Investing

Merrill Lynch Says Jump on These 5 Dow Jones Industrial Average Laggards

IBM

This blue chip leader may still be offering investors the best entry point in years, as it is down almost 4% in 2018. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

IBM’s five major segments are: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for their positive outlook going forward.

For the second quarter, IBM beat analyst expectations on both revenue and earnings per share, despite some currency headwinds. At current trading levels the stock is a bargain, especially if the company can continue to grow its cloud business.

IBM shareholders receive a 4.24% dividend. The $200 Merrill Lynch price target compares with a $164.50 consensus estimate. The shares closed Monday at $147.94.

McDonald’s

The fast-food giant remains a solid pick for investors seeking dividends and a degree of safety, and its shares are down over 8% in 2018. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business persons.

Second-quarter diluted earnings per share increased 12% (9% in constant currencies) year over year, reflecting $0.09 per share of strategic restructuring charges. Excluding these charges, diluted earnings per share increased 15% (12% in constant currencies), excluding $0.03 per share of prior year strategic charges.

In the United States, second-quarter comparable sales increased 2.6%, driven by growth in average check, resulting from both product mix shifts and menu price increases. Operating income for the quarter decreased 7%, primarily due to the strategic restructuring charge. Excluding this charge, operating income increased 1%, as higher franchised margin dollars were partly offset by lower company-operated margin dollars.

McDonald’s shareholders receive a 2.55% dividend. Merrill Lynch has set its price target at $190. The consensus target is $183.46, and shares closed Monday at $158.14.

Walmart

The giant retailer is another candidate for increased storm-related sales. Walmart Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets, as well as Sam’s Club locations, in the United States, and it has a growing e-commerce business (including Jet.com). Internationally, Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce sites in 11 countries. With fiscal year 2017 revenue of nearly $486 billion, Walmart employs approximately 2.2 million associates worldwide.

The company announced in the summer plans to acquire a 77% stake in India e-commerce retailer Flipkart in a $16 billion debt and cash transaction. The deal dramatically expands Walmart’s presence in India, where online retail is growing quickly and Flipkart is a leader. The deal is expected to close in fiscal 2019 and could be dilutive for the foreseeable future. Some are blaming the huge deal as a reason for the stocks so-so performance.

Shareholders receive a 2.19% dividend. The Merrill Lynch price target is $115. The consensus target is $104, and shares closed trading Monday at $94.82.

These five top stocks that have all lagged this year and are offering incredible entry points for investors with a longer time horizon. They all offer good growth potential and don’t come with massive valuations like some of the FANG stocks. All are also safer picks in a very pricey market.