You know we are living in uncharted waters and unusual times when the Chicago Cubs win the World Series and the race for the White House is too close to call with two very unfavorable candidates. As we have written lately, the VIX, which is a popular measure of the implied volatility of S&P 500 index options, has almost doubled since the end of October, as people are becoming more nervous about everything from the election to the hot spots around the world, where bellicose anti-American rhetoric has been hot and heavy.
While many are expecting a large downdraft if Donald Trump wins, most feel that the move would be temporary, much like what happened with the Brexit vote in late June. One solid strategy is to buy big blue chip stocks that pay dividends that will do well regardless of who wins.
We screened the UBS research universe for just those kinds of stocks. They must be rated Buy and pay a dividend that is higher than the 30-year U.S. Treasury bond, and we found four winners.
This is one of the top mega-cap technology stock picks on Wall Street. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Cisco offers service provider video infrastructure, including set-top boxes, cable/telecommunications access products, and cable modems, as well as video software and solutions. In addition, it provides collaboration products comprising unified communications products, conferencing products, telepresence systems and enterprise mobile messaging products; data center products, such as blade, rack and modular servers, fabric interconnects, software and server access virtualization solutions; security products, including network and data center security, advanced threat protection, web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products.
UBS analysts recently met with the company CFO, Kelly Kramer, who came over from General Electric. They noted these positives in a recent report:
Interesting tidbits from our discussion included (1) Ms. Kramer said Cisco has no interest in buying Nokia and played down the likelihood of a large acquisition, (2) there is a good chance for repatriation legislation in 2018; Kramer would like to do more than offset dilution with the buyback program, (3) Cisco is co-developing a router with one of the hyperscalers—Cisco owns the IP and it will become a core router offering, and (4) each business unit is examining how to “Meraki-ize” in order to create more recurring revenue though the shift will be gradual.
The last part refers to Cisco’s Meraki Cloud Services. Many think that Meraki is likely to be a $1 billion plus run-rate business this year, with an incredible 50% to 70% compounded annual growth rate.
Cisco investors receive a 3.43% dividend. The UBS price target for the stock is $35, and the consensus target is $33.30. Shares closed Thursday at $30.32.
This iconic blue chip industrial was on a roll but has sold off 15% since July and is giving investors a nice entry point. 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.
The company recently announced a huge deal to combine GE’s Oil & Gas business and Baker Hughes to create a leader in oil and gas equipment, technology and services. It will have $32 billion in revenue and can leverage GE’s digital and technology expertise and Baker Hughes domain knowledge, capabilities and presence in oilfield services.
Most on Wall Street are very positive on this deal, which comes on the heels of a failed attempt by Halliburton to buy Baker Hughes. The UBS analysts note that the merger brings what they term as “pure play value, synergies, digital opportunities, perhaps most importantly, earnings accretion.”
GE investors receive a 3.25% dividend. The UBS price objective is $34. The consensus target is $32. Shares closed at $28.28.