Investing

Current Bull Market Not Over Until It's Over: 5 US Stocks to Buy

Lee Jackson

Published: August 15, 2018 10:00 am

Last Updated: January 11, 2020 7:22 pm

It may be hard to believe, but on August 23, according to Merrill Lynch, the current bull market will be the longest in history, reaching back to the lows printed in March of 2009. While some would argue that the actual secular bull market didn’t start until the S&P 500 broke out above 1,550 in March of 2013, that in and of itself, was over five years ago.

A new Merrill Lynch report acknowledges that while the bull market is somewhat long-in-the-tooth, missing the final year of a bull market can be a big mistake for investors.

The report noted this:

Two of our bear market signposts, the typical precursors to a market peak, reversed. This brings our signposts triggered down from 74% to 63%, the lowest level since the start of this year. In our view, the cycle is not over. Our year-end target for the S&P 500 remains 3000, and our sector tweaks underscore our view that market leadership could broaden out over the coming six to twelve months.

In their current asset allocation, Merrill Lynch is overweight information technology, health care, financials, industrials and materials. We picked one Buy-rated dividend-paying U.S. stock from each sector. They all make sense for growth and income accounts with some risk tolerance.

Financials

Shares of Citigroup Inc. (NYSE: C) have traded down over 15% from highs posted in January. This top bank has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 9.25 times estimated 2019 earnings, the stock looks very reasonable in what is becoming a pricey stock market. A continuing stock buyback program at the bank is also positive.

The banking giant reported weaker-than-expected quarterly revenue. The company’s earnings per share, however, handily topped estimates.

Citigroup investors are paid a 2.57% dividend. The Merrill Lynch price target for the stock is $84. The Wall Street consensus price objective is $83.52, and shares were last seen trading at $69.25.

Health Care

Pfizer Inc. (NYSE: PFE) made a gigantic splash last year with its $5.5 billion purchase of Anacor Pharmaceuticals. This top global biopharmaceutical company has a diversified portfolio of products and pipeline candidates and is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue. It also is a component of the Dow Jones industrial average.

The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.

Investors in Pfizer are paid a very solid 3.34% dividend. Merrill Lynch has a price objective of $43, and the posted consensus price objective is $40.60. The shares traded early Wednesday at $40.80 apiece.

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Information Technology

Microsoft Inc. (NASDAQ: MSFT) stock has posted all-time highs this year and has a massive $132.7 billion sitting on the balance sheet. This top old-school technology company continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.

Many Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the recent earnings report which was outstanding.

Microsoft also is expected to be a big winner in the new Department of Defense cloud project. In fact, Microsoft and its dedicated Azure Government segment appear to be the main challenger to Amazon’s AWS service, with industry checks barely mentioning IBM and Google, and countering that Oracle has little traction as a provider of modern cloud infrastructure services to the U.S. federal government.

Microsoft shareholders currently receive a 1.53% dividend. The $134 Merrill Lynch price target is well above the $121.70 consensus price objective. The stock was trading at $108.45 Wednesday morning.

Industrials

Lockheed Martin Corp. (NYSE: LMT) is a top aerospace and defense stock to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending. The company researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.

Lockheed Martin investors are paid a 2.51% dividend. Merrill Lynch has set its price objective at $412. The consensus target price is $375.76, and the shares were last seen trading at $315.60.

Materials

This result of a blockbuster merger in 2017 has emerged bigger and stronger, and the stock is on the Merrill Lynch US 1 list. DowDupont Inc. (NYSE: DWDP) is a diversified chemical company with $79 billion in sales in 2017, and it was formed as a result of the merger of Dow and DuPont.

The company is organized in three principal divisions: Agriculture (20% of EBITDA), Material Science (55%) and Specialty Products (25%). It intends to separate these into three public entities by 2020.

The stock has underperformed this year, and the concerns over the trade issues with China are continuing to keep shares under pressure. The stock is down over 15% from highs that were printed in January.

The shareholders are paid a 2.25% dividend. The Merrill Lynch price objective of $82 compares with the consensus price target of $81.48 and the most recent close at $67.56.

Five outstanding stocks all based here in the United States, which Merrill Lynch recommends now. All have solid upside potential, paid dependable dividends and are somewhat safer than crowded momentum stocks.