Merrill Lynch Growth Portfolio Stocks Crushing the S&P 500: 5 to Buy Now

February 22, 2018 by 247lee

There are many different ways that top Wall Street firms go about covering companies with their research departments. Some use a top-down approach that starts with the big picture and breaks down from there into smaller segments. Others utilize a bottom-up approach, which is the piecing together of systems to give rise to more complex systems, thus making the original systems subsystems of the emergent system.

Almost all the firms we cover at 24/7 Wall St. also use quantitative research, which is used to quantify the company by way of generating numerical data or data that can be transformed into usable statistics. The analysts at Merrill Lynch have their Growth 10 portfolio, which is quantitatively generated and based on proprietary Merrill Lynch versus consensus earnings surprise model plus three additional screening criteria.

The portfolio has mauled the S&P 500 growth category over the past three-, five- and 10-year periods. We screened the portfolio and found five companies that look like solid picks for the rest of 2018.

Facebook

The huge social media leader has continued to post gigantic numbers, and the fourth quarter should be no exception. Facebook Inc. (NASDAQ: FB) operates as a mobile application and website that enables people to connect, share, discover and communicate each other on mobile devices and personal computers worldwide.

Its solutions also include Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application for mobile and web on various platforms and devices, which enable people to reach others instantly, as well as enable businesses to engage with customers; and WhatsApp Messenger, a mobile messaging application.

The Merrill Lynch price target for the shares is $265, which compares to a Wall Street consensus target of $222.81 The stock closed trading on Wednesday at $177.91 per share.

Flowserve

This company should get a boost from an improving economy and the proposed infrastructure build. Flowserve, Corp. (NYSE: FLS) is a Texas-based supplier of pumps, valves, seals, automation and related services, primarily for the oil and gas, power and chemical industries. Flowserve operates under three segments: Engineered Products, Industrial Products and Flow Control.

The stock has stumbled some over its past few earnings reports, but the analysts note that bookings were strong as 2017 ended and the prospects look good for this year.

Flowserve investors are paid a 1.74% dividend. Merrill Lynch has set its price target at $57, and the consensus target is lower at $45.46. The shares closed most recently at $43.78.

Lowe’s

This company looks poised to see huge spring and summer sales. Lowe’s Companies Inc. (NYSE: LOW) operates as a home improvement retailer, offering products for maintenance, repair, remodeling and home decorating.

Categories include kitchens and appliances; lumber and building materials; tools and hardware; fashion fixtures; rough plumbing and electrical; lawn and garden; seasonal living; paint; home fashions; storage and cleaning; flooring; millwork; and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.

While Lowe’s doesn’t have quite the store coverage that Home Depot does, with only 31% of the stores in the disaster-prone states, two recent acquisitions by the company, Alacrity and Maintenance Supply Headquarters, could help it capture continued post-hurricane demand.

Lowe’s investors are paid a 1.72% dividend. Merrill Lynch has a $123 price objective, while the consensus target price was last seen at $110.33. The shares closed on Wednesday at $95.34 apiece.

PulteGroup

This top homebuilder has a wide product portfolio. PulteGroup Inc. (NYSE: PHM) is one of the largest public homebuilders in the United States, delivering over 21,000 homes in 2017. The company is also well-positioned in approximately 50 markets in 26 states, targeting the first-time, move-up and active adult buyer groups.

PulteGroup primarily builds single-family detached homes, although it also constructs townhouses, condominiums and duplexes. The company owns a captive financial services business that provides mortgage financing, title, insurance and closing services.

The analysts were positive on fourth-quarter results and said why:

Following a solid fourth quarter, we slightly lower our 2018e earnings and to reflect a higher expected tax rate, However, we raise 2019e EPS from $3.70 to $3.85 given the company’s continued execution, while introducing a 2020e of $4.35. We view Pulte’s 2018 financial outlook as conservative, particularly deliveries, and expect upside as the year continues.

Pulte Homes investors are paid a 1.23% dividend. The $42 Merrill Lynch price objective compares with the posted consensus price target of $35.94. The shares closed most recently at $29.34.

Western Digital

This long-time innovator in the storage industry is a leader in the total addressable HDD market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.

The company is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

Western Digital stock traded down after earnings despite being above Wall Street earnings expectations for the fourth quarter and fiscal 2018, as investors were concerned about peak margins. The analysts feel that NAND supply-demand will not come into balance until mid-calendar 2018, creating forward upside potential.

In addition, the long-drawn dispute with Toshiba finally was put to rest, and the analysts said this:

The global settlement is positive as it removes uncertainty of NAND supply for Western Digital and the company gets to protect its intellectual property. The company positively preannounced the December quarter (revenue high end, margins came in better, offset somewhat by higher operating expense). Visibility has improved and management expects the flash supply/demand environment to remain healthy throughout 2018.

Shareholders are paid a 2.33% dividend. The Merrill Lynch analysts have a $120 price target. The consensus target is $113.58, and the stock closed trading on Wednesday at $85.67 a share.

I'm interested in the Newsletter
 

These five top stocks are reasonable compared to some of the other high-flying ones, and they would make good additions to growth accounts looking to add more equity exposure for the rest of 2018.