Typically Wall Street is a monkey-see, monkey-do land because portfolio and fund managers tend to talk among themselves. One of the things we look for at 24/7 Wall St. is quality stocks that one or major banks like that managers tend to shy away from and be underweight. The theory is that there is still potential for managers to up their buying of the stocks, especially if they stay on a roll with good earnings or positive headlines.
In a new research report from Merrill Lynch’s outstanding equity and quantitative strategist Savita Subramanian, she and her staff make the case that owning neglected stocks and selling crowded stocks has been a winner, yielding almost 10% of alpha. We were intrigued by the stocks listed in the report that are rated Buy at Merrill Lynch are underweighted or neglected by funds.
While the companies seem to be high profile, very few funds own them. We picked four that pay solid dividends and that also are held by the lowest percentage of funds in the list.
American Electric Power
This industry leader is also a solid dividend-paying company that only 10.2% of funds own. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive.
American Electric Power shareholders are paid a solid 3.53% dividend. The Merrill Lynch price objective for the stock is $68. The Thomson/First Call consensus price target is $67.47. Shares closed on Tuesday at $63.63.
This top retailer has been pounded and could be offering investors a solid entry point. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States. It offers private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices. As of March 03, 2015, it operated 1,162 department stores in 49 states.
The company recently got a slew of free social media marketing and advertising when a Texas mom’s crazy internet post wearing a Chewbacca mask that she bought in a bargain bin at the store went incredibly viral. The clip has been seen by 135 million people as of Monday morning, making it the most watched video ever on Facebook. Kohl’s sent representatives to her house with a trove of gift cards and other items, and of course, more Chewbacca masks for the kids. Only 8.8% of funds own the stock.
Kohl’s shareholders are paid a huge 5.65% dividend. Merrill Lynch has a $42 price target for the stock, and the consensus price target is posted at $41. The stock closed most recently at $35.39.