As the levels of panic start to rise in the market, so do the opportunities for investors who have put aside some cash in anticipation of the event we are currently experiencing. While the sell-off has been dramatic, and looking at your account each day shows what seems like an outsized drop, things clearly are not as dicey as they were in the summer of 2011. That is when America’s Treasury debt was downgraded for the first time ever. The time to buy is always when an investor can hardly stand the pain anymore.
The top equity strategist at Merrill Lynch, Savita Subramanian and her team, has updated the High Quality and Dividend Yield screen of stocks to buy, adding some names that may provide investors solid 2014 returns. Since its inception, the High Quality and Dividend Yield screen has outperformed the S&P 500 Total Return index. Current constituents of the screen offer an average dividend yield of 2.5%, versus the S&P 500’s dividend yield of 2.0%.
Here are the four new additions to the screen and other top names to buy.
E.I. du Pont de Nemours and Company (NYSE: DD) is rated at Overweight and is a top new stock to buy added at Merrill Lynch. The company had outstanding earnings and is benefiting from the strong manufacturing growth in the United States and abroad. DuPont is a stock that fits into the diversified conglomerate category. Shareholders are paid a solid 3% dividend. The Merrill Lynch price target is $72. The Thompson/First consensus price target for the stock is $65.73. DuPont closed Monday at $59.99.
General Dynamics Corp. (NYSE: GD), like other defense contractors, will have a shot at a much better 2014 with the newly passed federal budget. Some of the sequestration defense spending cuts have been restored. Without the bipartisan deal, defense spending would have been cut significantly in 2014 and beyond. The 2011 Budget Control Act required federal discretionary spending to fall from $986 billion in 2013 to $967 billion in 2014. However, the new agreement rolls back the automatic sequestration cuts to defense jobs from the past two years, in addition to protecting spending for the next two years. Investors receive a 2.24% dividend. Merrill Lynch has a $121 price target, and the consensus is at $109.44. General Dynamics closed Monday at $98.47.
3M Co. (NYSE: MMM) is a quality industrial name on the Merrill Lynch list of stocks to buy. The company received a big upgrade recently from the analysts at Nomura. The stock responded accordingly. Nomura now expects 3M to post EPS of $7.50 in 2014. Very strong fourth-quarter earnings were posted and growth should continue to drive the share price. Investors are paid a 2% dividend. Merrill Lynch has a $150 price objective, and the consensus number is set lower at $142.14. 3M closed Monday at $123.90.
Norfolk Southern Corp. (NYSE: NSC) shows up as a top transport to buy on the Merrill Lynch list. The company is expected to be a large beneficiary in the improving U.S. capital expenditures category. The logic here is that improved capex equals more product need and production, which will require transportation. Investors receive a 2.3% dividend. The Merrill Lynch price target is $103. The consensus price objective for this top railroad stock is $103.71, and the stock closed on Monday at $89.58.
We scanned the Merrill Lynch screen of current High Quality and Dividend Yield names for those with the highest current dividend. Many of them have gone higher as the sell-off has lowered the stock prices.
Johnson & Johnson (NYSE: JNJ) is a top yielding health care name to buy on the Merrill Lynch list. With everything from medical devices to over-the-counter health items, the stock is a solid add for conservative portfolios. Investors are paid a 3% dividend. The Merrill Lynch price target is set at $95. The consensus price target is even higher at $101.02. Johnson & Johnson closed Monday at $86.78.
McDonald’s Corp. (NYSE: MCD) is a defensive name that every portfolio manager seems to own. Even though same-store sales have dropped, so has the restaurant performance index, which is published at the end of every month by the National Restaurant Association and reflects the health of and outlook for the U.S. restaurant industry. Typically, buyers are likely to step into to this solid name after major sell-offs. Investors receive a respectable 3.4% dividend. The Merrill Lynch price target is $110, and the consensus target is $103.30. McDonald’s closed at $93.02 in Monday trading.
Procter & Gamble Co. (NYSE: PG) is a solid consumer staples name on the list. The company sells lots of run-of-the-mill household items that are essential for everyday life, and it is not content to stand on its laurels. P&G actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. Shareholders are paid a 3.1% dividend. Merrill Lynch has a $90 price target, and the consensus is a touch lower at $88.16. P&G closed Monday at $75.70.
Paychex Inc. (NASDAQ: PAYX) is another top yielding name on the Merrill Lynch list. The company is a leading provider of payroll, human resource, insurance and benefits outsourcing solutions for America’s small- and medium-sized businesses, and it has been named one of the Best Companies to Work for in New York State for 2014. Happy employees are productive employees, and that is a positive for investors. The investors are paid a solid 3.3% dividend. The Merrill Lynch price target is $47, and the consensus is $41.63. The stock closed Monday at $40.40.
Massive market sell-offs are debilitative to investors, especially those who maybe came to the party a little late. The positive side to the market going down is it provides patient investors access to top quality names at much better entry points. For those focused on the longer term, this has proved to be a winning hand over the years.