Every quarter, many of the firms we cover here at 24/7 Wall St. come out with their top picks for the next three months, and many times the ideas have a shorter window of opportunity. With the market continuing to grind higher, we decided to look back at the Merrill Lynch top fourth-quarter picks and see how they had performed as we get close to winding down the earnings reporting season. Four look like great stocks to own the rest of the year and into 2018.
Overall, third-quarter earnings were very solid, led by some very impressive technology earnings that were posted last week. The S&P 500 is tracking at a 1% earnings beat, and a 2.5% beat if you back out insurance, which faced heavy storm-related claims. With sales coming in also 1% above expectations, the quarter figures to be the biggest sales beat in three years.
We screened the top Merrill Lynch picks for the quarter and four have done great and look to be great buys for the stretch run of 2017 and for next year as well.
This is the top stock to buy now in the consumer discretionary sector. CarMax Inc. (NYSE: KMX) is the nation’s largest specialty retailer of used vehicles and has been in operation since 1993, when it was a subsidiary of Circuit City. CarMax focuses primarily on the used vehicle market, but it has a handful of new vehicle stores as well. It also has its own in-house financing arm (CarMax Auto Finance). In the used market, CarMax generally targets the late-model segment (one- to six-year-old cars and trucks) and offers no-haggle, transparent pricing.
The huge storm damage in Florida and Texas may be a big plus for the company, as it is possible that as many as 500,000 or more cars have to be replaced. CarMax also noted recently that it isn’t looking to hire seasonal employees in 2017. Instead, the retail company maintained that all of the 2,000-plus employees will be filling long-term positions. The company currently employs roughly 24,000 people. Adding almost 10% to your workforce is a very positive announcement.
The Merrill Lynch price target for the stock is $82, and the Wall Street consensus target is $86.87. The stock closed Wednesday’s trading at $74.46 a share.
This is one of the highest yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. The chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.
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. The analysts noted this positive in a recent report:
Permian growth looks likely to exceed guidance over the next 3 years. Well results have moved to sector leading in key operating areas, accelerating the bridge to the chief financial officers pledge to break even to mid 2018 at $50 oil, driving a step change in free cash flow, above ‘major’ peers and underpinning a re-rating in dividend yield.
Occidental shareholders are paid a huge 4.71% dividend. Merrill Lynch recently lifted its price target for the shares to $76 from $70. That compares with a posted consensus target of $63.55, and the stock closed trading Wednesday at $65.46 per share.