Industrials

Merrill Lynch Has 3 Industrial Stocks to Buy After Earnings

With most of the second-quarter reporting done, and the market now entering the proverbial dog days of the summer, we wanted to find out just who did the best in the second quarter. In a new research report from Merrill Lynch we got the answer — and were somewhat surprised.

The Merrill Lynch team, which is led by the outstanding Savita Subramanian, crunched the numbers and a somewhat unlikely sector winner came up for the second quarter in terms of beating earnings expectations. An astounding 62% of big cap multinational companies have beaten on earnings per share estimates, 49% have beaten on sales and 36% have beaten on both metrics. The analysts point out this is similar to the first-quarter numbers.

We screened the Merrill Lynch universe of stocks for companies rated Buy that fall into that category.

General Electric

This iconic blue chip industrial posted solid second-quarter numbers and may be in the process of a huge turnaround. 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. The company’s products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance.

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The company has begun scaling back many of its operations and is returning capital to shareholders. GE announced earlier this year a restructuring plan that includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations.

The repurchase program, which will be partly funded by $35 billion through money returned from GE Capital, is the second-biggest in history, after Apple’s $90 billion plan. GE, which had 10.06 billion shares outstanding on Jan. 31, said it expected to reduce that by as much as 20% to 8.0 billion to 8.5 billion by 2018.

All these catalysts could lure the fund managers back to the stock, which was a tremendous growth stock for years under Jack Welch.

GE investors are paid a solid 3.58% dividend. The Merrill Lynch price target for the stock is $33, and the Thomson/First Call consensus target is $30.23. Shares closed Monday at $25.87.