4 Unloved Mega-Cap Stocks to Buy Now

June 24, 2015 by 247lee

With fund managers chasing performance, it may come as a surprise to our readers who has been left behind. Fund managers continue to underweight high-quality mega-cap stocks, particularly those with foreign exposure. In a new research report from Merrill Lynch, the technical team combines their considerable talents with the equity strategists and comes up with four very unloved mega-cap stocks.

These four mega-cap stocks are rated Buy at Merrill Lynch, have technically positive charts and are all underweighted by fund managers. Again, one of the mains reasons cited for underweighting these top stocks is foreign exposure and strong dollar headwinds.

With the OEX index, which represents the S&P 100 showing near-term relative strength, and improving breadth, it may be time for investors to start buying these four top mega-cap stocks.

Apple

This company remains the world’s biggest and boldest technology company. Apple Inc. (NASDAQ: AAPL) has stayed in the limelight with the release of the Apple Watch, and while not generating the kind of in-store mania the iPhone 6 release did, reports indicated that 2.5 million orders for the new wearable device were taken by the company in the United States alone, and the growth continues.

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Many Wall Street analysts say investors need to stay long the stock into second-quarter earnings. They see strong continued iPhone sales and numerous catalysts on the horizon. The company is also widening its lead over Google in the app marketplace. In fact, revenue at Apple’s global App Store was about 70% higher than on Google Play in the first quarter, compared with about a 60% advantage last year.

With a recent huge streaming music announcement, with some concessions made due to pushback from superstar Taylor Swift, the company continues to expand the gigantic reach it already commands. Apple is also updating the IOS operating system, updating and adding new apps and expanding Apple Pay. In other words, continuing to add to the 800-pound gorilla status.

Apple investors are paid a 1.65% dividend. The Merrill Lynch price target for the stock is $145. The Thomson/First Call consensus price target is $148.75. The stock closed Tuesday at $127.03.

Disney

This top consumer media company has multiple streams of income to push revenue, and many Wall Street analysts see Walt Disney Co. (NYSE: DIS) stock outperforming on a near-term and long-term basis. With the movie studio business poised to improve, as with accelerating theme park business, the network programming continues to drive viewership with extensive sports programming. Combining that revenue growth with the company’s solid media networks and interactive presence, and 2015 revenue estimates could be conservative.

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The Disney Media Networks segment operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels and ABC Family, as well as UTV/Bindass and Hungama. This segment also owns eight domestic television stations. Disney is also one of 24/7 Wall St.’s top 10 stocks to own for the next decade.

Disney shareholders are paid a 1% dividend. The Merrill Lynch price target is set at $130, and the consensus target is $118.81. Shares closed most recently at $114.41.

eBay

This company is quickly becoming the big winner in the digital/mobile payment market. eBay Inc. (NASDAQ: EBAY), the online auction giant, recently announced it had sold its 28.4% stake in Craigslist back to the online classified advertising site, ending years of legal wrangling between the two companies. The company bought a stake in Craigslist in 2004, but the two companies have tussled in court for years. Craigslist has long accused eBay of using confidential information to start its own classifieds site in the United States in 2007.

With the legal wrangling behind it, eBay will be refocusing on the corporate core competencies of commerce and payments on behalf of users, merchants, retailers and brands of various sizes in the United States and internationally. With the PayPal spin-out anticipated for as early as the third quarter, activist investor Carl Icahn becomes vindicated as he early on argued for the action.

The Merrill Lynch price target is $66, higher than the $63.03 consensus target. Shares closed Tuesday at $61.93.

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General Electric

This iconic blue chip industrial has lagged the market for years. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its businesses are organized broadly under six segments: GE Capital, Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. The company’s products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance.

The company has begun the process of scaling back many of its operations and returning capital to shareholders. GE recently announced a restructuring plan that includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations.

The repurchase program, which will be partly funded by $35 billion through money returned from GE Capital, is the second-biggest in history after Apple’s $90 billion plan. GE, which had 10.06 billion shares outstanding on Jan. 31, said it expected to reduce that by as much as 20% to 8.0 billion to 8.5 billion by 2018.

These are all catalysts that could lure the fund managers back to the stock, which was a tremendous growth stock for years under Jack Welch.

GE investors are paid a solid 3.35% dividend. The Merrill Lynch price target is $33, and the consensus target is $30.23. Shares closed Tuesday at $27.55.

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If there was ever a time to snap up these top mega-cap stocks, it is now. Markets are overbought and really could use a sell-off to take a little air out of the tires. These stocks will act much better in a sell-off than momentum darlings. Investors may want to buy a partial position now and see if the market doesn’t take a break in the summer.