It’s that time of year again, when all the top firms that we cover here at 24/7 Wall St. start to make their stock picks and prognostications for 2016. This not only gives investors a little bit of a head start on year-end portfolio reshuffling, but it also gives them a look at what the overall macro thoughts for the coming year are at the big brokerages and banks.
In a new research report, Merrill Lynch is among the first firms to present their top picks for 2016. The top picks from last year from the Wall Street giant slightly underperformed, down 1%. However, six of the 10 stocks in the 2015 picks notably beat the S&P 500.
Here are Merrill Lynch’s top 10 stocks picks for 2016, one from each sector. Of course, all are rated Buy.
Citigroup Inc. (NYSE: C) makes the list in the financial sector. The stock is very cheap, trading at just 9.2 times estimated 2016 earnings, and is the nation’s fourth-largest bank by assets. Merrill Lynch sees the dividend growing from the current 0.4% and notes that Citi is the only U.S. universal bank trading below book value. The Merrill Lynch price target is $65 and the Thomson/First Call consensus target is $64.03 The stock closed most recently at $52.65.
Coca-Cola Co. (NYSE: KO) is the world’s biggest brand and largest manufacturer of soft-drink concentrate and syrups, and it is the top consumer staples pick. It enjoys a 50% share of the world’s carbonated soft drink market and 44% share of the U.S. market. The analysts note that the stock is underweighted by managers and can grow the dividend, which is currently 3.09%. The Merrill Lynch price target is $48, and the consensus target is $45.06. Shares closed Thursday at $42.76.
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Exxon Mobil Corp. (NYSE: XOM) is an energy sector behemoth that the Merrill Lynch analysts are very positive on, and it is the top energy pick for 2016. They see the stock as a mega-cap play with a strong balance sheet and a 3.83% dividend. They also feel that the company can withstand the current downturn better than peers. The $100 Merrill Lynch price target is well above the consensus of $83.80. The stock closed Thursday at $75.69.
3M Co. (NYSE: MMM) is the top industrial pick that could really jump with an economic pickup, and it is also a member of the Merrill Lynch US 1 list. This high-quality mega-cap stock has big pricing power, geographic exposure and a solid 2.6% dividend. The Merrill Lynch price target is $178, and the consensus target is $161.14. The stock closed at $157.52.
Walt Disney Co. (NYSE: DIS) is the top consumer discretionary pick for 2016. The movie studio business looks poised to improve, as with accelerating theme park business, and the network programming continues to drive viewership with extensive sports programming. Merrill Lynch loves the high-quality, low-variability earnings per share, the very clean balance sheet and the solid dividend growth potential for the current 1.30% yield. Merrill Lynch has a price target of $130. The consensus target is $119.31. Shares closed at $110.76.
Ecolab Inc. (NYSE: ECL) is the global leader in water, hygiene and energy technologies and services that protect people and vital resource, and it is the top pick in the materials sector. Merrill Lynch likes the strong and stable earnings per share and the potential for the current 1.21% dividend to grow. They also note that the company is far less commodity sensitive than other material plays. The Merrill Lynch price target is $129. The consensus estimate is $124.94. The shares closed Thursday at $115.96.
Pfizer Inc. (NYSE: PFE) is top health care pick and has a very strong pipeline. The fact that Pfizer is the world’s largest drug manufacturer by sales value supports the Merrill Lynch notion that the company can generate higher long-term revenues through the accelerated growth of its new drugs over the next five years. This stock is cheap, underweighted by managers, and the strong 3.46% dividend should continue to grow. The Merrill Lynch price objective is $39, and the consensus target is $40.53. The stock closed Thursday at $32.36.
NextEra Energy Inc. (NYSE: NEE) is the top utilities pick and a leading clean energy company that owns, operates and acquires contracted clean energy projects with stable, long-term cash flows. The analysts love the strong balance sheet and cash flows. The dividend is 3.15% and should continue to grow. While the Merrill Lynch price target is $109, the consensus is set at $118.05. The stock closed at $97.60.
Qualcomm Inc. (NASDAQ: QCOM) is the top IT pick. It trades at 12.6 times estimated 2016 earnings and may be a tremendous long-term value. Merrill Lynch sees it as very inexpensive, with a pile of cash on its very strong balance sheet, and underappreciated by fund managers. The current 3.95% dividend is attractive, and the Merrill Lynch price target is a whopping $75. The consensus target is $63.82. The stock ended Thursday at $48.57.
Verizon Communications Inc. (NYSE: VZ) is the top telecom services pick and a global leader in delivering the digital world. Verizon Wireless operates America’s most reliable wireless network, with 109.5 million retail connections nationwide. Analysts love the attractive yield of 5%, which they feel can grow, and expect earnings growth to outpace peers. This is another company underweighted by fund managers. The Merrill Lynch price target is $55 and the consensus objective is $50.27. Shares closed Thursday at $45.32.
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Well there you have it, a decidedly conservative set of picks by Merrill Lynch, and probably with good reason. Next year could see another single-digit gain, or even be a down year for the markets, and the firm probably senses that large cap leaders are the place to be, a view that is gaining ground across Wall Street.
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