With history as a guide, and the Federal Reserve keeping interest rates low, we thought it smart to look for the stocks that are the safest variety for investors in ultra-volatile markets. Selling everything and waiting for the turn rarely works, but rotating into safer companies is a good strategy.
We screened the Merrill Lynch research universe for safe stocks that are rated Buy and found four that make the grade.
Costco
This company has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses, where the company buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend as gasoline prices have dropped, this major retailer may continue to see large revenue gains.
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Costco remains one of the few conventional retailers with metrics like store traffic, market share gains and a validated model that could bode well in international growth and expansion. The company is largely unharmed by e-commerce and continues to add stores at strategically mapped out locations.
Costco investors are paid a small 1.11% dividend. The Merrill Lynch price target for the stock is $165, and the Thomson/First Call consensus target is $155.30. Shares closed Thursday at $143.35.
ConocoPhillips
This company may offer investors some of the best total return possibilities, and Merrill Lynch sees it as a top yield play. ConocoPhillips (NYSE: COP) is a large integrated that has spent the past five years divesting assets. Although it is cash rich, the company has somewhat dampened earnings and growth expectations all year long. Now, with oil looking for a bottom, and the market watching events in the Middle East, many analysts may feel more comfortable with the stock. The company’s big production ability in the Eagle Ford could bode well for the future.
The Merrill Lynch analysts feel Conoco can accelerate growth from reloaded portfolio depth in the Bakken and Eagle Ford with visibility on future growth from a newly disclosed sizable position in the Permian. The analyst applauds the company’s recent positive earnings report, cuts in unnecessary spending and the possibility of increased sales of non-core assets.
Conoco investors are paid a very strong 6.25% dividend. The Merrill Lynch price target is $74. The consensus target is $63.81. Conoco closed Thursday at $50.13.
Eli Lilly
This stock checks in high on the global pharmaceutical lists at many top Wall Street firms, and it is on the Merrill Lynch US 1 list. Eli Lilly and Co. (NYSE: LLY) is still somewhat surprisingly out of consensus with portfolio managers at mutual fund and hedge funds, or what is known as the buy side. It also has more Neutral ratings than Buy ratings on Wall Street.
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The company reported second-quarter earnings that were above the consensus estimates. A second-quarter revenue decline reflected generic competition for Cymbalta and Evista in the United States, as well as some negative currency movement. However, revenues surpassed the consensus estimate.
The company’s new cancer drug Cyramza won FDA approval for label expansion recently. It treats patients suffering from metastatic colorectal cancer. This was the fourth Cyramza approval in a one year period; it already has approval to treat advanced or metastatic gastric or gastroesophageal junction adenocarcinoma and metastatic non-small cell lung cancer. Cyramza has so far generated sales of $67.5 million.
The Merrill Lynch team and other analysts on Wall Street love the company’s product pipeline and point to Eli Lilly’s Solanezumab drug for Alzheimer’s Phase 3 data, which had positive clinical results reported in late July, and Jardiance, the company’s drug for diabetes, CV data, which this week posted very positive clinical results. The recent Phase 3 data on Evacetrapib was also very solid and just another positive for the company.
Shareholders are paid a solid 2.4% dividend. The Merrill Lynch price target is $101, and the consensus target is $93.61. Shares closed Thursday at $89.98.
Procter & Gamble
This stock is down over 20% this year, partly because a very large 65% of the company’s sales are directed to foreign customers. Procter & Gamble Co. (NYSE: PG) is a solid consumer staples stock, especially for conservative investors to consider. The company sells lots of run-of-the-mill household items that are essential for everyday life, and it is not content to stand pat on its laurels.
The company actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. While currency headwinds have weighed on recent earnings and projections, the dollar may be topping out this fall, and that would bode well for the future.
Shareholders are paid a solid 3.77% dividend. Merrill Lynch has an $85 price target, and the consensus target is a touch lower at $83.76. P&G closed Thursday at $70.24.
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The wow factor for these stocks is very limited, and so are the chances of bankruptcy. Investors concerned that history may repeat itself and we do retest the late August lows would be well served to rotate into these top large cap leaders.
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