Investing

Merrill Lynch Says Buy These 8 Stocks for Q1 Earnings Surprises

Lee Jackson

Published: March 29, 2018 8:45 am

Last Updated: January 12, 2020 1:56 am

Despite the recent volatility, which has investors seeing huge swings in the market, there is plenty to be positive about first-quarter earnings, reporting of which is right around the corner. Many U.S. companies are enjoying the most favorable currency tailwinds in six years, in addition to the benefits of lowered corporate taxes. In fact, almost 150 companies have announced major spending plans since the package was approved late last year.

A new research report from Merrill Lynch’s outstanding equity and quantitative strategist, Savita Subramanian, lists stocks that are expected to beat earnings and sales estimates. The report also highlights companies in the list that are under-owned by active fund portfolio managers.

Here we take a look at eight of the under-owned shares that may offer the best value to investors now.

Allstate

Insurance companies tend to do well as rates rise, and this sector giant may be an outstanding pick for investors. Allstate Corp. (NYSE: ALL) is the largest publicly traded personal lines insurance company, with about 12% of the personal lines market (one in eight households). Allstate is primarily a direct writer. Besides a full array of personal lines P/C products (preferred, standard and nonstandard auto insurance, and homeowners’ insurance), the company also offers life insurance and annuity products.

Allstate shareholders are paid a 1.94% dividend. The Merrill Lynch price objective for the shares is $111, and that compares with the Wall Street consensus target price of $106. The stock closed trading on Wednesday at $94.61.

Caterpillar

After years of lousy earnings growth, this large cap leader is hitting on all cylinders. Caterpillar Inc. (NYSE: CAT) is the largest manufacturer and marketer of construction equipment worldwide, It is also a leading manufacturer of diesel engines and turbines for transport and industrial applications.

Caterpillar shareholders are paid a solid 2.15% dividend. Merrill Lynch has a $192 price objective for the shares, and the consensus target price is $180. The stock closed Wednesday at $145.16 per share.

Cimarex Energy

This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.

Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.

Investors in Cimarex are paid just a 0.7% dividend. The whopping $161 Merrill Lynch price target is well above the posted consensus price target of $138.19. The shares closed most recently at $92.75.

McDonald’s

The fast-food giant does a ton of business overseas and still remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business persons.

McDonald’s shareholders are paid a nice 2.57% dividend. The Merrill Lynch price target for the shares is $180. The consensus price objective is $187.50, and the shares closed Wednesday’s trading at $158.41.

McKesson

Health care services are expected to continue to grow at a furious rate over the coming years. McKesson Corp. (NYSE: MCK) is the largest drug distributor in the United States, as well as having sizable businesses in Canada and Europe, including distribution and retail pharmacy assets.

The company is also the largest medical-surgical distributor to the non-acute care market and offers various supply chain services and technology, although recently divested its clinical health IT platform.

McKesson investors are paid a small 0.98% dividend. Note that the $179 Merrill Lynch price target is less than the posted consensus target of $182.69. Shares closed most recently at $140.66.

Nvidia

This top chip company has reported strong earnings the past few years and remains a top pick at Jefferies for 2018. Nvidia Corp. (NASDAQ: NVDA) is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles.

Nvidia is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Investors in Nvidia are paid a small 0.28% dividend. The Merrill Lynch price target is $300. The posted consensus target is much lower at $251.29. The stock closed Wednesday at $221.35 per share.

Qualcomm

This stock recently was added to the Merrill Lynch US 1 list. Qualcomm Inc. (NASDAQ: QCOM) 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.

Qualcomm shareholders are paid a very hefty 4.16% dividend. Merrill Lynch has set its price target at $75. The consensus target was last seen at $71.03. The stock closed at $54.70 on Wednesday.

United Rentals

This stock has rallied smartly but still has solid upside potential, and it is also on the Merrill Lynch US 1 list. United Rentals Inc. (NYSE: URI) is the largest equipment rental company in the world. It has an integrated network of 876 rental locations in 49 states and 10 Canadian provinces. With approximately 12,200 employees, the company serves construction and industrial customers, utilities, municipalities, homeowners and others. It offers for rent approximately 3,100 classes of equipment for rent.

The Merrill Lynch price target of $230 compares with the $180.29 consensus estimate. The stock closed trading on Wednesday at $169.11 a share.

These eight top companies in various sectors are expected to beat earnings estimates, are under-owned by fund managers and are rated Buy at Merrill Lynch. They make good sense for growth accounts that have a degree of risk tolerance.