Why BofA Securities Income and Growth Portfolio Stocks May Be the Best 2021 Picks

Investing

Published: October 9, 2020 8:23 am

If you had asked investors in the middle of March this year if they thought the U.S. stock indexes would reach all-time highs a mere six months later, they probably would have been thrilled just to get to even at that point. In fact, after a 35% sell-off in a month, many people likely were ready to get out of the stock market forever. Yet, with interest rates at generational record lows, the equity markets remained a positive alternative.
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The question investors face now, just over three weeks from perhaps the most important election in over a century, is what to do now and for 2021. Given that the stock market is seemingly fully valued at current levels, with the exception of lagging sectors like energy, the best idea for next year could very well be a solid income and growth portfolio.

In a new BofA Securities research report, the income and growth portfolio team make some rebalancing and weighting changes to the firm’s portfolio for clients. They noted this when making those changes:

The portfolio shifts are modest as uncertainty remains, including COVID19, the US election, relations with China and global growth. However, as we approach the end of 2020 and think about investing for 2021 and beyond, we expect we will have more clarity on these issues, which in turn, hopefully suggests the worst is behind and that global growth will recover. This is consistent with the outlook of many of BofA Global Research Strategists.

We screened the portfolio looking for stocks that are rated Buy and pay solid dividends. Most importantly, we kept an eye out for value, as that could be a recurring theme next year. Five stocks look like solid ideas for balanced income and growth portfolio investors. While all are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Abbott Laboratories

This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.

The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.

Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnose cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from samples, and detect and measure infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.

New interim clinical data results on its ID NOW COVID-19 rapid test confirm the data submitted to the FDA in March for Emergency Use Authorization and the interim results that Abbott shared in its May 21 press release. The data also speaks to the important role played by reliable point-of-care testing that is available in convenient and accessible locations where people can get immediate results.

Investors receive a 1.33% dividend. The BofA Securities price target for the shares is $122, and the Wall Street consensus target is $115.53. Abbott Laboratories stock closed Thursday’s trading at $108.54.

Chevron

This integrated leader is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas.

Back in the spring, at the height of the pandemic, Chevron slashed spending after halting its $5 billion-a-year share buyback and halving spending in the Permian Basin, which means a large decrease in projected output from America’s biggest shale region.

The California-based oil giant has said that it would lower projected 2020 capital spending by 20%, or $4 billion. The Permian will account for the largest single element of that reduction, translating into 125,000 fewer barrels of oil equivalent per day than previously forecast, a quantity equal to about 2.5% of the basin’s total current production.

Investors receive a 6.86% dividend, which still appears to be safe. BofA Securities has a $96 target, while the consensus target is $97.13. Chevron stock closed at $75.22 on Wednesday.