With earnings for the third quarter all but over, 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 recently trading 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. While the political cycle should quiet down with the election over, rising interest rates could prove to be very volatile component.
The analysts at Merrill Lynch have made a big move by adding a top property and casualty company to the firm’s well-respected US 1 list of stocks to Buy. XL Group Ltd. (NYSE: XL) operates as an insurance and reinsurance company. It provides property, casualty and specialty products to industrial, commercial, professional and insurance companies, as well as other enterprises worldwide.
The company operates in two segments. The Insurance segment offers casualty programs comprising primary and excess casualty, environmental liability, excess and surplus lines, construction and surety insurance products, as well as property programs; professional lines, such as directors, officers, errors and omissions, employment practices, crime, fiduciary, technology and cyber liability coverages; and specialty lines, including the aviation and satellite, marine, fine art and specie, equine, livestock and aquaculture, crisis management, political risk, trade credit and life, and accident and health products.
The Reinsurance segment provides casualty reinsurance products, including general and professional liability, and automobile and workers compensation; property reinsurance products comprising property catastrophe, property risk excess of loss and property proportional; property catastrophe; specialty reinsurance products, such as energy, marine, aviation and space; and other reinsurance products, including fidelity, surety, trade credit, accident and health, mortgage and political risk.
Merrill Lynch sees the stock as an attractive value play and cites future return on equity improvement being discounted by the market. The analyst also expects lower integration costs, realization of cost savings and ongoing active capital management to drive the expected return on equity improvement.
Investors receive a 2.25% dividend. The Merrill Lynch price objective for the stock is $44, and the Wall Street consensus target is $39.92. Shares traded Wednesday morning at $36.20.
In addition, we also screened the list for the top dividend companies in the portfolio.
This company has had an incredible run this year but is off over 10% in less than six weeks. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.
With its shares trading at a very cheap 14.3 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
The company recently announced a deal to Buy Time Warner for about $80 billion, which translates to about $110 per share. Two years ago, Time Warner rebuffed a takeover bid from 21st Century Fox at $85 per share. The stock was hammered on the announcement, after already being knocked down as the fear of rising rates hit the telecoms, but is rebounding and offers investors a great entry point with an outstanding dividend.
AT&T investors receive a 5.3% dividend. The Merrill Lynch price target is $46. The consensus price objective is $41.23, and shares traded Wednesday morning at $37.30.