Merrill Lynch Adds 3 Top Blue Chips to International Portfolio

Given the increase in the dollar, and some of the overall negative headlines from around the world, many investors have concentrated investments here in the United States. While that has proven to be a solid strategy so far, some of the top foreign stocks are looking increasingly cheap and may be just the right additions to growth portfolios.

The Merrill Lynch International portfolio managers increased their overall weightings in the three sectors they bought recently. Financials are increased to 22.5% from 21.5%. Information technology went to 13.5% from 13%. Energy moved to 7.5% from 7%. All three of the following stocks that were added to the portfolio are rated Buy at Merrill Lynch.


This is a top international financial and a solid purchase for growth and income accounts. HSBC Holdings PLC (NYSE: HSBC) is the leading cross-border international banking group, with particular strength in Asia, but also the United Kingdom, Middle East and the Americas. Regional franchises are largely focused on retail and business banking in the U.K. and Hong Kong home markets.

With more than $50 billion in revenues and over $180 billion in capital, HSBC is one of the largest global banks. It operates in more than 65 countries across four main business segments: Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets and Global Private Banking. More than half of its revenue comes in Asia, followed by Europe at about 30%.

Investors are paid an outstanding 5.77% dividend. The Merrill Lynch price target for the stock is $51.71. The Wall Street consensus price objective is the same, so it’s safe to assume the Merrill Lynch price target is the only one available. The shares closed trading on Wednesday at $44.19.

Taiwan Semiconductor

This is a top play for technology investors looking for international exposure. Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) is the largest and undisputed global leader in integrated circuit (IC) manufacturing. As a build-to-order foundry, it provides a wide range of value-add activities: IC manufacturing, mask-making, IC design services, turn-key solution and process development. The company attributes its success to its proven, winning business model, unparalleled scale advantage, optimized execution and technology scope and depth.

With more than $30 billion in revenue, the company is a leading manufacturer of semiconductors, mostly wafers. More than 60% of the company’s revenues come in the United States, followed by Asia at approximately 20%. Both revenues and earnings per share are expected to growth at a double-digit rate on average over the next couple of years, with the growth rate accelerating from 2018.

Investors receive a 2.35% dividend. The $49 Merrill Lynch price objective compares with the $47.56 consensus target price. The stock ended trading on Wednesday at $44.02.

Royal Dutch Shell

This company has survived the seesaw in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) is a diversified integrated oil company, with close to $400 billion in annual sales. The company explores, produces and refines petroleum, in addition to making chemicals and lubricants. It is the second largest oil company in the world, behind Exxon Mobil, with operations in more than 100 countries, and with more than 40,000 gas stations across the world.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

The company also engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The company just announced the start of a $25 billion stock buyback program, and while second-quarter earnings were somewhat weak, free cash flow at the integrated giant remains strong.

Investors are paid a huge 4.82% dividend. Merrill Lynch has a $78 price objective, and the posted consensus figure is $81.01. The stock closed Wednesday at $66.26.

These three top additions to the Merrill Lynch International portfolio look like solid plays for investors, especially those looking for growth and a dependable dividend. All are better suited for accounts that have a somewhat higher degree of risk tolerance.

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