Any time the markets hit and establish new all-time highs, the concern among Wall Street professionals is always what catalyst is there to drive stocks higher? One thing is for sure, earnings are the ticket to continued advances in the market, and the sectors that have lagged the market over the last four to seven quarters may be the ones that deliver the goods for investors.
For a variety of reasons, energy, materials, financials and technology have struggled for the past year and a half. With easier comparisons and dollar strength abating, two of these sectors, technology and financials, account for 35% of the S&P 500 earnings, and could be the key to earnings growth. Toss in energy and materials, which account for an additional 10%, and the market could sustain a higher level overall earnings growth.
We screened the Merrill Lynch research database for one Buy-rated dividend-yielding stock in each sector. We found four that make good sense now.
This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.
Intel reported an inline first quarter, and lowered the forward outlook. Merrill Lynch stays positive on the company and believes there is solid upside potential for the stock. Some analysts think the restructuring can ultimately translate to $0.23 in annual earnings-per-share savings.
Intel investors receive a 2.97% dividend. The Merrill Lynch price target was recently raised to $40 from $36. The Thomson/First Call consensus price target is $36. Shares closed most recently at $35.07.
This is one of the higher yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America. It is one of the largest U.S. oil and gas companies, based on equity market capitalization. Its midstream and marketing segment gathers, processes, transports, stores, purchases and markets hydrocarbons and other commodities in support of Occidental’s businesses. In addition, the wholly owned subsidiary OxyChem manufactures and markets chlor-alkali products and vinyls.
While the company reported a first-quarter 2016 loss that was wider than the consensus forecast, Occidental did report total revenue that beating the Wall Street estimates. The company continues to deliver capital expenditure cuts, and the expected total of $3 billion for this year is a mind-numbing cut of 50% from 2015 expenditures.
With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.
Shareholders receive a 3.88% dividend. Merrill Lynch has an $87 price target for the stock, and the consensus target is set at $78.90. Shares closed just south of there on Friday at $77.32.