Investing

4 Merrill Lynch US 1 Portfolio Stocks With Big Total Return Potential

Lee Jackson

Published: June 9, 2016 10:40 am

Last Updated: January 13, 2020 7:01 am

We always like to remind our readers about the impact total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Again total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13%: 10% for the increase in stock price and 3% for the dividends paid.

With the market pushing through to all-time highs, we are looking for solid total return ideas for investors. In fact, we screened the Merrill Lynch US 1 portfolio list for companies that may offer some good plays for total return in the firm’s top picks. All are rated Buy at Merrill Lynch

Coca-Cola European Partners

The former Coca-Cola Enterprises reported solid earnings and recently completed a big merger. Coca-Cola European Partners PLC (NYSE: CCE) is the leading Western European marketer, producer and distributor of nonalcoholic ready-to-drink beverages and one of the world’s largest independent Coca-Cola bottlers.

The company is the sole licensed bottler for products of Coca-Cola in Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway and Sweden. It operates with a local focus and has 17 manufacturing sites across Europe, where the company manufactures nearly 90% of its products in the markets in which they are consumed.

The company reported solid first-quarter earnings, though volumes dropped some. The recent merger with Coca-Cola Erfrischungsgetränke in Germany and Coca-Cola Iberian Partners, which serves Spain and Portugal, was a big catalyst. Shareholders approved the merger, and the S&P 500 removed the stock from the index as a result of the merger. The stock was crushed as index funds were forced to sell, giving investors an outstanding entry point.

Coca-Cola European Partners investors receive a 3% dividend. The Merrill Lynch price target for the stock is $44.50, and the Thomson/First Call consensus target is higher at $48.58. The shares closed on Wednesday at $39.95.
General Dynamics

This company, like other major defense prime contractors, had a very solid year and makes the US 1 List at Merrill Lynch. General Dynamics Corp. (NYSE: GD) is a worldwide aerospace and defense company, and it has over 96,000 employees worldwide. General Dynamics operates through four business groups: Aerospace, Combat Systems, Marine Systems and Information Systems and Technology. The U.S. government is its largest customer, which could continue to bode well if Congress does not change hands.

General Dynamics stock has awarded its investors with returns of about 160% in the past decade, and it posted outstanding third-quarter numbers on solid execution across the board. The company pays regular dividends and has a share repurchase plan in place. This is an outstanding stock for long-term growth portfolios.

The company reported outstanding first quarter numbers with higher-than-expected revenue and net income after a strong first quarter for its marine systems division. While net earnings did rise year over year, revenue fell but exceeded analysts’ estimates.

General Dynamics investors are paid a 2.15% dividend. Merrill Lynch has a $170 price target on the stock, while the consensus estimate is at $162.47. The stock closed most recently at $141.49.

Eli Lilly

This top pharmaceutical should do just fine regardless of headline risk in the summer, and it is on the Merrill Lynch US 1 list. Eli Lilly and Co. (NYSE: LLY) is a global health care company with numerous core products in a number of primary-care pharmaceutical markets. The company generates revenues from its pharmaceutical product and animal health segments.

The product portfolio includes Zyprexa (for schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder), Erbitux (cancer) and Alimta (chemotherapy). Eli Lilly also has a strong presence in the diabetes market.

Reported first-quarter earnings and revenue came in just slightly under consensus. While the overall numbers were unremarkable in the analysts view, the Merrill Lynch team is still very focused on the company’s outstanding late-stage product pipeline, which they view as very undervalued. Eli Lilly did however raise the company’s 2016 earnings per share and revenue guidance to above the consensus estimates.

Shareholders are paid a solid 2.72% dividend. The $108 Merrill Lynch price target is well above the consensus price target of $95.71 and Wednesday’s closing share price of $74.91.

Qualcomm

This top technology stock also resides on the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. It includes Qualcomm’s licensing business, QTL, and the vast majority of its patent portfolio.

Qualcomm Technologies, a subsidiary of Qualcomm, operates, along with its subsidiaries, substantially all of Qualcomm’s engineering, research and development functions, and substantially all of its products and services businesses, including its semiconductor business.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. The company recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come. The company signed numerous big licensing deals recently in China that gave the stock a solid boost.

Qualcomm posted solid fiscal second-quarter numbers that beat estimates, but the forward guidance was tepid. While the Merrill Lynch team sees some potential share loss at Apple, they think a resolution with LG could offset the loss.

Qualcomm shareholders are paid a 3.87% dividend. The Merrill Lynch price target is $65, while the consensus target is set at $57.18. The stock closed most recently at $54.94.

Needless to say, with the market trading at highs, it may be prudent to buy a partial position at current levels and see if the market doesn’t back up later in the summer. We should see more volatility due to potential headline risk, and that could make for some better entry points.