After one of the most brutal sell-offs in years, it’s very possible that we are close to the bottom. On Monday, while the markets were getting strafed again, to the tune of almost 3% on the Dow Jones industrial average and 2.21% on the S&P 500, respected hedge fund manager David Tepper of Appaloosa fame came out and told CNBC the firm was indeed nibbling at some stocks, and with good reason. Since posting a high of 2,925 on October 3, the S&P 500 is down right at 20%, which would be the definition of a bear market.
What Tepper and other Wall Street managers know is that the fundamentals for a bear market are not truly in place. First, almost nobody across Wall Street thinks we will have a recession in 2019. Secondly, while earnings will be lower than the robust numbers we saw this year, next year the S&P 500 companies earnings are expected to slow to an annual pace that still represents reasonable upside.
Lastly, the Federal Reserve, which has been the whipping boy of both the president and the investing media, may very well not raise rates any more in 2019, and if they do, it shouldn’t be more than twice. The 10-year Treasury has pulled back 40 basis points, or almost one half a percentage point in yield, which means investors are factoring in lower inflation, and with oil at 17-month lows, you can almost count on it.
We screened the Merrill Lynch research database looking for companies with solid dividends that are rated Buy and have the firm’s best volatility rating. We found five that look like great picks for 2019.
American Electric Power
This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states.
The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which would be also accretive.
American Electric Power shareholders receive a 3.64% dividend. The Merrill Lynch price target for the stock is $84, while the Wall Street consensus price target is $78.94. Shares traded on Wednesday at $74.05.
This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Coca-Cola investors receive a 3.4% dividend. Merrill Lynch has set its price target at $55, and the consensus target is $51.66. The stock was trading at $46.15.
This company remains a top energy pick on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
The company posted strong third-quarter results, and the Merrill Lynch analysts noted this:
Solid quarter with earnings and cash flow beat on the downstream segment. Production beat looks like it is on Permian growth which we view as underappreciated aspect to the company’s story. All-in-all, we see the quarter as a welcome start to management plans to double cash flow by 2025 and retain our Buy rating.
Shareholders receive a 5.0% dividend. The $108 Merrill Lynch price objective is well above the consensus target of $87.09. The shares traded at $65.10.
The fast-food giant does a ton of business overseas but still remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global food-service retailer with over 37,000 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 men and women.
McDonald’s shares have been positive recently as menu price increases and global growth fueled a strong third-quarter earnings report. McDonald’s beat earnings on the top and bottom line, and the company posted its 13th consecutive quarter of positive same-store sales growth.
McDonald’s shareholders receive a 2.72% dividend. Merrill Lynch has price target of $200. The consensus price objective is $195.44, and shares were trading at $170.00.
Procter & Gamble
This stock also offers a very solid dividend and safety. Procter & Gamble Co. (NYSE: PG) is another solid consumer staples stock for conservative investors to consider. It sells lots of very well-known household items that are essential for everyday life. Brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn.
The company actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. The Merrill Lynch team recently turned positive on the stock and noted this:
Merrill Lynch hosted investor meetings at the company’s headquarters with CFO Moeller which corroborate our analysis. Our meetings/analysis in the note lead us to conclude recent momentum is sustainable; we see Procter & Gamble beating current fiscal second quarter consensus. Risks remain, but manageable given momentum and defensive qualities which we see as attractive in a volatile equity market.
Shareholders receive a 3.28% dividend. Merrill Lynch has a $108 price objective. The consensus target is $90.88, and the stock traded at $87.95 on Wednesday.
This top pharmaceutical stock made a gigantic splash last year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates, and it 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 receive a 3.55% dividend. Merrill Lynch price objective of $47 compares with the target price of $45.32. The shares traded at $40.65.
These six safer stocks all carry Merrill Lynch’s best volatility risk rating and pay dependable dividends. They offer reasonable entry points and are the type of companies you can sleep well at night owning. While the bottom may not be totally in, starting to nibble at these great stocks does make sense now.
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