In a new research report, Merrill Lynch is positive on three distinctly different companies that make good sense for investors to look at now. All three are rated Buy and are suitable for aggressive growth accounts.
Ally Financial
This company is the old financing arm of General Motors that was known before the great recession as GMAC. Ally Financial Inc. (NYSE: ALLY) has been rebuilt into a stronger and more solvent Internet-focused bank with no brick-and-mortar locations. Its customers do their banking solely through the bank’s website, its mobile application and automatic teller machines.
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The Merrill Lynch analysts feel that flat out in comparison to peers, which there are actually few actually structured like Ally, the stock is very cheap. Trading at a low 9.27 times estimated 2016 earnings, and at a less than one times book value, the analysts feel that there is room to run. Most on Wall Street feel that the stock should trade more like 1.25 times book value. The Merrill Lynch team met with the chief financial officer recently and came away confident that the bank is moving away from a dependence on GM, and into a more balanced operating structure.
With the capital structure optimized and management having diversified the originations platform ahead of expectations, the stock has tremendous value at current levels. The Merrill Lynch price target for the stock is $28. The Thomson/First Call consensus target is $27.78. Shares closed on Friday at $21.39.
eBay
While some on Wall Street have lost enthusiasm for the company, the Merrill Lynch team is very positive going forward. eBay Inc. (NASDAQ: EBAY) recently spun off its lucrative PayPal division and comes in rated high on a Merrill Lynch screen that tracks earnings momentum. eBay operates as a technology company that enables commerce and payments on behalf of users, merchants, retailers and brands of various sizes in the United States and internationally.
After meeting with the chief financial officer of the company, the analysts cited that while eBay is cautious on near-term growth, it was optimistic on long-term structured data, social marketing and balance sheet opportunities. It also said the 2016 may be an outstanding year as the company faces easy comparisons and margin improvement opportunities, and it has $4 billion in new debt and free cash flow to buy back stock.
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The Merrill Lynch price target is $33, and the consensus target is higher at $34.54. Shares closed Friday at $25.77.
Salesforce.com
This company again posted outstanding earnings, and it is the Merrill Lynch favorite large cap growth idea now. Salesforce.com Inc. (NYSE: CRM) has been the momentum stock trader’s dream over the past few years. Many on Wall Street feel that while the stock trades mostly in line with its fast organic software-as-a-service peer group, which many see as having the largest growth rate in 2015, the company should trade at a premium to the group. The company posted year-over-year billings growth way above estimates and have seen operating margins expand by 1.7%. The Merrill Lynch analyst and others see the company’s growing portfolio of Enterprise-class solutions as not only enhancing the brand, but helping to achieve access into bigger companies.
The Merrill Lynch team also sees substantial billings growth, and they raise their fiscal 2016 estimates on both revenues and earnings. They also feel that the company’s new analytics product is factored too low into 2016 estimates and could provide upside. And they think that the company growth guidance could be conservative as well. Lastly, Salesforce is constantly a part of Wall Street takeover chatter, and that tends to keep short sellers at a distance.
The Merrill Lynch price target a posted at $80, and the consensus target is right in line at $80.80. The stock closed Friday at $69.15.
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Bear markets rarely start when an economy isn’t in a recession, and while the first quarter was slow, last quarter was better and the end of the year should be as well. Aggressive investors looking for solid ideas have three great companies to choose from here.
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