One way or another, by the end of this week we will know the result of the Brexit vote, and while the volatility may ramp up some between now and then, at the end of the day investors need to focus on what sectors will be solid for the rest of 2016. One area that makes good sense for more aggressive accounts is technology, especially large cap dividend-paying leaders.
We screened the Merrill Lynch research universe for tech stocks that pay a higher dividend than the 10-year U.S. Treasury and that are rated Buy at Merrill Lynch. We found four companies that have all reported solid numbers and look poised for a solid second half of 2016.
This semiconductor capital equipment leader has moved up nicely this year after underperforming. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.
The analysts are very positive on the stock and see Applied Materials benefiting not only the semiconductor side of the business, but also from larger, higher resolution and flexible screens on the display side of the business. Despite reporting solid first-quarter earnings that were above consensus, and guidance that was in line with expectations, the stock is still very reasonably priced. It may very well be one of the best technology values available for investors today. Some Wall Street analysts see continued FinFET capacity expansion (10nm/14nm/16nm) and transition to 3D NAND, with DRAM spending remaining strong next year.
Earlier this month the company announced a new $2 billion share buyback program, which comes on the heels of a recently completed $3 billion program. Merrill Lynch sees the purchase plan as being approximately 8% accretive to earnings.
Applied Materials investors receive a 1.71% dividend. The Merrill Lynch price target for the stock is $28. The Thomson/First Call price target is $26.39. Shares closed Friday at $23.43.
This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.
Intel reported an inline first quarter, and lowered the forward outlook. Merrill Lynch stays positive on the company and believes there is solid upside potential for the stock. Some analysts think the restructuring can ultimately translate to 0.23 in annual earnings-per-share savings.
Intel investors receive a 3.27% dividend. Merrill Lynch has a $36 price target, and the consensus price objective is $35.66. Shares closed on Friday at $31.69.