Merrill Lynch’s Top 5 Catalyst-Driven Ideas to Start 2015

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With a huge two-day rally pushing the stock market back to where we closed in 2014, investors are looking for ideas that have the ability to make money in the first quarter. A research report from the alpha generation team at Merrill Lynch focuses in on 10 specific catalyst-driven ideas for the first 90 days of 2015.

Eight of the Merrill Lynch catalyst-driven ideas are listed as buys, or long ideas, and two are rated Underperform, which would be a short-selling trade. We focused on the five long ideas, where the analysts preferred large-cap liquid stocks.

Citigroup Inc. (NYSE: C) leads off the list at Merrill Lynch. The analysts feel that the large-cap money center giant will surpass expectations in the first quarter as they “pass” the Federal Reserve’s Comprehensive Capital Analysis and Review and wind down capital dedicated to Citi Holdings and sell or spin-off the bank’s subprime lending business. These catalysts, combined with the bank’s strong domestic and international business, make it a solid buy for investors.

Citigroup shareholders are paid a miniscule 0.1% dividend. The Merrill Lynch price target for the stock is $65. The Thomson/First Call consensus price target is at $60.12. Shares ended Thursday trading at $51.94.

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Community Health Systems Inc. (NYSE: CYH) is another Merrill Lynch catalyst-driven idea for 2015, and the thesis is predicated on coverage expansion under ACA reform providing a substantial boost in 2015 and beyond, as well as a large asset base providing geographic diversification and scale advantages. Community is one of the stocks that the Merrill Lynch team sees as most levered to the states where Medicaid expansion could be the greatest, and it is more exposed to ACA than many of the other companies in the firm’s coverage universe. They also expect fourth-quarter earnings to come in very strong.

The Merrill Lynch price target is $72.The consensus price objective is much lower at $62.39. Shares closed Thursday at $55.51.

Walt Disney Co. (NYSE: DIS) is a top consumer discretionary pick and is a stock that the Merrill Lynch analysts see outperforming on a near-term basis. They feel the movie studio business is poised to improve, as is the accelerating theme park business. Combining that growth with the company’s solid media networks and interactive presence, and the first-quarter revenue report could be outstanding. The analysts do acknowledge the stock trades at a premium to the market, but it offers cheaper growth, and they are above consensus for earnings.

Disney shareholders are paid a 1.3% dividend. While the Merrill Lynch price target is $105, the consensus is at $96.50. Shares closed Thursday at $93.79.

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Kraft Foods Group Inc. (NASDAQ: KRFT) is an iconic food company with a host of popular brands that consumers have loved for years. The Merrill Lynch team believes Kraft could warrant a premium multiple, given the potential for strong earnings growth over the next several years, and the firm is above Wall Street consensus for fourth quarter earnings. The analysts also cite the chairman of the company taking over as chief executive and additional share repurchases as additional positives for the food giant.

Kraft shareholders are paid a very attractive 3.6% dividend. The Merrill Lynch price target is $68, and the consensus target is $59.71. The stock closed trading Thursday at $63.99.

Signet Jewelers Ltd. (NYSE: SIG) may be better known by some investors for the company’s recent purchase of national jewelry store chain Zales. The company also owns Kay Jewelers and the highly advertised Jared brand, making the company dominant in retail jewelry in the United States. The Merrill Lynch analysts feel that the company will report outstanding numbers as a result of very solid holiday sales. They also expect Signet to continue to gain market share with its strong product and superior customer service, and to become an even larger market share player within the jewelry industry.

Signet investors are paid a small 0.5% dividend. The Merrill Lynch price objective is a whopping $150, while consensus target stands at $142.04. The stock closed at $126.14 a share.

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Investors looking for new ideas may want to consider these solid stocks with upcoming catalysts. Whether looking for a trade or a longer term hold, they fit the bill for growth investors both ways.