With only two weeks left in 2016, we are starting to turn our attention to 2017, and it will be a year full of change. For the first time in years, a Republican is in the White House and the party also controls both houses of the Congress. In addition, with tax cuts on the horizon, and hopes for an improving economy, the market may have a strong foundation to improve on this year’s gains, and that would be outstanding with the S&P 500 already up over 10% for 2016.
While we are already seeing a slew of top picks for next year, we also wanted to review the high conviction portfolios at the firms we cover here at 24/7 Wall St. for the stocks they have that could be ready to make significant moves in 2017. We screened the Merrill Lynch US 1 list and found five companies that could be poised to outperform in the coming year.
This stock has been on a roll this year and is expected to trade even higher. 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. Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.
The analysts noted this recently:
Maintain Buy, a top pick after meeting CFO & Investor Relations in Boston and NY, meetings reinforce confidence in product diversity, free-cash-flow (FCF) returns. Street chasing quarterly volatility of products but missing emerging solid FCF returns story that can attract new investors. Stock trading at a 25% discount to peers on price to FCF basis.
Investors receive a 2.27% dividend, which was recently raised. The Merrill Lynch price target for the stock is $215, and the Wall Street consensus target is $211.68. The stock closed Thursday at $180.01.
This top stock has been hit hard this year, down over 25% since May, and it also resides in the UBS dividend ruler portfolio. CVS Health Corp. (NYSE: CVS) provides integrated pharmacy health care services. Its Pharmacy Services segment offers pharmacy benefit management solutions, such as plan design and administration, formulary management.
The Retail/LTC segment sells prescription and over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, seasonal merchandise and greeting cards, as well as provides photo finishing services.
The company operates 9,655 retail stores in 49 states, the District of Columbia, Puerto Rico and Brazil, primarily under the CVS Pharmacy, CVS, Longs Drugs, Navarro Discount Pharmacy and Drogaria Onofre names; online retail pharmacy websites; and 32 on-site pharmacy stores, long-term care pharmacy operations and retail health care clinics.
Note that some think Warren Buffett may have his eye on the company.
CVS investors receive a 2.17% dividend. Merrill Lynch has an $89 price objective, and the consensus price target is $86.45. The shares closed Thursday at $78.29.