With earnings reporting for the first quarter right around the corner, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients. With the market much more volatile than in years past, it makes sense to examine the lists and make some changes, as the rest of the year could have additional volatility as economic, political and trade issues could weigh on stocks.
In a new research note, the analysts at Merrill Lynch make a big move by adding Qualcomm Inc. (NASDAQ: QCOM) to the US 1 list. The company designs, develops and supplies semiconductors and collects royalties on wireless handheld devices and infrastructure based on its dominant position in CDMA and other related technology patents.
In addition, Qualcomm provides systems software and components to wireless handset vendors and promotes applications and services that run on high-speed wireless networks. The company operates primarily through two segments: CDMA Technologies and Technology Licensing.
The stock has been in the news recently as the president blocked a potential takeover of the firm by Broadcom Ltd. (NASDAQ: AVGO) on concerns over the company highly sensitive intellectual property.
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Yet, the Merrill Lynch analysts are very positive on the future for the company and noted this:
We are adding Qualcomm to the US 1 list as we see significant upside potential from the NXP acquisition and licensing renegotiations. Recent changes on the board may also signal more significant shifts in restructuring, licensing, or M&A strategy to come. Risks are related to Apple/Huawei licensing payments and trade relations with China, but we reiterate our positive stance.
Qualcomm shareholders receive a hefty 3.91% dividend. The Merrill Lynch price target for the stock is $75, and the Wall Street consensus target is $71.03. The stock closed Tuesday at $58.26 a share.
In addition, we screened the US 1 list for other stocks that look like solid buys for the second quarter and found three that look very attractive now and have big upside potential compared with their Merrill Lynch price targets.
Allergan
This stock has taken a beating over the past year and is offering an outstanding entry point for investors. Allergan PLC (NYSE: AGN) is a specialty pharmaceutical company that develops, manufactures and markets branded products. The company’s growth has been driven largely by acquisitions supported by internal growth.
Allergan markets a portfolio of best-in-class products that provide valuable treatments for the central nervous system, eye care, medical aesthetics, gastroenterology, women’s health, urology, cardiovascular and anti-infective therapeutic categories, and it operates the world’s third-largest global generics business, providing patients around the globe with increased access to affordable, high-quality medicines.
Allergan is an industry leader in research and development, with one of the broadest development pipelines in the pharmaceutical industry and a leading position in the submission of generic product applications globally. The Merrill Lynch analysts note the company’s Aesthetics leadership and that the substantial pipeline optionality is not priced in. And with Restasis now a zero, 2018 estimates represent a clean-trough multiple year.
Shareholders receive a 1.76% dividend. Merrill Lynch has a $215 price target, and the consensus target is $215.95. The shares closed Tuesday at $163.62.
Equinix
This is one of the larger cap companies in the data center arena and a top play for more conservative accounts. Equinix Inc. (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.
The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.
Investors are paid a 2.2% distribution. The whopping $520 Merrill Lynch target price is well above the consensus price objective of $507.23. The shares closed Tuesday at $415.26.
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Walmart
The giant retailer remains on sale after being pummeled recently. Walmart Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets, as well as Sam’s Club locations, in the United States, and it has a growing e-commerce business (including Jet.com). Internationally, Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.
Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce sites in 11 countries. With fiscal year 2017 revenue of nearly $486 billion, Walmart employs approximately 2.2 million associates worldwide.
The stock was absolutely crushed after reporting earnings in which e-commerce sales came in below expectations. The stock suffered its worst trading day ever, and many top Wall Street analysts have said to jump on shares after the decline.
Shareholders receive a 2.36% dividend. Merrill Lynch has set its price target at $120. The consensus target is $105.32, and shares closed Tuesday at $87.95.
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A new addition to the US 1 list and three current list members that have big upside to the Merrill Lynch price targets. While probably more suited for growth accounts with a higher risk tolerance, they all should be good long-term holds.
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