One of the big stories of 2015 was the ongoing strength of the U.S. dollar. Not only did it hammer many of the top multinational companies that do a significant amount of overseas business, it also wreaked havoc on oil, as crude is priced in dollars. While the greenback’s strength took its toll in 2015, more than a few Wall Street strategists feel that the strength will moderate this year as foreign developed economies extend their versions of quantitative easing and a resumption of growth trends attracts fund flows and direct investment.
We screened the Merrill Lynch database for stocks that were rated Buy and that also did a significant amount of their sales and business overseas. We found four that look very attractive and could make good sense as we head to 2016.
3M
This top industrial could really jump with an economic pickup. It is also a member of the Merrill Lynch US 1 list and is one of the top 10 picks for 2016. 3M Co. (NYSE: MMM) is a diversified, global manufacturer. Its businesses are technology-driven and organized under five segments: Consumer, Safety and Graphics, Electronics and Energy, Health Care, and Industrial. Its popular brands include Scotch, Post-It, 3M and Thinsulate. The company also holds over 500 U.S. patents.
The stock was scorched earlier this month when the company released lowered guidance for 2015, citing weak macroeconomic conditions across the globe. However, it did offer what Merrill Lynch feels is solid 2016 guidance as the company anticipates GAAP earnings in the range of $8.10 to $8.45 per share, a year-over-year increase of 7% to 12%. Organic local-currency sales growth is expected to be 1% to 3%, while free cash flow conversion rate is anticipated to be 95% to 105%. The analysts feel that the 2016 earnings growth will come in at the high end of the company’s peer group.
Merrill Lynch feels that the pullback makes for an outstanding entry point for new capital and accounts that are adding to positions.
3M investors receive a 2.75% dividend. The Merrill Lynch price target is a strong $178, and the Thomson/First Call consensus target is $159.36. The stock closed Monday at $151.22.
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Hershey
The iconic chocolate company could get a solid boost from a weaker dollar. Hershey Co. (NYSE: HSY) is a global confectionery leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-tasting snacks. It has more than 80 brands around the world that drive more than $7.4 billion in annual revenues, including such iconic brand names as Reese’s, Hershey’s Kisses, Jolly Rancher Ice Breakers and Brookside.
The stock has had a miserable year and could be providing investors the best entry point in some time. The company is also on track to deliver what most on Wall Street feel will be moderate, low single-digit earnings growth in 2015, with the growth accelerating in 2016 as the company finally eases by some of the currency comparisons. Any drop in the constant dollar strength could really help trigger a rebound in international sales in 2016.
Hershey investors receive a 2.6% dividend. The $105 Merrill Lynch price target is higher than the consensus target of $93. The shares closed most recently at $90.39.
Microsoft
This top technology stock gives investors a degree of mega-cap tech safety and could have some tailwinds in 2016 if the dollar holds or weakens some. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have been adding the software giant to their holdings at an increasingly faster pace all of this year.
Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service and maintain that Microsoft is discounting Azure for large enterprises such that Azure may be cheaper than AWS for larger user.
The top analysts believe the company continues to make steady progress with its cloud transition and expect Office 365 and Azure to be solid contributors to top and bottom line for the next several years. While not likely to snag the top slot from Amazon, it could add huge incremental revenue for years to come.
With gaming revenues growing at a huge pace, the Xbox continues to gain ever more fans as the ultimate console to own. The company continues to upgrade the popular device, and many think that it could dominate Sony’s PlayStation down the road.
Microsoft investors receive a very solid 2.57% dividend, and the forward valuation remains very compelling. Merrill Lynch has a $63 price objective, and the consensus target is $57. The stock closed Monday at $55.95.
Procter & Gamble
This stock has had a nice rally off of the August lows but is still down 12.3% this year, in part because it has a very large 65% of sales directed to foreign customers. Procter & Gamble Co. (NYSE: PG) is a solid consumer staples stock, especially for conservative investors to consider. It sells lots of run-of-the-mill household items that are essential for everyday life but is not content to stand pat on its laurels.
The company actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. While currency headwinds have weighed on recent earnings and projections, the dollar may be topping out would bode very well for the future.
Shareholders receive a very solid 3.32% dividend. Merrill Lynch has an $85 price target, and the consensus target is $83.24. The stock closed Monday at $79.92 per share.
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While there is no guarantee that the dollar strength abates, there is some solid anecdotal evidence that at the minimum, the surge higher slows down. All these blue chip companies make good additions to conservative growth and income portfolios.
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