Investing

Trump Magic May Be Wearing Off: Time to Move to These 5 Safe Stocks

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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.

AT&T

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.

Chevron

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.

Digital Realty Trust

This top data center company is a solid play on the huge cloud and streaming content revolution. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.

Its clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. The company rates highly with portfolio managers, as 8.39% of its market cap is in institutional hands.

The analysts cite the solid dividend and the potential for dividend growth. They also feel that data center pricing is still favorable, and the growth in adoption of the cloud is a positive going forward. Lastly, they feel the stock is underweighted by active managers and could see an uptick if they started adding shares.

Investors receive a 3.62% distribution. Merrill Lynch has set its price target at $120. The consensus target is $109, and the shares closed most recently at $102.80.

General Electric

This iconic blue chip industrial was on a strong roll after the election, but it rolled over in December and is offering a great entry point. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its businesses are organized broadly under six segments: GE Capital, Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. Its products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance.

The company recently announced a huge deal to combine GE’s Oil & Gas business and Baker Hughes to create a leader in oil and gas equipment, technology and services. It will have $32 billion in revenue and can leverage GE’s digital and technology expertise and Baker Hughes domain knowledge, capabilities and presence in oilfield services.

GE’s fourth-quarter earnings were in line with forecasts, but revenue fell short of the consensus estimate. The hope for a big infrastructure spend is a big positive for the company in 2017 and beyond.

GE investors receive a very solid 3.26% dividend. Merrill Lynch has a $35 price objective for the stock, and the consensus target is $33.60. Shares closed most recently at $29.44.

Wal-Mart

The giant retailer has acted very well since hitting a three-year low back in November of last year. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates via retail websites, such as Walmart.com and SamsClub.com. The company operates through three segments: Walmart U.S., Walmart International and Sam’s Club.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. With fiscal year 2016 revenue of $482.1 billion, Wal-Mart employs approximately 2.2 million associates worldwide.

Shareholders are paid a 2.93% dividend. The Merrill Lynch price target is $88. The consensus target is $74.37, and shares closed trading on Monday at $69.95.

In any big sell-off, all stocks will go down, but these lower volatility companies that are not trading at sky-high multiples should act better. While some of the Trump trade momentum has indeed been sidelined, there is every reason to believe that the economy should continue to improve.

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