It is very rare for a market to suffer a 10% correction, as this one did recently, and have what’s called a V-shaped recovery. That is where a low is touched and the market bounces right back and continues on its merry way. Typically, and the chirping pundits on financial television have called for this, the market will retest the low, and if it holds and goes higher then all is usually well.
With volatility heightened, we have continued to see days in which the market moves 500 points or more. When the Federal Reserve Minutes came out on Wednesday, we were quickly up 250 points, only to close down 166 as Treasury yields surged. This is not typical market action.
With the possibility for a retest probably better than 50-50, we screened the Merrill Lynch research universe for stocks that would be “must buys.” These five have catalysts and should be grabbed, especially if we see a big sell-off.
This top mega-cap technology company recently reported an outstanding quarter. 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.
The outstanding results reported came with a huge $25 billion stock buyback as well. Many think the company is poised to see the kind of multiple expansion this year that Microsoft saw in 2017. That could lift the shares significantly higher.
Shareholders receive a 3.07% dividend. The Merrill Lynch target price is $53, and the Wall Street consensus target is $42.26. The stock closed on Thursday at $42.94.
Energy Transfer Partners
This company merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
The company continues to deleverage and also posted huge numbers on Thursday. Merrill Lynch noted:
The company reported fourth quarter EBITDA of $1,938 billion, significantly above Merrill Lynch and the consensus estimates. On its earnings call, Energy Transfer upsized its 2018 organic growth capex guidance to $4.5 billion (from the prior $3 billion). We reiterate our Buy rating and raise our price target based on a 2019 estimated adjusted EV/EBITDA of 11.5x.
Unitholders receive a massive 12.4% distribution. Merrill Lynch raised its $23 price target to $26, above the consensus target of $24.14. Shares closed Thursday at $18.99 and traded higher in Friday’s premarket.
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