Merrill Lynch Adds Top Financial Services Stock to US 1 Portfolio

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With earnings for the third quarter still coming hot and heavy, and the fourth quarter of 2016 in full swing, many of the top companies we follow on Wall Street are making some changes to the lists of their high conviction stock picks for clients. With the market continuing to trade to near all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility as the political cycle could prove to be very volatile component.

In a recent research note, the analysts at Merrill Lynch have added PNC Financial Services Group Inc. (NYSE: PNC) to the firm’s well-respected US 1 list of stocks to Buy. It replaces First Republic Bank (NYSE: FRC), and PNC is offering investors a solid entry point.

PNC Financial Services is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management. With consistent earnings growth and a very positive and growing loan portfolio, the company is a premiere super-regional bank stock to own.

Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans. The bank is working on up to $100 million of new savings announced last year, and it is also applauded for outstanding credit/risk management and the limited exposure to the capital markets related areas, while focusing on traditional banking.

Merrill Lynch feels the underperformance this year makes the stock very attractive, and note the savings initiative, and the move to digitization as positives to what is very solid banking story. And PNC shareholders receive a very solid 2.43% dividend.

While First Republic Bank was removed from the list, the analysts remain positive on the company and keep a Buy rating. The bank provides private banking, private business banking, real estate lending and wealth management services to clients in metropolitan areas of the United States. Shareholders receive a small 0.85% dividend.

The company offers deposit products, such as checking, money market checking, savings and passbook deposits, as well as certificates of deposit. It also provides a range of lending products that comprise residential mortgage loans and lines of credit, multifamily loans, commercial real estate loans, residential construction loans, personal loans, business loans and smaller loans and lines of credit to businesses and individuals.

The Merrill Lynch price target on PNC is $100, while the Wall Street consensus target is $96.80. Shares closed Tuesday at $93.14.

On First Republic, the Merrill Lynch has an $85 price target. The consensus target is $79.40, and shares closed at $75.48.

In addition, here are the three top technology stocks in the portfolio.

Broadcom

This is the combined entity that was formerly known separately as Avago and Broadcom. Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Its extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other.

Applications for the company’s products in these end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Additional estimates are that Avago has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which was guided up 10% or so quarter over quarter for the third quarter.

With continued consolidation in the sector, some on Wall Street thinks it is entirely possible that the company could also be looking for an acquisition to fill out its product line and increase growth. One company mentioned as a possible candidate is Xilinx. While the chipmaker hasn’t been the focus of sector takeout discussions of late, some analysts have said Xilinx would make a logical acquisition target for a larger peer like Broadcom.

Broadcom investors receive a 1.16% dividend. The $215 Merrill Lynch price target compares with the consensus target of $202.38. Shares closed Tuesday at $173.65. The company is set to report earnings on December 7.