The only redeeming quality to the kind of correction we have seen since the beginning of the year is that top stocks that often are leaders in their sectors get smoked right along with the momentum companies. Investors are treated to the proverbial, “throw the baby out with the bathwater” reaction that Wall Street, and especially hedge fund managers, is so well known for. The good part is that quality stocks that pay good dividends are on sale, and may be more so soon.
In an effort to unearth some true value, we screened the Merrill Lynch research database for quality blue chip stocks that have been beaten down. They had to be rated Buy at the firm, and also pay a dividend higher than the 10-year U.S. Treasury. We found four that make good sense now.
Walt Disney
This is one of Merrill Lynch’s top 10 picks for 2016, and is on the firm’s US 1 list. Walt Disney Co. (NYSE: DIS) was hammered Wednesday despite a solid earnings report. Disney operates as an entertainment company worldwide.
The company operates broadcast and cable television networks, domestic television stations, and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels, and ABC Family, as well as UTV/Bindass and Hungama.
The company also owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California; Disney Resort & Spa in Hawaii; Disney Vacation Club, Disney Cruise Line and Adventures by Disney; and Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort. It also licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan.
The company just reported outstanding earnings this, with record net income of $2.9 billion for the period. Revenue was more than $15 billion, and per-share earnings rose by more than a third. However, subscriber numbers at the flagship ESPN raised a huge red flag for investors. Operating income dropped in both cable networks and broadcasting. Revenue was up 9% at the cable unit, thanks to growth of domestic Disney Channels, but a decrease at ESPN and lower equity income from A&E dragged down operating income by 5%.
Despite the cable issues, Merrill Lynch remains bullish on the company and expects fiscal 2016 revenues estimates to remain in line with their previous numbers.
Disney shareholders receive a 1.65% dividend. The Merrill Lynch price target stays at $130, and the Thomson/First Call consensus target is $111.34. The stock closed Wednesday at $88.85, down almost 5% on the day.
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Intel
This top chip company has traded sideways all year, and the recent very positive earnings report certainly has helped to lift the investor pall hanging over the company. Intel Corp. (NASDAQ: INTC) is a world leader in computing innovation. It designs and builds the essential technologies that serve as the foundation for the world’s computing devices.
As a leader in corporate responsibility and sustainability, Intel also manufactures the world’s first commercially available “conflict-free” microprocessors. The company provides processors for all the Apple PCs.
Intel’s NAND flash memory business has a strong focus on enterprise opportunities. Many on Wall Street who think that the company’s new chip, which is a collaboration with Micron Technology called the 3D XPoint could be primarily In-Memory compute in servers and its launch should coincide with Intel’s Purley platform server launch in 2016.
Intel also is regarded as having among the highest shareholder cash returns at approximately 8%, but it has lagged high-growth specialty chip stocks. The stock has just now traded back to where it began 2015. following mixed fourth-quarter results.
Investors in Intel receive a 3.65% dividend. The $40 Merrill Lynch price target compares to the $36.32 consensus target. Shares closed most recently at $28.23.
Coca-Cola
This company remains a top Warren Buffet holding and offers not only safety, but an incredible strong worldwide brand. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Coca-Cola’s portfolio features 20 billion-dollar brands, including Coca-Cola, Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade and Minute Maid. Globally, it is the top provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy its beverages at a rate of more than 1.9 billion servings a day.
The strong U.S. dollar could continue to be a headwind to the international business, but the company has expanded the product line and posted fourth-quarter earnings that Merrill Lynch was very encouraged by.
Investors receive an outstanding 3.1% dividend. Merrill Lynch has a $48 price target, and the consensus estimate is $46.10. Coca-Cola closed Wednesday at $42.55.
United Technologies
This very diversified company has large government contract exposure. United Technologies Corp. (NYSE: UTX) is an industrial that provides high technology products and services to aerospace industries and building systems worldwide. Its segments include, Otis, UTC Aerospace Systems and Pratt & Whitney.
Since peaking in February of 2015, the stock has rolled over and not acted well, but current trading levels offer investors an outstanding entry point. Many Wall Street analysts believe the company is strategically positioned to benefit from two mega-trends in the long-term: urbanization and commercial aerospace.
The completion of the Sikorsky division sale to Lockheed last year was viewed by many on Wall Street as preferable to a spin-off after the premium that Lockheed Martin was willing to pay made up for the tax cost United Technologies would have incurred.
Investors receive a 2.95% dividend. The $110 Merrill Lynch price target is higher than the consensus target of $105.88. The stock closed Wednesday at $86.96.
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These four high-quality dividend blue chips are suitable for more conservative growth portfolios. They offer investors an awesome entry level, and they have solid, dependable franchises with bright futures.
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