While the stock market clearly remains a better place for capital than the bond market, the reality is it is expensive. At 18 times earnings, it is pushing the envelope, and the time could be drawing near for a big correction. A new report from Deutsche Bank highlights all the known risks, including currency headwinds. It also focuses in on large cap stocks that are reasonable in a pricey market.
We screened the Deutsche Bank “What to buy now” list of large cap stocks for those from different sectors with the highest estimated 2015 earnings-per-share growth. The five we found are AbbVie Inc. (NYSE: ABBV), Avago Technologies Ltd. (NASDAQ: AVGO), Bank of America Corp. (NYSE: BAC), Best Buy Co. Inc. (NYSE: BBY) and Southwest Airlines Inc. (NYSE: LUV).
Many Wall Street analysts feel that AbbVie can come in with an outstanding increase in first-quarter earnings. Some predict the company will increase earnings by an incredible 17% for the quarter, with sales of the company’s blockbuster drug Humira up a sizable 15%. The Deutsche Bank team projects the company will see earnings growth in 2015 of an outstanding 37%.
Wall Street had started to become concerned over lower expectations for the company’s new hepatitis C therapy Viekira Pak, when the biggest concern was really a price war with competitors. Toss in a $21 billion purchase recently of Pharmacyclics, which some have said is way too high, and some volatility has crept into the stock.
AbbVie investors are paid an outstanding 3.3% dividend. The Deutsche Bank price target for the stock is at a staggering $80. The Thomson/First Call consensus target is lower at $69.75. The stock closed trading Tuesday at $63.61 a share.
Originally a part of Hewlett-Packard, Avago and gets a huge chunk of its business from Apple and Samsung. They are big providers in the cloud and hyperscale data center and networking sector. In fact, the company recently announced it will demonstrate its latest optical transceiver technologies for next generation data center and enterprise storage applications. As data center networks transition to 100 G speeds to support higher bandwidth demands, technical challenges emerge across various levels of the network from storage endpoints to servers to top-of-rack (ToR) and core switches.
Avago is also expected to be a huge winner in the fast-growing 4G LTE market in China. Some analysts on Wall Street feel that the market could more than triple over the next few years and drive between 300 million and 400 million devices by 2017. The Deutsche Bank team sees 2015 earnings rising an astonishing 600%.
Avago investors are paid a 1.2% dividend. The Deutsche Bank price target is $135. The consensus target is right in line at $140.95. Avago closed Tuesday at $123.10 a share.