The clock is ticking on 2016, and what a year it’s been. With the S&P 500 looking like it may be a double-digit winner, as it is currently up over 10%, investors and portfolio managers are turning their eyes to 2017. With the holidays right around the corner, you can expect volumes on Wall Street to grind lower. We also expect capital gains to be more likely taken next year, as many expect the Trump administration to offer some relief in that area, which could push the market higher into January.
A new research report from the outstanding Savita Subramanian and her team at Merrill Lynch presents the firm’s 11 top stocks to buy for 2017. They chose one from each sector that tend to align with the big price themes and quantitative work the analysts have done. All are rated Buy at Merrill Lynch.
Alphabet
The search giant continues to expand and is even working on a driverless car now. Alphabet Inc. (NASDAQ: GOOGL) provides online advertising services in the United States, the United Kingdom and rest of the world. It offers performance and brand advertising services, and it operates through Google and Other Bets segments. The Google segment includes principal internet products, such as Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome and Google Play, as well as technical infrastructure and newer efforts, such as virtual reality.
The Google segment also sells hardware products, comprising Chromecast, Chromebooks and Nexus. The Other Bets segment includes businesses such as Access/Google Fiber, Calico, Nest, Verily, GV, Google Capital, X and other initiatives.
The Merrill Lynch price objective for the stock is $1,025, and the Wall Street consensus target is $966.88. Shares closed Friday at $809.84.
Citizens Financial Group
This is Merrill Lynch’s top financial pick for 2017. Citizens Financial Group Inc. (NYSE: CFG) operates 1,200 branches, primarily throughout 11 states across the New England, Mid-Atlantic and Midwest. It has consolidated total assets of $137 billion, ranking as the 13th largest bank in the United States by assets. It offers a broad range of retail and commercial banking products and services to more than 5 million individuals, institutions and companies.
Shareholders receive a 1.36% dividend. Merrill Lynch has a $38 price objective, and the consensus target is $32.86. Shares closed Friday at $35.40.
Devon Energy
This company is expected to have a substantial portion of its total 2016 production in natural gas, and it also resides on the Merrill Lynch US 1 list. Devon Energy Corp. (NYSE: DVN) an independent energy company, primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells. It also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensates through its natural gas pipelines, plants and treatment facilities.
Devon Energy’s third-quarter results set the tone for a very solid November after the company reported core earnings that were nearly double what Wall Street analysts were expecting. Fueling that result was the company’s continued ability to push down operating costs, which are now 37% below peak rates.
Shareholders receive a 0.5% dividend. The Merrill Lynch price target is $61, and the consensus target is $50.69. Shares ended Friday at $47.02.
Digital Realty Trust
This top data center company is a solid play on the huge cloud and streaming content revolution. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.
Its clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. The company rates highly with portfolio managers, as a large part of the market cap of the company is in institutional hands.
Investors receive a 3.73% distribution. Merrill Lynch has a $120 price target. The consensus price target is $106.07. Shares closed Friday at $94.59.
Nucor
This top steel company could do very well if the economy sees a solid pickup next year and the infrastructure push is in place. Nucor Corp. (NYSE: NUE) and its affiliates are manufacturers of steel products, with operating facilities primarily in the United States and Canada. The company also is North America’s largest recycler.
Nucor products produced include: carbon and alloy steel, in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh.
While the residential construction market could slow down some in 2017 after years of a very torrid pace, Merrill Lynch and top Wall Street analysts remain positive on nonresidential commercial construction. Nucor always has kept a very conservative balance sheet and is poised for slow but steady growth next year and beyond, especially of a huge infrastructure build-out becomes a reality.
Nucor investors receive a 2.49% dividend. Merrill Lynch recently raised its price target to $65 from $57, while the consensus target is $60.81. The stock closed Friday at $60.65.
Norfolk Southern
This top transport looks like a solid pick for 2017. Norfolk Southern Corp. (NYSE: NSC) engages in the rail transportation of raw materials, intermediate products and finished goods. It also transports overseas freight through various Atlantic and Gulf Coast ports, provides logistics services and operates scheduled passenger trains. In addition, the company engages in the acquisition, leasing and management of coal, oil, gas and minerals; development of commercial real estate; telecommunications; and leasing or sale of rail property and equipment.
Shareholders are paid a 2.21% dividend. The $122 Merrill Lynch price objective compares with the consensus estimate of $103.69. Shares closed above that level on Friday at $106.67.
PG&E
This top utility is rated Buy at Merrill Lynch and investors can still feel very comfortable owning it now. PG&E Corp. (NYSE: PCG) is one of the largest combined natural gas and electric utilities in the United States. Based in San Francisco, with more than 20,000 employees, the company delivers energy to nearly 16 million people in Northern and Central California.
The company operates 141,215 circuit miles of electric distribution lines, 18,616 circuit miles of interconnected transmission lines, 42,141 miles of natural gas distribution pipelines and 6,438 miles of gas transportation pipelines. It operates generation facilities with energy sources such as nuclear, hydroelectric, fossil fuel-fired and photovoltaic.
PG&E shareholders receive a 3.21% dividend. The Merrill Lynch price target is $63, and the consensus number is listed at $65.34. Shares closed on Friday at $61.04.
Regeneron Pharmaceuticals
This remains one of the favorites among portfolio managers and is the top biotech pick at Merrill Lynch. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. The company is focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.
Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.
The company reported a better-than-expected quarterly profit, as U.S. sales of its flagship eye drug Eylea rose 27%. Eylea generated U.S. sales of $831 million in the quarter, topping the consensus estimate of $812 million. Sales are expected to continue a solid upward trend.
The $526 Merrill Lynch price target is well above the consensus target of $453.10. Shares closed Friday at $378.85.
Sysco
This stock is a safer play for more conservative accounts and another Merrill Lynch 2017 pick. Sysco Corp. (NYSE: SYY) is the largest North American foodservice distributor, with roughly $50 billion in sales in fiscal 2016 and an estimated 16% market share in the United States. It distributes food and nonfood items to more than 425,000 customers globally, including restaurants, health care facilities, hotels, educational facilities and retail locations.
Prior to the Brakes acquisition, 89% of the company’s revenues were generated from its U.S. operations in fiscal 2016, with roughly 11% from Canada and other international operations.
Shareholders receive a 2.34% dividend. Merrill Lynch has a $60 price objective. The consensus target is $54.38. Shares closed at $56.36.
Target
This top retailer has suffered from corporate decisions and may be an outstanding contrarian play in the retail sector. Target Corp. (NYSE: TGT) operates as a general merchandise retailer in the United States, offering household essentials, including pharmacy, beauty, personal care, baby care, cleaning and paper products.
The company offers music, movies, books, computer software, sporting goods and toys; electronics, such as video game hardware and software; and apparel for women, men, boys, girls, toddlers, infants and newborns; as well as intimate apparel, jewelry, accessories and shoes.
The company’s stock has plunged since a controversial corporate decision over bathrooms was implemented. While not all may agree, from an investing standpoint, savvy buyers who are willing to buy shares amid controversy may end up with an outstanding position in future years.
Target investors are paid a 3.13% dividend. The Merrill Lynch price target is $90. The consensus target is $77.48. Shares closed Friday at $76.75.
Verizon
This is a top telecommunications pick at Merrill Lynch for 2017. Verizon Communications Inc. (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.
Verizon also recently announced the purchase of Yahoo’s core operating business for $4.8 billion in cash. The analysts feel it plays into Verizon’s strategic drive to expand into advertising and content, and they also think the transaction is largely immaterial from a financial perspective. This deal could be renegotiated as Yahoo disclosed another massive security breach last week.
Investors are paid a 4.42% dividend. The Merrill Lynch price objective is $59, and the consensus target is $54.05. Shares closed Friday at $51.81.
There they are, the 11 top stock picks from the analysts at Merrill Lynch for 2017. Most look well-suited for growth portfolios that have a degree of risk tolerance.
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