The indicators are flashing yellow, and it may be time for investors to take note. Short sellers have capitulated, as short interest is now at the lowest levels in years. Margin loan debt levels are at their highest point in years, and some are saying old multiple metrics don’t matter. Lastly, we are finally starting to hear the ultimate throw-in-the-towel line getting tossed around: it’s different this time. With earnings starting to wind down, it may be time for some portfolio reviews and changes.
This week the market may have had what some strategists call the start of the blow-off phase, which is generally the last move higher, often in a parabolic move to the highs. Going to all cash is expensive at a full-service broker, and Treasury and corporate bonds have very low yields. One good idea is to move to blue chip dividend stocks that have trailed the big move and pay dividends.
We screened the Merrill Lynch US 1 research database and found five safe stocks that make good sense for investors starting to get nervous. They are also the highest conviction stock picks at the firm.
This company has had a nice run off lows posted in November but is still trading below levels printed last summer. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.
With its shares trading at a very cheap 14.4 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
On Tuesday, the company reported first-quarter earnings that met analysts’ expectations, but revenue disappointed. Record-low equipment sales in wireless contributed to a year-over-year drop in revenue.
AT&T investors receive a 4.91% dividend. The Merrill Lynch price objective for the stock is $46, and the Wall Street consensus target is $42.80. Share closed Wednesday at $40.44.
Delta Air Lines
This company consistently has ranked highly with Wall Street. Delta Air Lines Inc. (NYSE: DAL) and the regional Delta Connection carriers offer service to 334 destinations in 64 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 700 aircraft.
Wall Street analysts have long lauded Delta for the most extensive hedging policy among the airlines and it owns and operates a refinery in addition to a sizable hedging book. The stock underperformed last year, and if bookings and the economy continue to spike up in 2017, many believe that the company’s multiple stands to benefit the most among the major carriers.
Delta reported a better-than-expected quarterly profit and forecast passenger unit revenue, a closely watched revenue measure, to increase 1% to 3% in the second quarter, citing healthy demand. The company also said March marked the first month of positive passenger unit revenue since November 2015, and it expects the measure to remain positive throughout the rest of the year.
Delta investors receive a 1.75% dividend. Merrill Lynch has a $64 price objective, and the consensus target price is $61.43. The stock closed most recently at $46.37.