One of the big stories of 2015 was the ongoing strength of the U.S. dollar. Not only did it hammer many of the top multinational companies that do a significant amount of overseas business, it also wreaked havoc on oil, as crude is priced in dollars. While the greenback’s strength took its toll in 2015, more than a few Wall Street strategists feel that the strength will moderate this year as foreign developed economies extend their versions of quantitative easing and a resumption of growth trends attracts fund flows and direct investment.
We screened the Merrill Lynch database for stocks that were rated Buy and that also did a significant amount of their sales and business overseas. We found four that look very attractive and could make good sense as we head to 2016.
This top industrial could really jump with an economic pickup. It is also a member of the Merrill Lynch US 1 list and is one of the top 10 picks for 2016. 3M Co. (NYSE: MMM) is a diversified, global manufacturer. Its businesses are technology-driven and organized under five segments: Consumer, Safety and Graphics, Electronics and Energy, Health Care, and Industrial. Its popular brands include Scotch, Post-It, 3M and Thinsulate. The company also holds over 500 U.S. patents.
The stock was scorched earlier this month when the company released lowered guidance for 2015, citing weak macroeconomic conditions across the globe. However, it did offer what Merrill Lynch feels is solid 2016 guidance as the company anticipates GAAP earnings in the range of $8.10 to $8.45 per share, a year-over-year increase of 7% to 12%. Organic local-currency sales growth is expected to be 1% to 3%, while free cash flow conversion rate is anticipated to be 95% to 105%. The analysts feel that the 2016 earnings growth will come in at the high end of the company’s peer group.
Merrill Lynch feels that the pullback makes for an outstanding entry point for new capital and accounts that are adding to positions.
3M investors receive a 2.75% dividend. The Merrill Lynch price target is a strong $178, and the Thomson/First Call consensus target is $159.36. The stock closed Monday at $151.22.
The iconic chocolate company could get a solid boost from a weaker dollar. Hershey Co. (NYSE: HSY) is a global confectionery leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-tasting snacks. It has more than 80 brands around the world that drive more than $7.4 billion in annual revenues, including such iconic brand names as Reese’s, Hershey’s Kisses, Jolly Rancher Ice Breakers and Brookside.
The stock has had a miserable year and could be providing investors the best entry point in some time. The company is also on track to deliver what most on Wall Street feel will be moderate, low single-digit earnings growth in 2015, with the growth accelerating in 2016 as the company finally eases by some of the currency comparisons. Any drop in the constant dollar strength could really help trigger a rebound in international sales in 2016.
Hershey investors receive a 2.6% dividend. The $105 Merrill Lynch price target is higher than the consensus target of $93. The shares closed most recently at $90.39.