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5 Top Blue Chip Inexpensive and Neglected Stocks to Buy From Merrill Lynch

On most metrics that Wall Street looks at, especially forward price-to-earnings (P/E) and price-to-book numbers, most S&P 500 sectors are trading at average relative valuation. What that translates to is, without significant earnings increases to expand multiples, many top-performing sector stocks may be expensive and overweighted by portfolio managers. A new report from Savita Subramanian, the top-notch strategist at Merrill Lynch, and her team scanned the S&P 500 universe looking for inexpensive and neglected stocks that could be winners when they return to vogue.

While most people don’t need an equity strategist to tell them that energy is underperforming by double digits, many may be surprised to know that utility stocks are trading at a 20% premium to average relative forward P/E. We cross referenced the inexpensive and neglected stocks sectors, with stocks within those sectors rated Buy at Merrill Lynch. What we found may be some tremendous opportunities for patient investors.

We picked one stock rated Buy from each inexpensive and neglected sector.

Cisco Systems Inc. (NASDAQ: CSCO) gave the market a very pleasant surprise when it reported solid earnings on Wednesday after two lackluster quarters. While some on Wall Street were distressed with the forward guidance, which came in below expectations, more than one firm we cover, and Merrill Lynch is included, feel that the hyper-conservative forward view may very well be beaten. The analysts noted the strong execution on multiple fronts, backed up Cisco’s solid strategy. Switching grew 3% year-over-year, wireless grew 12%, security 25% and data centers 15%.

Cisco investors are paid a respectable 3% dividend. The Merrill Lynch price target for the stock is $28. The Thomson/First Call consensus estimate is $26.50. Cisco closed Thursday at $25.68. Here is how Cisco is rated now by analysts after its earnings report.

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Exxon Mobil Corp. (NYSE: XOM) is an energy sector behemoth that the Merrill Lynch analysts are very positive on. Wall Street as a whole acknowledges the strength of the integrated giant, which played a significant part in the company’s very solid third-quarter earnings report. Merrill Lynch conceded that while the bar had been set low due to very disappointing second-quarter numbers, the firm believes that continued steady operating and financial results likely will lead to multiple expansion. Also pointed out in the report was that the company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many on Wall Street do not fully appreciate.

Exxon investors are paid a solid 2.9% dividend. The Merrill Lynch price target is $110. The consensus price objective is lower at $101.42. Shares closed trading on Thursday at $94.66.