As we near the end of July, we are also nearing the end of the second-quarter earnings reporting season, and for the most part it has been solid, and the markets have responded positively, printing new all-time highs. One thing is evident, there is a distinct shift away from some of the bond proxy sectors, like consumer staples and utilities, toward sectors like industrials and consumer discretionary. This certainly makes sense, because in an improving economy, they should do better.
In new research reports, Merrill Lynch stays very positive on three top companies that have already reported earnings. While all three may have to work hard the second half of the year, they all remain quality additions to growth portfolios.
This top industrial could really jump with an economic pickup. 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, Healthcare, and Industrial. Its popular brands include Scotch, Post-It, 3M and Thinsulate. The company also holds over 500 U.S. patents.
While the company adjusted the midpoint of its guidance, the analysts remain positive but note the company, like many, faces a tough global macro environment. They do think the results are strong in relation to peers and feel that the focus toward return on invested capital will yield multiple expansion and earnings growth.
3M investors receive a 2.5% dividend. The Merrill Lynch price target for the stock is $200, and the Wall Street consensus target is $177.43. Shares closed Wednesday at $178.27.
This iconic blue chip has been on a strong roll and investors may want to scale buy shares, looking for a pullback. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its businesses are organized broadly under six segments: GE Capital, Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. Its products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance. Wall Street analysts feel that the American giant will be a large player in the efficient energy field.
The company posted solid second-quarter numbers that were somewhat hampered by slower organic growth. GE does an estimated 52.9% of its total sales overseas, so a weaker dollar surely could help the rest of this year and into 2017.
The Merrill Lynch analysts note that while the company’s execution story remains on track, the global macro picture could also prove to be a headwind. While some question the ability to post second-half of 2016 growth, the analysts feel it is very achievable. They also feel the company will re-accelerate cash deployment into 2017 to offset the macro environment. Plus bullish crude oil fundamentals and ongoing cost cutting measures may help to keep the stock price elevated.
GE investors receive a 2.95% dividend. Merrill Lynch has a $37 price target. The consensus price objective is at $33.71. Shares closed Wednesday at $31.28.
The fast-food giant has been hit hard since earnings were released, but it still remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business persons.
The company reported solid second-quarter results, but the U.S. store comparable sales growth of just 1.8% disappointed investors. The Merrill Lynch team noted that charges and refranchising gains make the earnings number a bit dicey, so they lowered their GAAP numbers for the year to $5.40 from $5.60.
McDonald’s shareholders are paid a 3% dividend. Merrill Lynch lowered its price target to $140 from $143, while the consensus target is $130.43. The shares closed most recently at $119.75.
The bottom line is that the biggest companies are often the safest to buy, and with the market still right at all-time highs, these liquid, large cap leaders make good sense now.