A new research report from Savita Subramanian and her well-regarded team at Merrill Lynch points out that some of the biggest positive surprises have been from the mega-cap stocks. In fact, they point out that nearly three-quarters of the largest 50 companies in the S&P 500 have beaten earnings estimates.
We screened the Merrill Lynch research universe for four mega-cap stocks rated Buy that are still attractive after the earnings season.
Altria
The maker of tobacco products and wine scored an excellent first quarter. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and the company’s Marlboro brand remains one of the most recognizable in the world.
Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb, and strong share repurchase activity.
The company reported a 12% increase in earnings per shares to $0.63, which was ahead of the Merrill Lynch estimates. Revenues, net of excise taxes, increased 6.6% to $4.3 billion, backed by higher sales in all the segments.
Altria investors are paid an outstanding 4.03% dividend. Merrill Lynch has a $62 price target. The Thomson/First Call consensus estimate is set at $57.33. The stock closed Monday at $51.34.
ALSO READ: 4 Top Jefferies Growth Stock Calls for This Week
Apple
This stock is still the top technology company for long-term investors to own. Apple Inc. (NASDAQ: AAPL) is the world’s biggest and boldest technology company and has stayed in the limelight with the release of the new Apple Watch. While not generating the kind of in-store mania the iPhone 6 release did, reports indicate over a million orders for the new wearable device were taken by the company. Apple is hardly a stranger to the tech hierarchy, and the company passed another milestone when it was added to the Dow Jones Industrial Average in March, replacing the venerable AT&T.
Apple crushed earnings expectations when it reported fiscal second-quarter earnings late last month. It posted quarterly revenue of $58 billion and quarterly net profit of $13.6 billion, or $2.33 per diluted share. These results compare to revenue of $45.6 billion and net profit of $10.2 billion, or $1.66 per diluted share, in the year-ago quarter. Gross margin was 40.8%, compared to 39.3% in the year-ago quarter. International sales accounted for 69% of the quarter’s revenue.
The company also increased the share buyback program with an authorization of $140 billion, compared to $90 billion last year. Stockholders will also get an 11% higher dividend of $0.52 per share.
Apple investors are now paid a 1.65% dividend. The Merrill Lynch price target is $145, and the consensus target is $148.05. The stock closed Monday at $126.32.
ALSO READ: RBC Raises Price Targets on 3 Top Mobile and Cloud Tech Stocks
Exxon Mobil
This leading energy company also crushed the earnings ball out of the park. Exxon Mobil Corp. (NYSE: XOM) is an energy sector behemoth that the Merrill Lynch analysts are very positive on. Wall Street as a whole acknowledges the strength of the integrated giant plays a significant part in the company’s very solid first-quarter earnings report. The Merrill Lynch team has stressed in the past the company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street do not fully appreciate.
While Exxon’s earnings came in much lower than the same quarter last year, they were way above Wall Street consensus estimates. Exxon saw its earnings fall 46% in the first quarter as a drastic drop in oil prices continued to eat into the energy sector’s profits. The company still reported quarterly profits of $4.9 billion, or $1.17 a share, compared with $9.1 billion, or $2.10, in the same period last year. Again, numbers that were much higher than analysts expected.
Exxon investors are paid a very solid 3.35% dividend. The Merrill Lynch price target is $103, but the consensus target is much lower at $93.78. Shares closed Monday at $86.78.
Merck
This stock has been hit hard since printing a high in late January. Although it has rallied back smartly, it still may be offering new investors a very good entry point. Merck & Co. Inc. (NYSE: MRK) 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.
Merck is the world’s fourth-biggest drugmaker by revenue and boosted its annual profit forecast after the company beat first-quarter earnings and sales estimates, fueled by higher demand for vaccines and diabetes treatments.
Merck shareholders are paid a solid 3% dividend. The Merrill Lynch price target is $68 and the consensus target is $65.34. Shares closed Monday at $60 apiece.
ALSO READ: 4 Biotech Stocks Could Have Big Upside Before Russell Index Changes
Sticking with mega-cap market leaders that pay big dividends is a good plan with the market near all-time highs. These are stocks you can put in a growth and income account and literally hold for years.
Top Gaining Stocks
Top Losing Stocks