More Dogs of the Dow Are Breaking Out With Upside

For the second time in less than a month, the Dogs of the Dow are receiving attention from a major Wall Street firm, and investors that bought the stocks are licking their chops in anticipation of more gains. The Dogs of the Dow are the 10 highest yielding stocks in the venerable index when trading starts in the new year. We recently wrote about the highest yielding stocks in the group.

A new research report from the technical analysts at Merrill Lynch points out that the 2016 Dogs of the Dow have shown leadership since the year started, and four of the companies now have what technicians call strong absolute and relative charts. Four of the stocks are breaking out, which the Merrill Lynch team refers to as the “Lead Dogs.” Three are rated Buy and one comes in with a Neutral rating.

Exxon Mobil

This company is one of Merrill Lynch’s top picks for 2016. Exxon Mobil Corp. (NYSE: XOM) is an energy sector play that the Merrill Lynch analysts are very positive on for the long term as the overall corporate strength of the massive integrated giant plays a significant part in the company’s usually solid earnings reporting pattern, as well as in maintaining dividend coverage.

The global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street do not fully appreciate as the segment contributes an estimated 16% of overall total revenue. Some very solid reasons for adding the stock to a long-term growth portfolio are that the company has consistently demonstrated disciplined investing, operational excellence and technological innovation.

The company recently appointed the head of its refining business as its new president, which makes him the probable successor to CEO Rex Tillerson, a move that was designed to avoid raising eyebrows on Wall Street. The new president, Darren Woods, is a 23-year company veteran, and he should keep the Goliath on the steady path for growth and progress.

Exxon investors are paid a very sizable 3.53% dividend. The Merrill Lynch price target for the stock, which is rated Buy, is $95. The consensus price objective at Thomson/First Call is lower at $79.86. The stock closed on Tuesday at $82.63 per share.
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Procter & Gamble

This stock is still down since this time last year, and partly that is because the company has a very large 65% of sales directed to foreign customers. That should improve as the dollar’s run looks to be slowing down. Procter & Gamble Co. (NYSE: PG) was added to the screen and 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 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, and that would bode well for the future.

The company posted very solid fourth-quarter results in January, and despite earning expectations that have been lowered somewhat, the Merrill Lynch team feels comfortable that the stock can continue the current positive momentum.

Shareholders are paid a very solid 3.17% dividend. Merrill Lynch has as $85 price target and a Buy rating, and the consensus target is posted at $83.10. The stock ended trading on Tuesday at $83.06.
Verizon Communications

This top telecommunications company is rated Buy at Merrill Lynch. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

The company reported solid fourth-quarter numbers, with earnings slightly higher than some Wall Street estimates and revenues topping the street consensus as well. With consumers having extra cash to spend due to low gas prices, some feel that smartphone upgrades could be in order, especially with the iPhone 7 due later this year. That could drive traffic and sales to Verizon in the second half of this year.

Verizon investors are paid a massive 4.31% dividend. The $55 Merrill Lynch price target is higher than the consensus price objective, which is set at $50.33. Shares closed Tuesday at $52.46.

Wal-Mart

The giant retailer is rated Neutral at Merrill Lynch, but the stock has been incredible since hitting a three-year low back in November. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates retail websites, such as Walmart.com and SamsClub.com.

The company operates through three segments: Walmart U.S., Walmart International and Sam’s Club. Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. Wal-Mart reported fiscal year 2016 revenue of $482.1 billion, and the company employs approximately 2.2 million associates worldwide.

Wal-Mart investors are paid a 2.94% dividend. The Merrill Lynch price target is $65. The consensus target is set even lower at $63.92. The stock has blown through both targets and closed on Tuesday at $68.04.
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While a lot of the run for these stocks has been registered, the strong technical momentum and relative safety of the companies continues to make them solid investments for growth portfolios.