Almost four months into 2023 and we seemed locked in a trading range that will not break through upside resistance and will not give us the panic shakeout sell-off that would truly end a bear market. Now with first-quarter earnings reports rolling in, we are starting to get a good look at what companies are facing as interest rates and tougher lending standards take hold. Some of the early results have been less than stellar. What makes sense for investors now is moving to dividend-paying value stocks that look better prepared to face the economic challenges coming our way.
Value stocks are typically defined as shares of a company with solid fundamentals that are priced below those of its peers, based on analysis of price-to-earnings ratio, yield and other factors. The BofA Securities Value 10 portfolio is quantitatively generated and is based on the firm’s proprietary model. The universe the analysts use is the S&P 500.
We screened the Value 10 portfolio for the five stocks with the highest dividends. We found five top picks that could be big 2023 winners. 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.
Ameriprise Financial
This company has been steadily growing assets under management and is a smart choice for investors looking to add financials. Ameriprise Financial Inc. (NYSE: AMP) provides various financial products and services to individual and institutional clients in the United States and internationally.
The company’s Advice & Wealth Management segment provides financial planning and advice; brokerage products and services for retail and institutional clients; discretionary and non-discretionary investment advisory accounts; mutual funds; insurance and annuities products; cash management and banking products; and face-amount certificates.
The Asset Management segment offers investment management and advice, and investment products to retail, high net worth and institutional clients through unaffiliated third-party financial institutions and an institutional sales force. This segment’s products also include U.S. mutual funds and their non-U.S. equivalents, exchange-traded funds, variable product funds underlying insurance and annuity separate accounts, as well as institutional asset management products, such as traditional asset classes, separately managed accounts, individually managed accounts, collateralized loan obligations, hedge funds, collective funds and property and infrastructure funds.
The Retirement & Protection Solutions segment provides variable annuity products to individual clients, as well as life and disability income insurance products to retail clients.
The company was formerly known as American Express Financial and changed its name in September 2005.
Investors receive a 1.58% dividend. BofA Securities has a $402 price target on Ameriprise Financial stock. The consensus target is $363.73, and the closing share price on Thursday was $315.76.
24/7 Wall St.CF Industries
While somewhat off the radar, this stock probably has the biggest upside potential of the top value picks. CF Industries Holdings Inc. (NYSE: CF) manufactures and sells hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities worldwide.
The company’s principal products include anhydrous ammonia, granular urea, urea ammonium nitrate and ammonium nitrate products. The company also offers diesel exhaust fluid, urea liquor, nitric acid and aqua ammonia products, as well as compound fertilizer products with nitrogen, phosphorus and potassium. It primarily serves cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users.
CF Industries is on a self-described path to decarbonize its ammonia production network, which is the world’s largest, to enable green and blue hydrogen and nitrogen products. Its manufacturing complexes in the United States, Canada and the United Kingdom, offer an unparalleled storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin a strategy to leverage CF Industries unique capabilities to accelerate the world’s transition to clean energy.
Shareholders receive a 2.08% dividend. The BofA Securities price target of $96 is in line with the $96.06 consensus target. CF Industries stock closed on Thursday at $74.46.
Cummins
This top company makes the parts and components for the trucking industry to keep the country moving. Cummins Inc. (NYSE: CMI) designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products worldwide.
The Cummins Engine segment manufactures and markets a range of diesel and natural gas powered engines under the Cummins and other customer brands for the heavy-and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense and agricultural markets. This segment also offers new parts and services, as well as remanufactured parts and engines.
Cummins also provides power generation systems, high-horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. The company offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives and other filtration systems; and electronic control modules, sensors and supporting software, as well as new, replacement and remanufactured fuel systems.
Further, it provides automated transmissions; standby and prime power generators, controls, paralleling systems and transfer switches, as well as A/C generator/alternator products under the Stamford and AVK brands. Its electrified power systems, with components and subsystems, include battery, fuel cell and hydrogen production technologies. And it offers filtration, after-treatment, controls systems, air handling systems, automated transmissions, electric power generation systems and batteries.
Cummins stock comes with a 2.66% dividend. The BofA Securities target price is $273, and the consensus target is $259.33. The shares closed on Thursday at $234.48.
Nucor
This top steel provider could ride a big wave if the economy improves over the next year. Nucor Corp. (NYSE: NUE) engages in the manufacture and sale of steel and steel products.
Nucor’s Steel Mills segment produces hot-rolled, cold-rolled and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks and H-piling and sheet piling products; and bar steel products, such as blooms, billets, concrete reinforcing and merchant bars and engineered special bar quality products.
The company also engages in the steel trading and rebar distribution businesses. This segment sells its products to steel service centers, fabricators and manufacturers in the United States, Canada and Mexico.
Its Steel Products segment offers hollow structural section steel tubing products, electrical conduits, steel racking, steel joists and joist girders, steel decks, fabricated concrete reinforcing steel products, cold finished steel products, steel fasteners, metal building systems, insulated metal panels, steel grating and expanded metal products, and wire and wire mesh products primarily for use in nonresidential construction applications. This segment also engages in the piling distribution business.
The Raw Materials segment produces direct reduced iron (DRI); brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap metal. This segment sells its ferrous scrap to electric arc furnace steel mills and foundries for manufacturing process, as well as nonferrous scrap metal to aluminum can producers, secondary aluminum smelters, steel mills and other processors, and consumers of various nonferrous metals.
The dividend yield here is 1.40%. BofA Securities has set its price target at $188. Nucor stock has a $147.54 consensus target, but shares closed at $155.73 on Thursday, up almost 6% on the day following an earnings beat.
Principal Financial
This well-known company is a solid financial play for more conservative investors. Principal Financial Group Inc. (NYSE: PFG) operates in four main segments: Retirement & Income Solutions (RIS), Asset Management (PGI), International and U.S. Insurance.
RIS delivers full-service accumulation, pension products, annuities, mutual funds and other services to individuals and small-to-medium-sized businesses. PGI is a global asset manager. U.S. Insurance provides individual life and disability insurance and group life insurance. Lastly, the International business sells products in Latin America and Asia.
Investors receive a 3.32% dividend. Principal Financial stock has an $81 price target at BofA Securities. That compares with a $78.33 consensus target and Thursday’s closing print of $75.99.
Cyclical industrial stocks, combined with insurance and financial services leaders, are very solid ideas in what could become a tangled stock market this summer. The data show that interest rate increases, while lowering the nagging inflation, may come back to haunt investors in certain sectors like technology, so these five top value plays make good sense now.
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