With earnings for the first-quarter long over, and only one month remaining in the second quarter of 2018, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients. With the market showing volatility not seen in years, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility, as the political and geopolitical cycle could prove to be a very explosive component.
A new Merrill Lynch research report offers some big changes to the firm’s Endeavor Small Cap portfolio. Here we cover the new additions, as well as highlight three other top picks from the portfolio that could be outstanding summer additions for aggressive growth accounts looking for more small cap exposure.
In a very timely call noting the recent Supreme Court ruling on gambling, Merrill Lynch added Boyd Gaming Corp. (NYSE: BYD) to the portfolio. It operates as a multi-jurisdictional gaming company through three segments: Las Vegas Locals, Downtown Las Vegas and Midwest and South. The company owns and operates gaming entertainment properties located in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.
The company also owns and operates a travel agency and a captive insurance company that underwrites travel-related insurance in Hawaii. As of December 31, 2017, the company owned and operated 24 gaming entertainment properties, offering a total of 1,358,856 square feet of casino space, 30,267 slot machines, 632 table games and 9,372 hotel rooms.
Boyd remains a favorite for Las Vegas locals and is substantially levered to the Las Vegas market. The company generally targets largely locals in this market. The company’s downtown properties also draw Hawaiian tourists. In general, Las Vegas locals performance is less impacted by weekends versus weekdays in a period than other gaming markets would be, as a substantial portion of the local economy works in hospitality.
The Merrill Lynch team also added an old-school construction firm to the Endeavor portfolio. KBR Inc. (NYSE: KBR) is a premier global engineering and construction company focusing on the energy sector and government services, with particularly strong resume in the liquefied natural gas (LNG) market, having built a third of the installed global capacity.
KBR operates through three segments. The Government Services segment offers life-cycle support solutions to defense, space, aviation, and other programs and missions for government agencies in the United States, the United Kingdom and Australia.
Technology & Consulting includes proprietary technology focused on the monetization of hydrocarbons (especially natural gas and natural gas liquids) in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining; gasification; oil and gas consulting; integrity management; naval architecture and proprietary hulls; and downstream consulting
Engineering & Construction includes onshore oil and gas; LNG (liquefaction and regasification)/GTL; oil refining; petrochemicals; chemicals; fertilizers; differentiated EPC; maintenance services (Brown & Root Industrial Services); offshore oil and gas.
Merrill Lynch has a $45 price target on Boyd shares, and the Wall Street consensus target was last seen at $39.23. The stock traded early Thursday at $38.05.
KBR shareholders are paid a 1.71% dividend. The Merrill Lynch price objective is $20, while the consensus price target is $19.38. Its shares traded at $18.50.
We found three additional companies in the portfolio that look not only very attractive now, but very timely as well.