After a dreadful first six months of 2022, which culminated with a S&P 500 market low of 3,666 on June 16, we have seen one of the strongest rallies in a while. The S&P 500 rally of almost 16% pulled the venerable index out of bear market status, and much to the delight of the always bullish Wall Street crowd, we even have seen the return of the left-for-dead meme stock army.
While on the surface this may all seem good for beleaguered investors who saw their 401(k)s and IRAs absolutely hammered, the reality is this may be the proverbial bear market rally. The impetus for the big run has been consumer and producer price index numbers that came in slightly below estimates this week, lending credence to the peak inflation argument, which in turn bolsters the policy pivot narrative for the Federal Reserve.
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However, new claims for unemployment have remained notably high, coming in this week at the highest in 2022, as are continuing claims. The inflation numbers, while cooling some, are still way above the Fed’s targets. In their second-quarter earnings reporting, many companies noted softening demand, and most across Wall Street feel earnings estimates going forward are way too high.
What makes sense now is to take profits after the big move and look at blue chip dividend stocks that still offer significant upside. We screened the Goldman Sachs Conviction List, the firm’s top stock ideas, and found seven that make sense to rotate to now. Of course, all are rated Buy, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Bank of America
The company posted solid second-quarter results, and Warren Buffett owns a stunning 1.1 billion shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Shareholders receive a 2.45% dividend. Goldman Sachs has a $42 price objective on Bank of America stock. The consensus target is $42.25, and shares closed on Thursday at $35.91 apiece.
24/7 Wall St.Bunge
This top mid-cap stock has rallied nicely off the July lows but still offers investors an outstanding entry point. Bunge Ltd. (NYSE: BG) operates as an agribusiness and food company worldwide. It operates in the following segments.
The Agribusiness segment purchases, stores, transports, processes and sells agricultural commodities and commodity products, including oilseeds (primarily soybeans, rapeseed, canola and sunflower seeds) and grains (primarily wheat and corn) and vegetable oils and protein meals. It provides its products for animal feed manufacturers, livestock producers, wheat and corn millers and other oilseed processors, as well as third-party edible oil processing companies, as well as for industrial and biodiesel production.
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The Edible Oil Products segment provides packaged and bulk oils and fats, including cooking oils, shortenings, margarines, mayonnaise and others for baked goods companies, snack food producers, confectioners, restaurant chains, foodservice operators, infant nutrition companies and other food manufacturers, as well as grocery chains, wholesalers, distributors and other retailers.
The Milling Products segment offers wheat flours and bakery mixes, corn milling products (including dry-milled cornmeals and flours, wet-milled masa and flours, and flaking and brewer’s grits, as well as soy-fortified cornmeal, corn-soy blends, and other products), whole grain and fiber ingredients and milled rice products.
The Sugar and Bioenergy segment produces sugar and ethanol, and it generates electricity from burning sugarcane bagasse. The Fertilizer segment offers nitrogen, phosphate and potassium fertilizers, as well as single super phosphate, ammonia, ammonium thiosulfate, monoammonium phosphate, diammonium phosphate, triple superphosphate, urea, urea-ammonium nitrate, ammonium sulfate and potassium chloride.
Bunge stock investors receive a 2.54% dividend. The Goldman Sachs price target is $160, while the consensus target is near $129. The shares closed at $98.59 on Thursday.
Freeport-McMoRan
This is one of the top picks across Wall Street in its sector and an outside way to play the electric vehicle trend. Freeport-McMoRan Inc. (NYSE: FCX) is the world’s largest publicly traded copper and moly producer, as well as the eighth largest gold producer. Its key operating and development assets are in Indonesia, North America, South America and Africa.
Highly leveraged toward copper mining, the company could be a big player in a scenario of rebuilding and repairing old and battered projects, and it clearly would benefit from stronger demand and higher prices for industrial commodities.
Many across Wall Street see significant further upside potential to commodity prices over the next one to three years. In particular, this is due to accelerating demand growth, excluding China and supply constraints. They believe that this cycle is in the early stages, as key demand drivers should continue to grow. With copper rebounding recently, and the shares at a very reasonable entry point, those looking for commodity ideas could do well with this market leader.
Investors receive a 1.66% dividend. The $45 Goldman Sachs price target is higher than the $38.37 consensus target for Freeport-McMoRan stock. Thursday’s closing print was $31.67.
24/7 Wall St.Merck
This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) operates as a health care company worldwide. It operates through the following two segments.
The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular and diabetes, as well as vaccine products, such as preventive pediatric, adolescent and adult vaccines.
The Animal Health segment discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as digitally connected identification, traceability and monitoring products.
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Merck serves drug wholesalers and retailers, hospitals and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions; and physicians and physician distributors, veterinarians and animal producers. The company has collaborations with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics and Gilead Sciences.
Merck stock comes with a 3.10% dividend. Goldman Sachs has set a $106 target price. The $100.68 consensus target is also well above Thursday’s close at $88.93.
Microsoft
This is a conservative way for investors to participate in the massive cloud growth and to own a top tech idea that is trading 25% below its 52-week high. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. The company has transformed its business model from a component-driven model (personal computer, server) to one driven by the need for cloud capacity.
Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.
Some analysts maintain that Microsoft is discounting Azure for large enterprises, so that Azure may be cheaper than AWS for larger users. The cloud was big in the 2021 earnings reports so far and will remain a growing part of the software giant’s earnings profile.
The dividend yield is just 0.86%. Goldman Sachs’s price target of $365 compares with a $336.06 consensus target. Microsoft stock closed on Thursday at $287.02.
24/7 Wall St.NRG
This company looks poised to break out at current trading levels and offers safety and income. NRG Energy Inc. (NYSE: NRG) operates as an integrated power company in the United States that produces, sells and delivers electricity and related products and services to 3.6 million residential, industrial and commercial consumers.
The company generates electricity using natural gas, coal, oil, solar, nuclear and battery storage. It also provides system power, distributed generation, renewable products, backup generation, storage and distributed solar, demand response, energy efficiency, advisory and on-site energy solutions, as well as carbon management and specialty services.
In addition, NRG trades in electric power, natural gas and related commodities; environmental products; weather products; and financial products, including forwards, futures, options and swaps. Further, the company procures fuels; provides transportation services; and directly sells energy, services and products and services to retail customers under the NRG, Reliant, Green Mountain Energy, Stream, XOOM Energy and other brand names.
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Investors receive a 3.65% dividend. The NRG Energy price target at Goldman Sachs is $46. The consensus figure is $43.73, and shares closed at $40.43 after a 3% bump on Thursday.
Phillips 66
This extremely diversified energy company has a long and successful operating history, and shares have backed up nicely. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its MLP, Phillips 66 Partners.
The company benefits from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that are not ideal MLP assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
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