Market pros will tell you that anytime you start getting triple-digit up and down days back to back on a consistent basis, you may be in for trouble. That kind of volatility, which we are seeing more of, often can proceed big market corrections. In a new research report, UBS updates its High Conviction stock picks, which represent the absolute best of the best at the firm, and we look for the low volatility leaders in the group.
We carefully screened the 24 stocks that make up the list for the five that offer the best upside potential and may hold up the best in the event of a severe market correction. Those five are Citigroup Inc. (NYSE: C), Comcast Corp. (NYSE: CMCSA), Dow Chemical Co. (NYSE: DOW), Medtronic PLC (NYSE: MDT) and Schlumberger Ltd. (NYSE: SLB).
The stock is very cheap, trading at just 10.2 times estimated 2015 earnings. The nation’s fourth-largest bank by assets delivered first-quarter earnings that jumped to $1.52 per share from $1.23 a year earlier. Analysts had expected Citigroup to earn $1.39 per share. While the stock has bounced sharply off the lows printed in early February, it still looks like a compelling buy, especially with a dividend increase in the mix and a recent dip in the price.
Numerous Wall Street analysts cite the fact that Citigroup will be a leader in buyback payouts to shareholders. Combined with the bank’s strong domestic and international business, and a better overall economy, plus the headline risk over bank stress tests being removed, shares purchases look wise here.
Citigroup shareholders are currently paid a miniscule 0.08% dividend, which will increase. The UBS price target on the stock is $64. The Thomson/First Call consensus price target is lower at $62.52. Shares closed Wednesday at $53.10 apiece.
This top member of the UBS High Conviction list is growing earnings substantially with extremely strong content revenue growth. Increased revenue at NBC Universal is also giving the company some earnings tailwinds, and a growing sports lineup is adding to revenues. This is all in addition to the continued effort to purchase Time Warner Cable in a colossal $45 billion deal that is drawing intense scrutiny from some who believe it is extremely anti-competitive. Some headline risk was added recently as six U.S. Senators came out opposed to the deal.
Many analysts feel that the acquisition helps Comcast directly challenge the major carriers and satellite for bundled service supremacy, and ultimately it will be completed, with a decision possible by the end of this quarter.
Comcast investors are paid a 1.7% dividend. The UBS has a price target of $70, and the consensus target is posted at $67.05. Comcast ended trading Wednesday at $58.76.
This integrated, market-driven company with an industry-leading portfolio of specialty chemical, advanced materials, agro-sciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high-growth sectors such as packaging, electronics, water, coatings and agriculture. In 2014, Dow had annual sales of more than $58 billion and employed approximately 53,000 people worldwide.
The UBS team thinks that oil should continue to firm, which should help chemical pricing over the next year. They also point to the involvement of hedge fund activist investor Third Point’s Dan Loeb as keeping a floor under the stock. The company also continues to benefit from low domestic natural gas prices, relative to overseas competitors that are forced to use more expensive oil as a feedstock. Shareholders will be glad to know the company reported outstanding earnings Thursday morning.
Investors are paid a very solid 3.5% dividend. While the UBS price objective is $60, the consensus price target is $52.55. Dow closed Wednesday at $50.02.
This is one of the world’s largest and most diversified medical device companies, and in January the company completed the gigantic $50 billion takeover of Covidien. Many on Wall Street see this historic merger, probably one of the largest in the medtech industry, as a momentous event, leading to the creation of a unique company that combines the extensive and innovative abilities of both Medtronic and Covidien.
The combined company, with officially joint forces of over 85,000 employees present in more than 160 countries and annual revenues of $27.4 billion in 2014, will now expedite Medtronic’s three fundamental strategies of therapy innovation, globalization and economic value.
Medtronic recently announced the start of a new feasibility study to evaluate the safety and effectiveness of the Valiant Mona LSA branch thoracic stent graft system, an investigational medical device designed to enable a completely endovascular solution for aortic aneurysms encroaching on the left subclavian artery.
Medtronic investors are paid a 1.6% dividend. The UBS price target is posted at $90, and the consensus target is lower at $86.53. Shares closed most recently at $78.01.
Despite bouncing smartly off the lows printed in January, Schlumberger is still down almost 24% from the highs of last summer. The company remains the largest oilfield services company in the world for now, with far-reaching operations all around the globe. It could be poised for years of solid growth despite the huge turn-down in oil pricing. UBS and a host of other Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected to be the strongest markets, if geopolitical concerns remain somewhat in check.
Schlumberger investors are paid a 2.4% dividend. The UBS price target is $103, and the consensus target is lower at $99.40. The stock closed Wednesday at $92.16 a share.
Large cap leaders are the play here. No momentum, no high-volatility tech or biotech. These are stocks that not only make good sense in a pricey market, they can remain in portfolios for years of solid growth and dividend payouts.