Raytheon

This top defense company has a diversified mix of business and remains a favorite at Merrill Lynch. Raytheon Co. (NYSE: RTN) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.

Top Wall Street analysts feel that the company could be one of the biggest winners as the global threat environment has been heightened substantially this year, and with 31% of total sales from international, the prospects remain very positive. Many cite the Patriot Missile deal signed with Poland as a good example, which could propel 2019 and beyond earnings.

In addition, many think Raytheon has the balance sheet capacity to pre-fund its pension to take advantage of the currently higher tax deduction, which could eliminate or reduce mandatory pension funding and provide a lift to 2019 free cash flow and earnings. It is set up for continued strong orders from the wave of recent foreign military sales approvals and its strong pipeline of large international missile defense projects.

Shareholders of Raytheon are paid a 2.17% dividend. The $224 Merrill price objective is well above the $208 consensus target price. The shares closed most recently at $173.77.

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VFC

This solid consumer apparel play posted outstanding results this year. V.F. Corp. (NYSE: VFC) is a leading apparel wholesaler of lifestyle brands, including North Face, Vans, Wrangler, Lee, Timberland and Nautica. VFC distributes products globally via department stores, independent retailers, specialty chains and its own retail (full price, outlet and e-commerce).

Coalition segments include Outdoor and Action Sports (68% of fiscal 2018 revenue), Jeanswear (21% of revenue), and Workwear/Imagewear (9% of revenue). The company has reported solid results this year, and it recently spun off its Kontoor Brands to pay down debt.

The Merrill analysts continue to recommend shares and said this in a recent report:

We believe VF Remain (which includes, The North Face, Vans, Timberland, and Workwear) remains very healthy. VF provided Fiscal 2020 guidance for Vans sales growth of +9-11%. Importantly, we believe the momentum in Vans is sustainable despite tougher comps driven by momentum in styles outside Old Skool (Slip-on now the fastest growing footwear franchise) as well as apparel (which is expected to outpace footwear growth).

Shareholders receive a decent 2.35% dividend. Merrill has set its price objective at $95. The consensus target price is right in line at $95.10, and the stock was trading most recently at $86.36 per share.

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It remains a toss-up whether the Fed actually will lower rates at the end of the month. One thing seems somewhat certain though. If they don’t lower rates until September, there could be some investor disappointment. Toss in more of the president’s twitter feed on the Fed in the media, and that could drive some selling. All these companies would tend to hold up better if that is the case. If the Fed does indeed lower rates, the market probably will drift higher.