With 2019 as an incredible year for stocks to act as a capstone on the decade, investors better stop looking backward and start looking into 2020 and beyond. The bull market is now well over 10 years old. Some investors are cautious about 2020, but others are very optimistic, with many catalysts coming from earnings, easing of trade tensions, shockingly low unemployment, stable inflation, a global business recovery, accommodative central banking rates and overall business conditions being more positive than negative.
24/7 Wall St. has tracked many analyst and strategist forecasts heading into 2020. Most strategists remain positive, and analysts have many picks for upside. The typical Buy and Outperform ratings are coming with an implied total return projection of 8% to 10% at this stage of the bull market. That’s after adding in the effect of dividends.
Merrill Lynch has released a list of 11 top stock picks for 2020 heading into the new year. These are not necessarily the stocks with the most implied upside to each stock’s price target. Instead, these picks are from the major industry/category and fit within the 2020 themes for value, yields at a reasonable price, institutional ownership, growth expectations, foreign exposure, macro-sensitivities, position against peers, and so on. The firm also included scoring on the environmental, social and governance (ESG) theme, although some of the companies are not exactly loaded up in the major ESG funds and exchange-traded funds.
Only three of the 11 picks have remained from the 2019 list of top picks issued a year ago. The return has averaged about 20% on equal weighting since that time. That has underperformed in the strong market surge of 2019, and the 11 picks are said to differ from the S&P 500 index as they are more exposed to stock-specific risk and are subject to higher volatility than its benchmark.
We have added in color on each call, included the dividend yield and offered the Merrill Lynch 12-month price objective compared with the Refinitiv consensus analyst target price.
Walt Disney Co. (NYSE: DIS) now is listed under communications services and ranked high in the ESG theme, and it was still underweighted by large-cap active fund managers. The firm also liked its robust start to the Disney+ offering. Shares trade near $144, and Merrill Lynch’s price objective of $169 compares with a $156.28 consensus target. Disney comes with a 1.2% current dividend yield.
CarMax Inc. (NYSE: KMX) is a high-quality value stock with both cyclical and secular drivers. It ranks well on some quant models/factors. Merrill Lynch noted that it is underowned by active funds. The firm’s price objective of $150 is significantly above the current price of $88 and is the most aggressive among all analysts. The consensus target price is just $107.17, and CarMax currently does not pay a dividend.
Tyson Foods Inc. (NYSE: TSN) has a healthy and growing dividend yield with a low payout. It is likely to benefit from China’s recent lifting of U.S. poultry export ban amid the need to import other proteins due to African swine fever. Tyson Foods has a 1.8% yield for income investors, and the Merrill Lynch price objective is now $105. The current price is $90.75, and the consensus target price is $98.92.