The ongoing trade and tariff issues most likely will have the greatest impact when companies report second-quarter earnings. Needless to say, investors are wary of the constant back and forth between the United States and other countries on trade, but the reality is it took President Trump to address issues that have festered for decades, as other presidents and U.S. leaders on both sides of the aisle kicked the proverbial can down the road.
While the economy continues to be reasonably solid, the pressure remains on corporations on what to do going forward, pending the final outcome on trade and tariffs. A new Merrill Lynch report suggests second-quarter earnings overall could mirror the first quarter in terms of margin compression, and the analyst maintains that most of the bad macro items are baked into expectations.
The Merrill team screened the S&P 500 for stocks in the firm’s research coverage universe that were the most likely to beat and miss earnings estimates, and they noted that companies that beat get rewarded some, but those that missed are often punished in a big way.
We found five on the list that are solid defensive picks for investors in what is a very expensive market, and they are also under-owned by active fund managers. All are rated Buy at Merrill Lynch.
Advance Auto Parts
This top stock was hit hard this spring and now offers a great entry point. Advance Auto Parts Inc. (NYSE: AAP) is the second largest auto parts retailer in the United States, Puerto Rico and the Virgin Islands. It operates more than 4,000 stores under the Advance Auto Parts brand, as well as nearly 200 AutoPart International locations. It sells to both do-it-yourself customers and professional installers.
Investors have hammered the stock despite a report in May of better-than-expected quarterly earnings that were higher year over year.
Investors receive a tiny 0.15% dividend. The Merrill price target for the shares is a lofty $200, while the Wall Street consensus is $192.94. The shares ended Tuesday’s trading at $155.50.
This company remains a top Warren Buffet holding and offers not only safety but also an incredibly strong worldwide brand. 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 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 3.10% dividend. Merrill has a $55 price target, and the consensus target is $52.09. The stock closed at $51.59 on Tuesday.