Investing

Bond Sell-Off Could Be Huge for Stocks: 4 Analyst Top Pick Dividend Stocks to Buy Now

Lee Jackson

Published: December 5, 2016 10:05 am

Last Updated: January 12, 2020 5:08 pm

Despite the recent highs in the market, investor enthusiasm for stocks has been lousy for years, but that could all be changing now. Jefferies reports that, since the 2009 lows in the market, net cumulative inflows into equities was only $97 billion, and over the past two years the market actually saw net outflows from stocks. Compare that with the $1.5 trillion that went into bonds and bond funds since 2009, investments that are now starting to look dicey as rates steadily march higher.

There is a strong possibility that some of the huge bond cash pile could go into stocks. The Jefferies strategist is predicting that the S&P 500 and the Russell 2000 could both trade-up with mid- to high-single-digit gains in 2017. We screened the Jefferies Franchise List, which is the firm’s highest conviction stocks to Buy for dividend-paying stocks that bond investors may prefer over holding bonds or bond funds.

AbbVie

This is one of the top global pharmaceutical stocks picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company’s mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world’s most complex and serious diseases. AbbVie employs more than 26,000 people worldwide and markets medicines in more than 170 countries.

One of the biggest concerns with AbbVie is what eventually might happen with anti-inflammatory therapy Humira, which generated $14 billion in sales in fiscal 2015. That was the most any drug has recorded during a single year and represents a gigantic part of the company’s overall earnings. The problem is that biosimilars and generics are itching to enter the market with Amgen leading the charge, and some Wall Street analysts project that AbbVie may have a difficult time stopping that trend.

Back in May, the patent board instituted Coherus BioSciences’ Inter Partes Review against the Humira ‘135 patent. The outcome of the review is expected next year. While most analysts remain positive on Humira duration, the expected litigation uncertainty could continue to create an overhang on the stock, which does give investors chances to pick up shares lower.

AbbVie investors receive a 4.31% dividend. The Jefferies price target for the stock is $90, and the Wall Street consensus price target is $69.75. The stock closed Friday at $59.43 per share.

Boeing

This top aerospace industrial has been on a roll since the election and may be ready to breakthrough to multiyear highs. Boeing Co. (NYSE: BA), together with its subsidiaries, designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide.

The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital.

Recent reports indicate that the U.S. Navy plans to divest its older model F/A-18 Hornet fighter jets in coming years and hopes to buy dozens of F/A-18E/F Super Hornets to deal with a shortfall of strike fighters aboard its carriers. If implemented, the plan would provide dozens of new orders for Boeing and keep its St. Louis production line running for several more years.

Boeing investors are paid a 2.86% dividend. Jefferies has a $165 price objective for the stock, while the consensus target is at $151.22. Shares closed just above that level Friday at $152.25.

Halliburton

This is one of the two energy stocks in the Jefferies Franchise Picks portfolio, and it is still down almost 30% from highs printed two years ago. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

The oil field giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador and has entered into a long-time deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil looking to stabilize in the $40 to $50 range, this top oil service company is a great stock to buy on sale, as the oil recovery has shown some legs.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. Revenues in 2015 totaled $27.8 billion and EBITDA was $7.2 billion. For investors looking for an oil field services company to add, this is arguably the best.

Halliburton shareholders are paid a 1.33% dividend. The $58 Jefferies price target for the stock compares with the consensus target price of $55.81. The stock closed Friday at $54.17 a share.

Ingersoll-Rand

This is one of the many top companies that have restructured and are now based in Ireland. Ingersoll-Rand PLC (NYSE: IR) is another top industrial stock to buy and, with the housing market continuing to grow, the company’s wide range of portfolio products should continue to sell well.

Many on Wall Street also see the stock as a good play on the replacement, upgrade and, ultimately, growth in the commercial and residential air conditioning markets. Trends in these markets have been highly correlated with overall commercial construction and are thus earlier in the cycle.

Ingersoll Rand has an outstanding portfolio of global brands and holds leading market share in all major product lines. The geographic and industrial diversity coupled with a large installed product base provides solid growth opportunities for the company within service, spare parts and replacement revenue streams.

Ingersoll-Rand investors are paid a 2.15% dividend. Jefferies has its price objective set at $75, and consensus target price is listed at $77.74. Shares ended Friday’s trading at $74.50.

These four companies in four very different sectors all offer liquidity, a degree of safety and solid dividends that should continue to rise. With money expected to come out of the bond market, these stocks are an attractive alternative that have solid upside potential, and they are the highest conviction picks at Jefferies.