In the euphoria of the long-awaited push through the 20,000 level on the Dow Jones Industrial Average, there is a potential train-wreck waiting to happen, and investors need to be careful. While there is no question that the new positions of the Trump administration, specifically tax reform and lower corporate tax rates, will prove to be positive, they won’t be implemented tomorrow. With interest rates going higher and the market way overbought, caution is key.
We screened the Merrill Lynch US 1 list, which is a portfolio of the firm’s highest conviction ideas, for stocks that have not made parabolic moves higher and still offer investors solid value at current levels. We found five that make good sense now, and they all are rated Buy.
This company has had an incredible run last year but is off almost 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.
AT&T has several major catalysts likely to drive strong network traffic demand: DirecTV Now and Mobile, “Data-Free TV” for DirecTV/U-Verse subscribers and increasing penetration of unlimited data plans. Many on Wall Street believe that the company is well-positioned to address ongoing traffic requirements, with additional LTE capacity available and the ability to leverage small cell deployments.
The company posted fourth-quarter adjusted earnings per share in line with analyst expectations, though its revenue fell short of Thomson Reuters consensus estimates and also was a slight drop from sales during the year-earlier quarter.
AT&T investors are paid a huge 4.7% dividend. The Merrill Lynch price objective is for the stock is $46. The Wall Street consensus target price is $41.55. Shares closed Thursday at $41.77.
This remains a very large hedge fund holding and is down a stunning 30% or so from highs printed in July of 2015. Allergan Inc. (NYSE: AGN) develops, manufactures and markets branded pharmaceutical products. Its growth has been driven largely by acquisitions supported by internal growth, with significant acquisitions of the “old” Allergan, Forest and Warner-Chilcott.
Allergan markets a portfolio of best-in-class products that provide valuable treatments for the central nervous system, eye care, medical aesthetics, gastroenterology, women’s health, urology, cardiovascular and anti-infective therapeutic categories, and it operates the world’s third-largest global generics business, providing patients around the globe with increased access to affordable, high-quality medicines.
Allergan is an industry leader in research and development, with one of the broadest development pipelines in the pharmaceutical industry and a leading position in the submission of generic product applications globally. Note that the stock was hammered after a deal with Pfizer fell through last spring.
Investors in Allergan are paid a 1.33% dividend. The $280 Merrill Lynch price target compares with a consensus target that is listed at $260.79. The shares closed most recently at $210.80.