The Merrill Lynch analysts screened for S&P 500 stocks that had declines this year of 10% or more and were rated at Buy at the firm. They noted that, historically, stocks down more than 10% through October that were candidates for tax-loss selling rose by almost 6% over the next three months. 24/7 Wall St. screened those stocks for companies that could bounce back strong, be good long-term positions and were down more than 20%.
Amazon.com Inc. (NASDAQ: AMZN) was absolutely eviscerated after reporting earnings far below analyst estimates. Many on Wall Street bellowed that Jeff Bezos’s forays into other potential product silos was killing shareholder value and straying from the company’s strengths. While there is validity to the argument, Amazon continues to dominate e-commerce as third party sellers on its platform were up 45% as we continue into fall. In addition to incredible sales growth, the company’s Web Services division is considered the top player in the public cloud business. The AWS division delivers a set of services that together form a reliable, scalable and inexpensive computing platform.
Amazon is down a gigantic 31.5% year-to-date, and investors may have a chance to pick up some shares at prices that haven’t been this low in over a year. The Merrill Lynch price target for the stock is $340. The Thomson/First Call consensus estimate is posted higher at $356.94. The stock closed up nicely Tuesday at $295.59.
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Cabot Oil & Gas Corp. (NYSE: COG) is one of the top natural gas names to buy at Merrill Lynch. Even in a challenging gas environment, the analysts believe Cabot has the potential to deliver strong returns and an impressive growth trajectory. Should U.S. natural gas prices prove to be even better than the strip pricing over the next several years, the company stands to benefit as one of the most levered names in the sector, especially with many predicting another brutal winter is in store for the United States.
Cabot shares are down a massive 21% this year, and investors are paid a miniscule 0.3% dividend. The Merrill Lynch price target is $40, and the consensus is at $39.74. Cabot closed Tuesday at $31.63. Hitting the Merrill Lynch target price would be almost 30% gain for investors.
General Motors Co. (NYSE: GM) is another top consumer discretionary name on the list. Despite all of its recent recall troubles, hedge funds and portfolio managers across Wall Street are continuing to stick with the name. GM trades at a low 9.8 times forward earnings. The company has benefited from incredible sales in China to boost revenue. GM has invested heavily in China and grabbed a big chunk of what is now the world’s largest auto market. Recently, hedge fund manager Kyle Bass made the case that on a sum-of-the-parts basis the stock is incredibly cheap.
GM is down a staggering 26% this year. GM shareholders continue to be paid a very solid 3.9% dividend. The Merrill Lynch price objective is $50, and the consensus target is at $40. GM closed Tuesday at $31.17. Trading to the Merrill Lynch target would be a huge 61% gain.
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Range Resources Corp. (NYSE: RRC) is another top name to buy for possible gains in natural gas, especially with the aforementioned possibility of a wretched winter. It holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and Southwestern regions of the United States. It owns 4,637 net producing wells and approximately 1.6 million gross acres under lease in the Appalachian region, as well as 1,536 net producing wells and approximately 811,000 gross acres under lease in Southwestern region.
Shares have been walloped to the tune of 22% this year. Range Resources investors are paid a small 0.20% dividend. The Merrill Lynch target price is $98, and the consensus figure is $90.81. Shares closed trading Tuesday at $67.39. Trading to the Merrill Lynch target would be a solid 45% gain.
Whole Foods Market Inc. (NASDAQ: WFM) has had a very rough go of things as earnings have swooned as competition gets more intense. The one-month implied volatility is almost three times higher than the historical number, and for good reason. The stock got hit yet again after weak earnings and guidance. With that in mind, the company is the market leader in the sector and may have tremendous value at these lower levels.
The natural foods giant is down an incredible 33% this year. Whole Foods investors are paid a 1.3% dividend. The Merrill Lynch price target is $50, while the consensus target is $43. Whole Foods closed Tuesday at $38.80.
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These stocks are quality companies that for one reason or another have been sold off hard this year, and they may end up being sold off more as mutual funds dispose of them before the deadline. Investors who have some cash ready to put to work may want to stay nimble and wait until early November to add them to growth portfolios.
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