The Merrill Lynch team suggest rotating out of momentum and looking at half yield and half growth stocks, or what they call Quintile 2 stocks. They screened the Russell 1000 for dividend-yielding stocks, and the companies in the Quintile 2 group represent the second highest quintile of companies that pay a dividend. We screened those stocks for stocks rated Buy at the firm, as they are quick to point out that the list is not necessarily a recommended list.
We found four stocks rated Buy that investors may want to shift assets to, as the momentum trade may be on the sidelines for now.
Avalonbay Communities
This company is in the business of developing, redeveloping, acquiring and managing apartment communities in leading metropolitan areas around the country. Avalonbay Communities Inc. (NYSE: AVB) currently holds a direct or indirect ownership interest in 277 apartment communities containing 82,487 apartment homes in 11 states and the District of Columbia, of which 26 communities were under construction and eight communities were under reconstruction.
By focusing on high-growth, high-demand areas in the Unites States, Avalon has become one of the premier apartment real estate investment trusts (REITs) on Wall Street. Recent research indicates that channel occupancy rates are 0.5% to 1.5% higher for the first half of 2015, despite the fact that many REITs are pushing rents higher and still have fairly robust development pipelines. The analysts feel that think this could drive growth acceleration, leading to strong earnings results being reported.
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Avalonbay unitholders are paid a solid 3.08% distribution. The Merrill Lynch price target for the stock is $198. Thomson/First Call consensus price target is $193.20. The shares closed on Tuesday at $162.48. It is important to remember that REIT distributions may contain return of capital.
Invesco
This company is a financial services leader that has strong positions in both equity exchange traded funds (ETFs) and actively managed equity and debt mutual funds. Invesco Ltd. (NYSE: IVZ) looks to be very well-positioned to capitalize on inflows into both segments, as well as higher asset prices, as many on Wall Street see a continuation of the six-year bull market.
Invesco PowerShares is the boutique investment management firm that manages a family of ETFs. The company has been part of Invesco, which markets the PowerShares product, since 2006. The incredible growth and popularity of the product is why many on Wall Street remain so bullish on the stock.
The Jefferies analysts see the company as one that is best positioned to compete for share given mix, product offerings and attractive relative performance.
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Invesco investors are paid a 3.37% dividend. The Merrill Lynch price target is $45. The consensus target is set at $46.69. The shares closed Tuesday at $32.04.
Prudential Financial
This company is a top financial services and insurance company that is also on the Franchise Picks list at Jefferies. Prudential Financial Inc. (NYSE: PRU) has more than $1 trillion of assets under management as of December 31, 2014, with operations located in the United States, Asia, Europe and Latin America. Prudential’s strong and diverse sales force helps individuals and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management.
The company reported second-quarter earnings that beat Wall Street analysts’ adjusted operating income estimates. Revenue rose by 12% year over year, also exceeding consensus estimates. The company reported net income that was up by 29% as compared to the second quarter of the previous year.
Prudential also is on track for an estimated $1 billion in buybacks for 2015 and an estimated $1.5 billion for next year.
Prudential shareholders are paid a 3.13% dividend. The Merrill Lynch price target is $101, and the consensus target is $98.06. Shares ended Tuesday at $74.22.
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PepsiCo
This is a top consumer staples stock that fits the bill. PepsiCo Inc. (NYSE: PEP) is a global snack and beverage company that manufactures and markets salty and convenient snacks, carbonated and non-carbonated beverages and foods. Divisions were restated in 2008 to include Pepsi Americas Foods (including Frito-Lay), Pepsi Americas Beverages and Pepsi International. Key foreign sales exposures include the United Kingdom, Mexico, India and China. Brands include Pepsi, Mountain Dew, Gatorade, Tropicana, Frito-Lay, Quaker, SoBe and Aquafina.
The company recently announced a partnership agreement with Starbucks to market, sell and distribute ready-to-drink (RTD) Starbucks coffee and energy beverages in Latin America, starting in 2016. PepsiCo will use its expansive distribution network and local expertise in the region to sell and distribute Starbucks RTD beverages. These beverages will be available in 2016, across the Caribbean, Chile, Colombia, Costa Rica, Guatemala, Mexico, Panama, Peru, Puerto Rico and Uruguay.
PepsiCo investors are paid a very solid 3.13% dividend. The Merrill Lynch price target is $107, with the consensus estimate set at $105.67. The stock closed Tuesday at $89.64.
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These stocks are decidedly less exciting than high-beta momentum stocks. They are also superb holdings in long-term growth accounts. If our readers have made some big money on the crowded momentum stocks, rolling some of the capital to any of these four rated Buy makes good sense now.
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