Every day it seems that the market hits new all-time highs. Most targets for the S&P 500 from the start of the year have been blown through already, forcing Wall Street strategists to lift their targets higher, and we are in mid-February. One huge reason for the gains is an end-of-cycle blow-off that is being driven by the dreaded FOMO (the fear of missing out).
In addition, with active managers getting crushed by passive investing, they are now chasing performance by adding the FANG stocks and Microsoft, which is helping to drive indexes even higher.
We decided to screen the sectors that have underperformed since last fall, which include materials, industrials and energy. We then cross-screened those sectors in the Merrill Lynch research universe database looking for Buy-rated stocks that are liquid and would participate in global growth of gross domestic product. We found five that offer long-term growth and income investors some outstanding value now.
This large-cap leader was hit by trade worries in 2019 and is offering a very solid entry point. Caterpillar Inc. (NYSE: CAT) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It is also one of the most valuable brands in the world.
The company principally operates through three primary segments (Construction Industries, Resource Industries and Energy & Transportation). It also provides financing and related services through its Financial Products segment.
Fourth-quarter results may have been the catalyst for investors to get off the bench and start adding shares. The analysts said this:
Investor expectations were definitely much lower than consensus, but the EPS outlook of $8.50-10 was still about 5% below that. Decks could finally be cleared for some EPS upside in 2020 if our lead indicators are correct, and trends start to improve. Caterpillar has more work to do on dealer destocking, but the quarter was actually OK helped by 2.4% of margin expansion for Energy and Transportation.
Shareholders receive a 3.03% dividend. Merrill has a $150 price target for the stock, while the Wall Street consensus target is $146.59. Caterpillar stock closed Wednesday at $139.50, up 2.5% on the day.
This stock may offer solid upside potential, and the company recently gave investors a massive dividend increase. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.
Many Wall Street analysts feel Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian.
The company reported fourth-quarter profits of $0.76 per share, which was 37 cents lower than in the same quarter last year. Earnings of $0.80 per share for the quarter were anticipated by 19 analysts providing estimates. The company also reported revenue of $8.14 billion, which was higher than the estimated $7.71 billion.
Investors receive a 2.86% dividend. The massive $80 Merrill Lynch price target compares to the $74.17 consensus estimate. ConocoPhillips stock closed up almost 2% on Wednesday at $59.76.
This is the ultimate old-school company, though it has gone through a vast metamorphosis over the past few years, and offers an outstanding entry point. DuPont de Nemours Inc. (NYSE: DD) is the former Specialty Products segment of DowDuPont, a diversified specialty chemical company.
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