Market veterans have seen this movie before: unfounded market optimism that lacks a real foundation of fundamental valuation but instead rests on psychological factors. Former Fed Chair Alan Greenspan popularized the term “irrational exuberance” in a 1996 speech addressing the burgeoning internet bubble in the stock market. While he was early on the call, the market blew up a few years later and some serious losses were taken.
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While the situation is different today, there are many signs that a correction is coming. That includes the massive amount of retail investor stock and option trading. In fact, retail trading now accounts for a stunning 20% of daily market volume. In addition, 20% of total option volume now comes from orders of 10 contracts or fewer. BofA Securities has noted these current conditions and said this when comparing now to 2000:
We expect a 5-10% market correction in the first quarter as the market “unknowns” above coincide with rising market exuberance, which would present a good buying opportunity in a broader bull market. We have already eclipsed the prior record in equity issuance from the dot-com bubble and we note that after the last two peaks, S&P 500 PE multiples dropped. For the past two years, the number of unprofitable IPOs has hovered near 80%. US investors have not been asked to buy this many new, unprofitable companies since the year 2000.
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Again a 5% 10% correction is not the kind of drop we saw in 2000, or even last year. Yet, like last year, it could come very fast, so it makes sense to move to safer stocks that pay dividends. We found five that look like great places to park some portfolio money now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
AT&T
This is a top telecom and entertainment play. AT&T Inc. (NYSE: T | T Price Prediction) 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.
AT&T reported fourth-quarter 2020 earnings that were shored up by an expanding subscriber base, but COVID-19 is still disrupting the company’s operations. The telecommunications and programming giant reported consolidated revenues of $45.7 billion and a net loss attributable to common stock of $13.9 billion, or −$1.95 per share. Adjusted earnings per share were $0.75 per share, including “asset impairments, an actuarial loss on benefit plans, merger-amortization costs and other items.”
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In 2021, AT&T expects a free cash flow of at least $26 billion, as well as a full-year dividend payout ratio of 50% or more. Consolidated revenue growth is expected to be around 1% and gross capital investment is pegged at roughly $21 billion, with $18 billion in capital expenditure.
Shareholders receive a 7.25% dividend. The BofA Securities price target for the shares is $36, while the Wall Street consensus target is $32. AT&T stock closed on Thursday at $28.69 a share.
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Altria
This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro, one of the most valuable brands in the world.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
Shareholders now receive a 7.94% dividend. BofA Securities has a $53 target price, and the consensus target is $47.46. Altria stock closed at $43.31 per share on Thursday.
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Bristol-Myers Squibb
This remains a solid pharmaceutical stock to own long term and offers among the best values now for investors. 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.
The company’s products include the following:
- Opdivo for anti-cancer indications
- Eliquis, an oral inhibitor targeted at stroke prevention in adult patients with non-valvular atrial fibrillation, and the prevention and treatment of venous thromboembolic disorders
- Orencia for adult patients with active RA and prostate-specific antigen, as well as reducing signs and symptoms in pediatric patients with active polyarticular juvenile idiopathic arthritis.
Shareholders receive a 3.27% dividend. The $80 BofA Securities price target compares with the $74.76 consensus target. Bristol-Myers Squibb stock closed most recently at $59.99.
Comcast
This top media and entertainment company remains a Wall Street favorite, and it is on the BofA Securities US 1 list. Comcast Corp. (NASDAQ: CMCSA) is the largest U.S. provider of cable services, with over 22 million basic subscribers. It owns NBCU, which includes the NBC TV Networks, Telemundo, MSNBC, USA, Syfy, Bravo, E!, CNBC and several other cable networks, as well as Universal Films and Universal Theme Parks.
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Comcast has invested in technology to build an advanced network that delivers among the fastest broadband speeds and brings customers personalized video, communications and home management offerings.
Recently, the BofA analyst that covers the company noted with vaccinations beginning, Comcast shares are poised to outperform, driven by solid cable and improving NBCU/SKY results. The firm has modestly tweaked the fourth-quarter estimates and adjusted the firm’s 2021 estimates, and it also anticipates the NBCU segment to be recast in 2021.
Holders of Comcast stock receive a 1.88% dividend. BofA Securities recently lifted the price target to $62 from $53. The $53.64 consensus target is near the most recent close at $53.23 a share.
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Valero Energy
This Wall Street favorite is a very solid energy play for investors who are more conservative. Valero Energy Corp. (NYSE: VLO) is one of the largest independent petroleum refining and marketing companies in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has a total throughput capacity of around 2.5 million barrels per day.
Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.
Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.
Investors receive a 6.07% dividend. BofA Securities analysts have set a $76 price target. The consensus target is lower at $66.88, and Valero Energy stock closed on Thursday at $64.55 per share.
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If we do have a 5% to 10% correction, most everything will trade lower to some degree. However, these liquid mega-cap blue chips will fare much better than momentum darlings’ that are massively overpriced and overbought. They make sense for more conservative growth investors looking for a little shelter from the potential proverbial storm.
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