Merrill Lynch Has 3 Industrial Stocks to Buy After Earnings

By Lee Jackson Updated Aug 4, 1:53PM EDT · Published Aug 4, 10:10AM EDT

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With most of the second-quarter reporting done, and the market now entering the proverbial dog days of the summer, we wanted to find out just who did the best in the second quarter. In a new research report from Merrill Lynch we got the answer — and were somewhat surprised.

The Merrill Lynch team, which is led by the outstanding Savita Subramanian, crunched the numbers and a somewhat unlikely sector winner came up for the second quarter in terms of beating earnings expectations. An astounding 62% of big cap multinational companies have beaten on earnings per share estimates, 49% have beaten on sales and 36% have beaten on both metrics. The analysts point out this is similar to the first-quarter numbers.

We screened the Merrill Lynch universe of stocks for companies rated Buy that fall into that category.

General Electric

This iconic blue chip industrial posted solid second-quarter numbers and may be in the process of a huge turnaround. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its businesses are organized broadly under six segments: GE Capital, Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. The company’s products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance.

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The company has begun scaling back many of its operations and is returning capital to shareholders. GE announced earlier this year a restructuring plan that includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations.

The repurchase program, which will be partly funded by $35 billion through money returned from GE Capital, is the second-biggest in history, after Apple’s $90 billion plan. GE, which had 10.06 billion shares outstanding on Jan. 31, said it expected to reduce that by as much as 20% to 8.0 billion to 8.5 billion by 2018.

All these catalysts could lure the fund managers back to the stock, which was a tremendous growth stock for years under Jack Welch.

GE investors are paid a solid 3.58% dividend. The Merrill Lynch price target for the stock is $33, and the Thomson/First Call consensus target is $30.23. Shares closed Monday at $25.87.
Honeywell International

This is another big cap multinational that is rated Buy at Merrill Lynch. Honeywell International Inc. (NYSE: HON) announced last week its largest purchase in more than a decade, when it agreed to buy the utility consumption metering business of Britain’s Melrose Industries for about $5.1 billion. This is the first major deal for Honeywell since it laid out a five-year plan in March 2014 to target at least $10 billion in acquisitions. Wall Street has been very eager to see how industrial companies use their capital as many of the foreign markets struggle for growth.

Honeywell’s operations are organized under three business groups: Aerospace, Automation and Control Solutions, and Performance Materials & Technologies. The company is a premier supplier of avionics, power and control systems for the aerospace industry.

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Honeywell investors are paid a 2% dividend. The Merrill Lynch price target is posted at $117, and the consensus objective is $116. Shares closed Monday at $104.70.

Raytheon

This company has a diversified mix of business and posted solid second-quarter numbers as well. Raytheon Corp. (NYSE: RTN) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems.

The company is not only likely to benefit from domestic defense purchasing, but the company has posted large contract sales to the Saudis over the past two years. Last year, Raytheon purchased privately held cybersecurity company Blackbird Technologies for about $420 million. The acquisition will help expand its surveillance and cybersecurity services to clients. Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as cybersecurity and a broad range of mission support services.

Raytheon investors are paid a 2.5% dividend. The Merrill Lynch price target is $120, and the consensus target is $119.50. The shares ended Monday’s trading at $108.90.

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All three stocks are perfect for long-term growth portfolios. They pay solid dividends, are growing their business both organically and through acquisitions, and are returning capital to shareholders. These total return stocks make good sense in an expensive market.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.