The Dow Jones Industrial Average (DJIA) has had an outstanding year, and it marched even higher recently as two huge components, Caterpillar and 3M, posted stellar third-quarter results. For years, many investors yawned at the venerable index, but many have taken note now as the large cap companies that make up the index are very liquid and profitable and have posted solid results.
Not every company in the Dow has had a great year. We screened the 30 companies that make up the index and found five that are still down for 2017 but are rated Buy at Merrill Lynch. Investors looking for value and quality in a pricey market may want to check out these five.
Chevron
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
The company reported solid earnings for the third quarter, and analysts have noted that the Permian Basin remains a key source of capital flexibility, and it is a key issue behind their relative preference for Chevron versus some of the other majors.
Chevron shareholders are paid an outstanding 3.78% dividend. The Merrill Lynch price target for the stock is $125, and the Wall Street consensus price objective is $122.57. The shares closed Monday at $114.39.
Disney
This top consumer media company has multiple streams of income to push revenue. Walt Disney Co. (NYSE: DIS) stock continues outperforming on a near-term and long-term basis. With the movie studio business poised to improve, as with accelerating theme park business, the network programming continues to drive viewership with extensive sports programming. Combining that revenue growth with the company’s solid media networks and interactive presence, and the 2017 and 2018 revenue estimates could be conservative.
The Disney Media Networks segment operates broadcast and cable television networks, domestic television stations and radio networks and stations, and it is involved in the television production and television distribution operations. Its cable networks include ESPN, Disney Channels and ABC Family, as well as UTV/Bindass and Hungama. This segment also owns eight domestic television stations. Disney is also one of 24/7 Wall St.’s top 10 stocks to own for the next decade.
Disney shareholders are paid a 1.59% dividend. Merrill Lynch has a $120 price target for the shares, and the posted consensus price objective is $110.32. The stock closed trading Monday at $98.04 per share.
Goldman Sachs
This continues to be the gold standard of Wall Street banks and trades at a very reasonable 11.93 times estimated 2018 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.
The company solidly beat third-quarter estimates due to stronger revenue, better costs and a lower share count in the float. Given the strong prospects for next year, as well as the reasonable valuation, this is an excellent financial stock to add to growth portfolios.
Goldman Sachs shareholders are paid a 1.25% dividend. The whopping $275 Merrill Lynch price objective compares with a consensus target price of $247.84 and the most recent closing share price of $240.89.
IBM
This blue chip leader is still offering investors the best entry point in years. 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.
Five major segments comprise IBM: 1) Cognitive Solutions, 2) Global Business Services, 3) Technology Services & Cloud Platforms, 4) Systems and 5) Global Financing. Analysts cite the company’s potential in the public cloud as a reason for raising price objectives.
The company surprised Wall Street and posted solid third-quarter earnings that sent the shares higher. The Merrill Lynch team noted this when the company reported:
IBM posted better than expected third quarter revenue in each of the segments, and an in-line EPS that came from operating performance. Company maintained its full year EPS guide of “at least $13.80” driven by Mainframe cycle and improving software trajectory.
IBM shareholders are paid a large 3.89% dividend. Merrill Lynch has set its price target at $200. The posted consensus estimate is $175.07, and the shares closed trading most recently at $154.36 apiece.
Verizon
This top telecommunications stock was the worst performing in the DJIA for much of this year. 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 posted solid third-quarter results, and it remains a safe and solid growth and income play. The Merrill Lynch analysts said this about the results:
Verizon third quarter earnings per share of $0.98 was just ahead of consensus of $0.97 and $0.01 short of our $0.99 forecast. Verizon added 274,000 postpaid phone customers in the quarter, which was better than consensus of 251,000. Wireless service revenue inflected positive quarter over quarter for the first time in 3 years.
Verizon investors are paid an outstanding 4.93% dividend. The Merrill Lynch price target is $2. The consensus target is $49.59, and the stock closed most recently at $47.83 per share.
These five stocks could be great total return stories and also offer investors a degree of safety in what has become a very expensive stock market. All make sense for more conservative growth and income accounts, and all are still down for the year, which make them solid buys now.
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