Investing

With Long Bull Market Almost Over, Time to Rotate to Safety and Income

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The hallmark of one of the longest bull markets in history has been the emergence and leadership of the FANG stocks, or Facebook, Amazon, Netflix and Google (now Alphabet). These four companies, along with some other tech leaders, were responsible for much of the gigantic gains in the S&P 500 over the past almost 10 years. But like all good things that come to an end, these stocks have been absolutely hammered during October and November.

Typically in bull markets when the leadership stocks go, the rest are usually not far behind, and while there still may be some upside left, gains in the coming years may be hard to come by. So now could be the time to look for safety and total return.

We always like to remind our readers about the impact that total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Again, total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend and it goes up to $22 in a year, your total return is 13%. That is, 10% for the increase in stock price and 3% for the dividends paid.

We screened the Merrill Lynch research database for stocks rated Buy that pay a dividend and have the firm’s best volatility risk rating. We found five that look like solid picks for 2019 and beyond.

American Electric Power

This industry-leading utility is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states.

The company ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which would be also accretive.

American Electric Power shareholders are paid a solid 3.81% dividend. The Merrill Lynch price target for the shares is $78, while the consensus price target across Wall Street was last seen at $77.56. The shares closed trading last Friday at $75.86 apiece.

Coca-Cola

This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.

Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Coca-Cola investors are paid an outstanding 3.18% dividend. Merrill Lynch has a $52 price target for the stock, while the posted consensus price target is $51.48. The stock ended last week at $49.02 a share.

Exxon Mobil

This remains a top Wall Street energy pick, and it is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

The company posted strong third-quarter results, and the Merrill Lynch analysts noted this.

Solid quarter with earnings and cash flow beat on the downstream segment. Production beat looks like it is on Permian growth which we view as underappreciated aspect to the company’s story. All-in-all, we see the quarter as a welcome start to management plans to double cash flow by 2025 and retain our Buy rating.

Shareholders of Exxon are paid a very solid 4.34% dividend. The $108 Merrill Lynch price objective compares with the $89.42 consensus target price. The shares ended trading on Friday at $75.49.

McDonald’s

The fast-food giant does a ton of business overseas but 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 food-service retailer with over 37,000 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 men and women.

McDonald’s shares have been positive recently as menu price increases and global growth fueled a strong third-quarter earnings report. McDonald’s beat earnings on the top and bottom line, and the company posted its 13th consecutive quarter of positive same-store sales growth.

McDonald’s shareholders are paid a nice 2.53% dividend. Merrill Lynch has set its price target at $200. The posted consensus price objective is $192.74, and the shares closed Friday at $181.93.

Pfizer

This top pharmaceutical stock made a gigantic splash last year with a $5.5 billion purchase of Anacor Pharmaceuticals. Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates, and it is one of the largest pharmaceutical companies in the world as measured by market capitalization and revenue. It also is a component of the Dow Jones industrial average.

The company’s commercial operations are bifurcated into two business segments: Innovative Health, which focuses on the development and commercialization of medicines and vaccines, as well as consumer health care products, in various therapeutic areas, and Essential Health, which offers branded generic products, biosimilars, anti-infectives and other products without marketing patent protection.

Pfizer investors are paid a very solid 3.15% dividend. The Merrill Lynch price objective is $47. That compares with the consensus price target of $43.79 and the most recent close at $43.14 a share.

These five Buy-rated safe companies all carry Merrill Lynch’s best volatility risk rating and pay dependable dividends. They offer reasonable entry points and are the types of companies you can sleep well at night owning.

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