Investing
5 Blue Chip Stocks That Could Explode With Big Institutional Buying
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It’s no secret that many active portfolio managers in both mutual funds and hedge funds have underperformed their benchmarks over the past few years. With technology and health care the leading sectors in the S&P 500 year to date, they may be poised to break that string. According to a recent report from Merrill Lynch, portfolio managers increased their weighting in tech again this month, bringing the sector relative weighting to the second highest level in the firm’s data history.
What intrigued 24/7 Wall St. was the list of stocks covered by the Merrill Lynch team that are rated Buy at the firm but are heavily underweighted by the fund managers. While only one was a technology company, others are top dividend-paying blue chips, and it would seem to be safe to say that if they posted solid first-quarter numbers and forward guidance, they could see some serious institutional buying. We found five in the list that look very attractive now.
AT&T
This stock has had a nice run off lows posted in November, but only 28% of funds own the shares. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE. The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions.
With its shares trading at a very cheap 14.4 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.
The company posted fourth-quarter adjusted earnings per share in line with analyst expectations, though its revenue fell short of Thomson Reuters consensus estimates and also was a slight drop from sales during the year-earlier quarter.
AT&T investors are paid a huge 4.72% dividend. The Merrill Lynch price objective for the stock is $46. The Wall Street consensus target price is $43.11. Shares closed Wednesday at $41.45.
IBM
This blue chip leader has had a solid rebound over the past year and still offers good upside as only 20% of funds own the tech giant. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high value solutions.
IBM is comprised of five major segments: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. The analysts cite the company’s potential in the public cloud as a reason for raising their price objective.
IBM shareholders are paid a nice 3.22% dividend. Merrill Lynch recently boosted its price target to $200 from $185. The consensus target is $170.68, but shares closed above that level on Wednesday at $173.94.
Prudential Financial
Only 15% of funds hold shares of this top financial services and insurance company. Prudential Financial, Inc. (NYSE: PRU) is one of the largest U.S. financial services companies and provides insurance, investment management and retirement products and services. The company ranks in the top three in terms of variable life assets, individual life in-force premiums and group life sales, and it sells products to different markets through specialized channels. The company operates three divisions: Insurance, Investment and International.
The company reported very solid fourth-quarter earnings with operating earnings that were ahead of both the Merrill Lynch and the consensus estimate, adjusting for positive investment results and a favorable legal settlement.
Shareholders are paid a solid 2.85% dividend. The $126 Merrill Lynch price objective compares with the consensus target of $113.93 and Wednesday’s close at $105.16.
3M
This top industrial could really jump with an economic pickup, and only 19% of funds hold the stock. 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, Healthcare, and Industrial. Its popular brands include Scotch, Post-It, 3M and Thinsulate. The company also holds over 500 U.S. patents.
The company recently entered into a definitive agreement with Johnson Controls to acquire the latter’s operating unit Scott Safety. The deal, worth $2.0 billion, is expected to close in the second half of 2017. The acquisition will likely boost 3M’s technology, manufacturing, global capabilities and brand. In addition, it will enable the company to expand its recent portfolio actions within the Safety and Graphics business to help position for long-term success.
Shareholders are paid a 2.46% dividend. Merrill Lynch has a $208 price target, and the consensus target is $189.80. The stock closed Wednesday at $190.68 a share.
Valero Energy
This is a Wall Street and Merrill Lynch favorite that only 17% of funds own. Valero Energy Corp. (NYSE: VLO) is the largest independent petroleum refining and marketing company in the United States. It is based out of San Antonio, owns 13 refineries in the United States, Canada and Europe, and has total throughput capacity of around 2.5 million barrels per day.
The stock has traded sideways since December, and with oil looking to trade higher and the busy summer driving season just around the corner, this may be an excellent play for growth and income portfolios.
Investors are paid a 4.17% dividend. The Merrill Lynch price target is a whopping $86. The consensus target is $72.47, and the shares closed most recently at $67.14.
Now clearly these stocks could be underweighted by portfolio managers for a variety of reasons, but they all offer solid value, and any meaningful pickup in the economy could benefit them all.
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