provide investors solid names like Coke for 2014 to balance more aggressive names in a portfolio. Investors are paid a 2.8% dividend. The UBS price target is set at $45, the same as the consensus target. Shares closed Tuesday at $41.31.
Halliburton Co. (NYSE: HAL) is a top energy and oil field services name for 2014. The company is a top provider of products and services that are used in the energy industry for exploration, development and production of oil and natural gas. It serves major oil and natural gas companies throughout the world, operating in 80 countries. Investors are paid a 1.1% dividend. UBS has a price target of $69, and the consensus is at $64.50. The stock closed Tuesday at $50.75.
Schlumberger Ltd. (NYSE: SLB) is the other top services name to own for 2014. The company looks to grow its share of exploration and production spending in 2014 and expects its margins to run higher than in the past. The UBS analysts are negative on small and mid cap North American focused service companies. Investors are paid a 1.4% dividend. The UBS price objective for the stock is $111, and the consensus target is set at $110. The stock closed Tuesday at $90.11.
J.P. Morgan Chase & Co. (NYSE: JPM) is a high conviction name to buy in the financial sector. After a difficult year that saw huge government fines and a trading loss scandal, the company is expected to see much calmer waters in 2014. While some of the provisions of the Volcker Rule may limit earnings, other growth areas should help sustain solid profits. The stock pays investors a 2.6% dividend. UBS has a $65 price objective, and the consensus target is $64. The bank closed Tuesday at $58.48.
Gilead Sciences Inc. (NASDAQ: GILD) is a top biotech name in the health care sector. With approval of its hepatitis C drug Sovaldi, the company is entering a very lucrative and growing market. Acquired when Celgene bought Pharmasset in November of 2011, the drug is an oral nucleotide polymerase inhibitor that interferes with the life cycle of the hepatitis C virus and suppresses its replication. UBS has a price target on the stock of $110. The consensus price target is posted lower at $85. Gilead ended trading Tuesday at $75.10.
Boeing Co. (NYSE: BA) is a top industrial name for 2014 and was the top name in the Dow Jones Industrial Average last year, rising more than 80%. The company is using the construction site of the 777x to negotiate better terms with union employees. The union members rejected the company’s final offer last week. Now Boeing may begin to entertain offers from states all around the country that are anxious for the jobs and are offering tremendous incentives. Investors are paid a 1.5% dividend. The UBS price target for the stock is $144, and the consensus is higher at $150. Boeing closed on Tuesday at $136.49.
United Technologies Corp. (NYSE: UTX) is a top industrial name on the list. United Technologies provides high-tech products and services to aerospace industries and building systems worldwide. Its segments are UTC Climate, Otis, Controls & Security, UTC Aerospace Systems, Pratt & Whitney and Sikorsky. Investors receive a 2.1% dividend. The UBS target for the stock is posted at $120, and the consensus figure is $120. United Technologies closed Tuesday at $113.80.
Qualcomm Inc. (NASDAQ: QCOM) is the top high conviction tech name to buy at UBS. Qualcomm’s yearly sales have more than doubled since 2010. The company gets the majority of its revenue from processors and modem chips used in phones. The bulk of its profit comes from licensing patents that cover many of the fundamentals of modern phone networks. As the wireless revolution continues, earnings growth should follow. Shareholders are paid a 2% dividend. UBS has a $74 price objective on the stock, which may be moved higher. The consensus target is $75. Qualcomm closed Tuesday near a 52-week high at $74.25.
Freeport-McMoran Copper & Gold Inc. (NYSE: FCX) has been battered as investors have fled mining companies, and it is a top materials pick for 2014. The company is planning to enter the U.S. oil and gas space, which could truly make it a powerhouse. The company reported strong third-quarter earnings that beat Wall Street expectations convincingly. Investors are paid a 3.3% dividend. UBS has a $45 price target for the stock, and the consensus is posted at $40. The stock closed Tuesday at $37.74.
Two Harbors Investment Corp. (NYSE: TWO) is one of the many hammered mortgage REITs that were hit hard when interest rates started to rise last May. The UBS analysts think that its diversified portfolio and move to a more defensive posture on rates makes it a top real estate name to buy in 2014. Investors are paid an outstanding 11.20% dividend. The UBS price target for the stock is $11, and the consensus was not posted. Two Harbors closed Tuesday at $9.28.
American Tower Corp. (NYSE: AMT) has also been a momentum traders dream stock and is a top telecommunications stock for 2014. The company announced last summer that it would buy 4,500 wireless sites in Brazil and Mexico from NII Holdings for $811 million. Shareholders are paid a 1.5% dividend. The UBS price target sits at $95, and the consensus is at $91.American Tower closed Tuesday at $79.82.
Calpine Corp. (NYSE: CPN) is one of the few utilities to make the UBS list for 2014. The company has plans to acquire a combined-cycle power plant from MinnTex Power Holdings for $625 million. The company expects to close the deal with MinnTex, a private equity-backed power company, in the first quarter. This deal is expected to expand its generation capacity in Texas where demand is strong. The UBS price target is $23, and the consensus is at $22. Calpine closed Tuesday at $19.51.
UBS, like most of the firms we cover, is positive on the 2014 market. While they do not expect gains like we saw last year, which were the largest since 1997, they do see solid double-digit potential. Investors may be somewhat timid given the big run in 2013, but all the positives are in place for continued growth. So a solid stock portfolio should continue to make good sense and outperform bonds.