Merrill Lynch Makes a Big Change to Top-Performing Value Stock Portfolio

Print Email

With the second quarter of 2018 almost over, many of the top Wall Street firms we follow 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 very explosive component.

In a recent research note, the analysts at Merrill Lynch make a big move in the firm’s top-performing Value 10 portfolio, which has outperformed the S&P Value index since inception by 10.2% to 6.1%, by adding Kraft Heinz Co. (NYSE: KHC). This company was formed on July 2, 2015, via the merger of H.J. Heinz and Kraft Foods.

Kraft Heinz is a leading global food company, with $29 billion of annual revenues generated by well-known brands such as Kraft, Heinz, Oscar Meyer and Maxwell House. The company is the third largest food and beverage manufacturer in North America, and it derives 76% of revenues from that market and 24% internationally.

The company’s additional brands include ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers, Smart Ones and Velveeta.

Kraft Heinz shareholders are paid a very strong 4.32% dividend. The Merrill Lynch price target for the shares is $85. The Wall Street consensus target is $73.82, and the shares traded Wednesday morning at $57.57.

We screened the Value 10 portfolio for other stocks in the portfolio that also paid outstanding dividends and found three other great picks for more conservative portfolios looking to shift to value.

Allstate

Insurance companies tend to do well as rates rise, and this sector giant may be an outstanding pick for investors. Allstate Corp. (NYSE: ALL) is the largest publicly traded personal lines insurance company, with about 12% of the personal lines market (one in eight households). Allstate is primarily a direct writer. Besides a full array of personal lines P/C products (preferred, standard and nonstandard auto insurance, and homeowners’ insurance), the company also offers life insurance and annuity products.

Shareholders are paid a 1.51% dividend. Merrill Lynch has a price objective of $115, while the consensus target price was last seen at $106.27. The stock traded at $94.24 Wednesday morning.

D.R. Horton

This is one of the highest volume builders in the United States and a top pick at Merrill Lynch, also residing in the firm’s US 1 list. D.R. Horton Inc. (NYSE: DHI) is the largest public builder by closings in the country, delivering roughly 40,000 homes in 2016. It is positioned in 78 metropolitan markets in six major regions. It develops single-family homes primarily for first-time and move-up buyers.

Approximately 80% of revenue is derived from the Southeast, South Central and West regions, all of which continue to see very solid growth. D.R. Horton also provides mortgage financing and title agency services to homebuyer.

Shareholders are paid a 1.13% dividend. The $74 Merrill Lynch price target is well above the consensus target of $55.45. The shares traded at $41.81.

Verizon

This top telecommunications company has been among the worst performing Dow Jones industrial average stocks for much of this year, with shares still down over 10%. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world.

Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

The company reported better-than-expected first-quarter results, as the wireless carrier lost fewer monthly phone subscribers than feared and the company’s chief financial officer said it was continuing to explore a new video service.

Verizon investors receive an outstanding 4.92% dividend. The Merrill Lynch price target is $58. The consensus target is $55.88, and the stock closed Tuesday at $48.09.

These are four great value plays from the top-performing Merrill Lynch Value 10 portfolio. All pay outstanding dividends and look like far better stocks to own going into the traditionally slower summer months than overpriced and crowded growth stocks.