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Credit Suisse Gold Standard Yield Stocks May Be the Safest to Own Now
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Often the reason Wall Street takes a liking to a specific stock or sector is the momentum is there to drive it higher. The problem with that is, when momentum stocks run out of gas, they can sell off much faster than they went up. Sometimes there are metrics Wall Street uses that can be invaluable tools when looking for safety in a stock investment, and momentum is not one.
In a new report from the Global Equity Strategy team at Credit Suisse, we found one section that was fascinating: “The U.S. New Gold Standard” screen of stocks. These are stocks with yields more than the U.S Treasury 10-year bond and credit default swap (CDS) spreads that are below U.S government debt.
The “Gold Standard” screen produced four U.S. stocks. For those looking for safety, yield and growth potential, these could be the four best stocks to buy now. The stocks had to yield more than the 2.56% the 10-year bond is at and have a CDS spread of less than 0.165%, which is what U.S. debt is at. The lower the CDS spread on a bond, the safer the market perceives it.
ALSO READ: 5 Top Energy Stocks to Own When Oil Pullback Ends
Here are the four Gold Standard stocks from Credit Suisse. Only one is rated Outperform by the firm, two are Neutral and one is not covered.
Analog Devices Inc. (NASDAQ: ADI) is still trading well below the highs for the year printed in early June, and it rolled over again late in August trading. Investors may have a very good entry point at current levels. Wall Street analysts are very positive on the prospects for growth in communications driven by wireless base stations and TD deployments in China. They also see recovery in the industrial sector and growth in the automobile markets over the next year, both of which would benefit Analog Devices.
Analog Devices investors are treated to a very competitive 3% dividend. The Thomson/First Call consensus price target is $57.08. The stock closed Wednesday at $49.63 a share.
Exxon Mobil Corp. (NYSE: XOM) is the country’s biggest oil company and one of the most profitable corporations in the world. It is also the largest market cap company in the energy sector. Exxon has operations in every continent but Antarctica. Its oil and gas operations range across several states, from Pennsylvania to Colorado, and it also has wells in the Gulf of Mexico and off the California coast. Exxon produces nearly 50% more gas than its closest competitor. Daily production is over 3.5 billion cubic feet.
Exxon pays investors a 2.85% dividend. The consensus price target for the stock is $102.89 and Exxon shares closed on Wednesday at $97.08.
McDonald’s Corp. (NYSE: MCD) is a Gold Standard stock in the consumer discretionary sector. While profit at the fast-food giant has waned in recent years, the venerable company continues to tweak the menus with new, healthier offerings and specials designed to lure in new customers and keep old ones coming back. The problem is that sentiment is starting to swim against the stock, and the once prolific international growth is slowing. McDonald’s may be a good watch-list stock to keep an eye on, as it is currently trading below all the moving averages and could continue the slide that started back in May. The low $80s could prove to be a solid place to buy stock.
McDonald’s shareholders are paid a strong 3.46% dividend. The consensus price target is set at $98.93. The stock closed at $93.53 a share.
Merck & Co. Inc. (NYSE: MRK) is a Gold Standard stock that has enjoyed an outstanding year for investors, now up well over 20%. It also remains a leading health care company that is on the focus lists of many of the top firms we cover. The company’s numerous prescription medicines, vaccines, biologic therapies and consumer care and animal health products are provided to customers in more than 140 countries. The company’s purchase of Idenix this summer for $3.85 billion was to acquire its hepatitis C pipeline and could pay off huge for investors in the future.
The pharmaceutical giant pays shareholders a very solid 2.95% dividend. The consensus price target for Merck is $62.61. The stock closed Wednesday at $59.88.
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While this is certainly not a call from Credit Suisse to rush out and buy these stocks, the combination of a higher yield and more safety than U.S. Treasury debt is a compelling reason to consider adding them to a conservative long-term portfolio. If safety and income count, these stocks may be the place to be.
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