With the third quarter now underway, and second-quarter earnings season looming, many investors are taking the proverbial halftime look at their portfolios and making some changes. After yet another solid first half of the year, and with earnings expectations rising, it’s a good bet that investors who have traded momentum may start rotating to stocks offering better value but still having large cap market size.
A recent Jefferies research report spotlights some top stocks to buy for the third quarter that are large cap leaders that have a value profile. We found four that look attractive now, and they make good sense for those who want to stay invested but lower potential portfolio volatility.
Abbott Laboratories
This top pharmaceutical and med-tech stock has very solid growth potential, but the shares have lagged the sector. Abbott Laboratories (NYSE: ABT) is a leading diversified global health care company that develops, manufactures and markets branded generics, medical devices, nutritional products and diagnostic solutions.
The company also offers a diversified large cap play as earnings are split between five well-positioned business segments: Nutritionals (31.0% of revenues), Vascular (13.0%), Generic Pharmaceuticals (20.0%), Diagnostics (25.5%) and Diabetes (10.5%).
Abbott Labs investors receive a 2.7% dividend. The Jefferies price target for the stock is $58, and the Wall Street consensus target is $50.47. Shares closed most recently at $48.71.
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Boeing
This top aerospace industrial has been on a roll since the election and has broken out to all-time 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 reported a 19% rise in first-quarter profit despite declining revenue, and it notched up its forecast for full-year earnings. The analysts noted this in their report:
The 2017 Paris Air Show had attention grabbing announcements for Boeing and may reflect a more aggressive marketing strategy from its new commercial sales director. The company notched orders and commitments for 360 Max 10 aircraft, and in total, announced deals for 795 aircraft. Total Paris unit orders for Boeing and Airbus were the highest since 2011.
Boeing investors receive a 2.86% dividend. Jefferies has a $200 price objective. The consensus target price is $192.70, and shares closed most recently at $198.59.
Cisco
This top mega-cap technology stock pick makes good sense for investors seeking tech exposure. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.
With all the positives for the stock, the analysts did note this cautionary issue:
We continue to believe the company understates the size of the revenue headwind associated with the move to subscription. We do acknowledge that the headwinds from the move to subscription will act as an overhang on shares. Execution remains key, but we believe Cisco’s expectations as it relates to federal spending may prove conservative. Shares currently trade at 10 times our base business, ex-cash, current year 2018 earnings-per-share and we continue to believe shares can re-rate.
Shareholders receive a 3.7% dividend. The $37 Jefferies price target compares with a consensus target of $35.47. The stock closed Monday at $34.07.
Medtronic
This company is based in Ireland after its merger with Covidien two years ago. Medtronic PLC (NYSE: MDT) is a medical devices giant, and many on Wall Street saw its historical merger with Covidien, probably one of the largest in the med tech industry, as a momentous event, leading to the creation of a unique company that combines the extensive and innovative abilities of both companies. The combined company officially has joint forces of over 85,000 employees in more than 160 countries.
Top analysts feel that the contributions from Medtronic’s three growth drivers, which they cite as therapy innovation, globalization and services/solutions, should support a 5% or greater constant currency top-line growth this year and beyond.
Medtronic investors receive a 2.11% dividend. Jefferies raised its price target to $103, while the consensus target is $92.15. Shares closed Monday at $88.81.
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Four large cap leaders in their sectors that offer far better value than stretched momentum stocks. For investors trying to play it a little safer for the second half of 2017, they all make good sense.
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