Investing

UBS Says Buy Large Cap Value: 4 Dow Jones Stocks Are Perfect

Lee Jackson

Published: August 28, 2017 9:45 am

Last Updated: January 12, 2020 8:43 am

With the summer almost over, and the slow August trading ready to give way to what could be a very eventful fall, many of the top firms we cover here at 24/7 Wall St. are out with their asset allocation recommendations. While most of the top strategists and analysts are still reasonably positive on equities overall, there is clearly a bias at some shops to be careful given the market’s big run.

A comprehensive new report from the top strategists at UBS makes the case, like many firms, that staying with large- and mega-cap stocks makes sense now. But in a move that some other firms haven’t embraced, they say that large cap value may be the best situation in those stocks now.

We screened the UBS research database for large cap stocks that fit the value proposition and found four companies, all in the Dow Jones Industrial Average, that may be perfect picks for the rest of 2017 and beyond. All are rated Buy at UBS.

Cisco

This top mega-cap technology stock pick at UBS makes good sense for investors seeking tech exposure. 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.

Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.

While Cisco reported fiscal fourth-quarter results that beat or matched most estimates, revenue was down year over year for the seventh consecutive quarter. Despite the decline, Cisco has beaten earnings and sales estimates for every quarter since CEO Chuck Robbins took over from John Chambers two years ago, and most think he has the tech giant headed in the right direction.

Cisco shareholders receive a 3.7% dividend. The UBS price objective for the stock is $37, while the Wall Street consensus target is $35.73. The shares closed last Friday at $31.44.

Disney

This top consumer media company with multiple streams of income to push revenue is a top entertainment and consumer play. Walt Disney Co. (NYSE: DIS) stock continues outperforming on a near-term and long-term basis. With the movie studio business poised to improve, as with accelerating theme park business, the network programming continues to drive viewership with extensive sports programming. Combining that revenue growth with the company’s solid media networks and interactive presence, and the 2017 and 2018 revenue estimates could be conservative.

The Disney Media Networks segment operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels and ABC Family, as well as UTV/Bindass and Hungama. This segment also owns eight domestic television stations. Disney is also one of 24/7 Wall St.’s top 10 stocks to own for the next decade.

Families are expected to continue to flock to the company’s theme parks such as Disneyland, Walt Disney World in Orlando, Magic Kingdom Park, Epcot and also the international parks.

Disney shareholders receive a 1.52% dividend. UBS has a $126 price target, and the consensus price objective is $113.58. Shares closed trading on Friday at $102.41.

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General Electric

This iconic blue chip industrial has been a huge laggard in 2017 and is offering a very solid 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 with $32 billion in revenue. The analysts feel the new company can leverage GE’s digital and technology expertise and the domain knowledge, capabilities and presence of Baker Hughes in oilfield services.

GE investors receive a 3.92% dividend. The $31 UBS price objective compares with the consensus target price of $29.31. Shares closed Friday at $24.49, down a staggering 22.5% this year.

Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers, and the Internet of Things is a big part of the shift. 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.

Earlier this year, Intel announced the purchase of Mobileye for $15.3 billion. The Israel sensor company gives the chip giant a leg up in the autonomous car competition, and it also adds many other capabilities. This is expected to be a big Internet of Things (IoT) segment going forward.

IoT is so huge that Intel expects the computing total addressable market (TAM) in autos to significantly outpace vehicle unit TAM. In fact, by Intel’s estimates, autonomous cars will demand a 10 times increase in compute throughput, a 1,000 times increase in pixels and 1,000 times increase in storage between 2017 and 2030. In dollar terms, that translates to in-car TAM (systems, data and services) of $70 billion and another $40 billion of TAM for autonomous driving-related data center spending.

Intel investors receive a 3.15% dividend. UBS has set its price target at $40. The consensus price objective is $39.81, and shares closed Friday at $34.67.

Four incredible large cap value stocks that all reside in the Dow Jones Industrial Average. While they may not have the momentum characteristics of some of the new high-flyers, they do offer stability, dividends, and a long track record of success and achievement.