As incredible as it may seem, the third quarter is history and the fall colors and football are back. The markets had another very solid quarter, with the S&P 500 climbing more than 3%, the Dow almost 5% and the Nasdaq more than 5%. Stock markets have managed to clock some steady gains, and new records, even as tensions between the United States and North Korea loomed. The second-quarter earnings reporting season, which occurred early in the third quarter, was generally very positive.
As we start the fourth quarter, many of the top firms we cover on Wall Street are out with their top ideas. A new Merrill Lynch research report offers the firm’s top ideas for the final quarter of 2017: eight stocks to buy and two that are expected to underperform. We focus on the long ideas, and at first glance, they look like outstanding ideas for growth stock accounts.
CarMax
This is the top stock to buy now in the consumer discretionary sector. CarMax Inc. (NYSE: KMX) is the nation’s largest specialty retailer of used vehicles and has been in operation since 1993, when it was a subsidiary of Circuit City. CarMax focuses primarily on the used vehicle market, but it has a handful of new vehicle stores as well. It also has its own in-house financing arm (CarMax Auto Finance). In the used market, CarMax generally targets the late-model segment (one- to six-year-old cars and trucks) and offers no-haggle, transparent pricing.
The huge storm damage in Florida and Texas may be a big plus for the company, as it is possible that as many as 500,000 or more cars have to be replaced.
The Merrill Lynch price target for the stock is $82. The Wall Street consensus target is $86.87. Shares are trading Thursday at $76.45.
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Liberty Media
This is a solid play for investors who feel media content will stay big. Liberty Formula One Group (NASDAQ: FWONK) is a tracking stock of Liberty Media, a long-time owner of media, communications and entertainment businesses. The assets attributed to the company include:
- Formula 1 (F1), the exclusive holder of the Formula 1 World Championship
- A 34% stake in Live Nation
- And stakes in other public securities and private investments
Merrill Lynch has a $45 price target, and the consensus target is $39.34. Shares traded Thursday at $40.75.
Norwegian Cruise Line
This stock has sold off recently and is offering a very good entry point. Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) is the world’s third-largest cruise company, and it owns and operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.
The company acquired Prestige Cruise Holdings, the parent company for Oceania and Regent Seven Seas Cruises, in 2014 to diversify into the premium and luxury segments of the market and expand its global footprint. Today, Norwegian has 25 ships across all three brands and offers itineraries to more than 510 destinations.
The $68 Merrill Lynch price target compares with the consensus estimate of $64.72. Shares traded Thursday at $58.05.
Occidental Petroleum
This is one of the highest yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. The chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.
With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.
Shareholders receive a 4.8% dividend. The Merrill Lynch price target is $70. The consensus target is $63.55, and shares traded Thursday at $64.30.
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Liberty Interactive/QVC Group
This is another media and content play the Merrill Lynch team likes for the fourth quarter. Liberty Interactive/QVC Group (NASDAQ: QVCA) is a tracking stock that consists of Liberty Interactive’s subsidiaries QVC and Zulily and its 38% interest in HSN.
QVC is a global home shopping network, which also operates a sizable e-commerce business at 44% of sales. Zulily is a curated flash deal e-commerce site that primarily features small brands and targets a millennial mom customer.
Merrill Lynch has set its price target is $30, and the consensus target is $28.50. Shares changed hands on Thursday at $23.65.
Steel Dynamics
Merrill Lynch has remained very positive on Steel Dynamics Inc. (NASDAQ: STLD), which operates six steel mini mills in Indiana, Virginia, Mississippi and West Virginia. Production capacity has been nearly 10 million tons of a total 110 million U.S. capacity.
The company makes flat rolled products, special/merchant bars and structural steel products. Steel Dynamics can process about 7 million tons of ferrous scrap and has a downstream operation that processes finished steel.
Shareholders receive a 1.71% dividend. The $44 Merrill Lynch price target is above the $40.50 consensus target. Shares traded Thursday at $36.20.
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Toronto-Dominion Bank
This is a top-yielding financial stock to add to portfolios. The Toronto-Dominion Bank (NYSE: TD) operates through Canadian Retail, U.S. Retail and Wholesale Banking segments. The Canadian Retail segment offers various financial products and services, as well as telephone, internet and mobile banking services to approximately 15 million personal and small business customers through a network of 1,165 branches and 2,867 automated banking machines in Canada.
The company’s TD Ameritrade business is incredibly fast-growing and consistently challenges for online supremacy among the top Wall Street investment banks.
Investors receive a 3.38% dividend. Merrill Lynch has a $62 price target. The consensus price objective is $59.87, and shares were trading Thursday at $56.35.
Texas Instruments
This old-school chip tech company has come back into favor big-time. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators. Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets.
The company increased its quarterly dividend earlier this year by 32% to $0.50 per share, or $2.00 annualized. The increase reflects its continued strength in free cash flow generation and its commitment to return excess cash to shareholders.
Shareholders receive a 2.73% dividend. At $100, the Merrill Lynch price objective is well above the $88.66 consensus price target. Shares traded Thursday at $90.60.
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The two stocks in the top fourth quarter ideas that are rated Underperform are Hewlett Packard Enterprises Co. (NYSE: HPE) and Nike Inc. (NASDAQ: NKE). These might be short sale ideas for more aggressive accounts.
Merrill Lynch has avoided high-flying momentum ideas and focused on solid companies with reasonably priced stocks that may benefit from White House initiatives and other macro events. They all make sense for long-term growth accounts.
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