Investors Are Sitting on Mountains of Cash: 5 Blue Chip Buys With Big Upside

Investing

Published: April 20, 2020 7:00 am

Last Updated: April 20, 2020 7:05 am

One short month ago, we looked doomed. The stocks market had plunged 35% in less than a month, with some of the highest velocity selling ever recorded. Since the dark days of March, things have improved as the Federal Reserve and the Treasury have combined for a massive one-two punch to supply liquidity and order to the markets, and stocks have rallied back almost 30% from the lows.

Despite the rally, extreme bearishness still prevails, and money market funds are bulging with a stunning $4.5 trillion in assets, and the almost 6% cash held by institutional investors is the highest since 9/11 in 2001. The one worrisome statistic now is that the largest five stocks now account for a stunning 22% of market capitalization.

With an eye toward avoiding those companies, which are four of the five FANG stocks and Microsoft, we screened the Merrill Lynch research universe looking for Buy-rated companies that pay a dividend and still have substantial room to run to the Merrill Lynch price target. We found five that make sense now for cautious investors looking to put at least some of the huge trove of cash to work.

AT&T

This is a top telecom and entertainment play. AT&T Inc. (NYSE: T) is the largest U.S. telecom company and provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections, with 77 million postpaid subscribers.

While AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition, the company through WarnerMedia has become a diversified media and entertainment business.

In a smart move to protect the long-standing dividend and improve cash flow, the telecom giant canceled its plan to buy back $4 billion in stock over the next three months, as the coronavirus pandemic reignited criticism of Fortune 500 companies’ repurchasing practices. In a regulatory filing in late March, the company said canceling its buyback agreement will allow it to “focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including nationwide 5G.”

Investors receive a 6.66% dividend. Merrill has a $43 price target for the shares, while the consensus target across Wall Street is $36.34. AT&T stock was last seen trading at $31.23 per share.

Bristol-Myers

This remains a solid pharmaceutical stock to own and is on the Merrill Lynch US 1 list of top stock picks. Bristol-Myers Squibb Co. (NYSE: BMY) is a global pharmaceutical company focused on discovering, developing, licensing and marketing chemically synthesized drugs or small molecules and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV), oncology, neuroscience, immunoscience and cardiovascular.

Bristol-Myers reported strong fourth-quarter results that were largely ahead of Wall Street consensus estimates, given the recognition of revenue from Celgene, which the company bought last year in a massive $74 billion acquisition. Bristol-Myers is expected to report first-quarter results on April 30.

Shareholders receive a solid 2.97% dividend. The Merrill price target is $75, and the consensus target is $70.45. Bristol-Myers Squibb stock closed trading at $60.50 on Friday.