It was a big run, and it may still have some legs, but the defeat on health care, at least for now, has put a big roadblock out there for the momentum buyers. With the Shiller S&P 500 cyclically adjusted price-to-earnings ratio around 29.30 and higher than at any time since 1929 and 2000, caution is most certainly needed.
One thing to consider for nervous investors looking to get out totally is that the last year of a bull market is often the strongest, according to Savita Subramanian, the top-notch strategist at Merrill Lynch. She notes that the median return in the final year is 20%. The best idea right now may be to move to safer stocks that pay dividends and haven’t been bid up by the momentum crowd.
We screened the Merrill Lynch research universe and found five stocks that look like great candidates for nervous investors now.
This company has had a nice run off lows posted in November but is still trading below levels printed last summer. 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 14.4 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 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 4.72% dividend. The Merrill Lynch price objective is $46. The Wall Street consensus target price is $43.11. The stock closed on Monday at $41.49 a share.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
Chevron missed estimates badly, and combined with the dip in crude price, has sold off, giving investors a great entry point. Many analysts feel the company is the best positioned integrated.
Chevron shareholders are paid an outstanding 4.06% dividend. The massive $145 Merrill Lynch price target compares with the consensus target of $128.14. The shares closed Monday at $106.28 apiece.