Investing

Stifel Still Bets on an Even Bigger April Rally: 5 Top Stocks to Buy

Lee Jackson

Published: April 7, 2020 7:12 am

We see a tremendous amount of sell-side research and analysis every day here at 24/7 Wall St., and over the years certain equity strategists have made some very impressive calls. On March 19, into the teeth of what was some of the most brutal, high-velocity selling ever recorded, Barry Bannister and his team at Stifel stood their ground and called for a reversal, which happened just a few days later.

At the time, Bannister and his analysts called for a rally to 2,750 on the S&P 500, and in fact, the market reversed on March 23 and we rallied back to 2,640. While Monday’s massive rally actually closed above that level at 2,663, investors have been pounded with horrible job loss data and millions of workers filing for unemployment. Monday’s solid rally may have turned the tables on the bears for now.

This week, after surveying what has been perhaps one of the most remarkable six weeks in stock market history, the Stifel team is again standing with their call for a rally to 2,750 by the end of April. In an updated market and portfolio strategy research piece, they urge investors to stay focused, despite the almost daily bombardment of alarmist news.

The research report noted this:

We see U.S. COVID-19 diagnosed cases peaking later in April (then dissipating in summer, possibly returning winter 2020-21), with stocks rising in advance of the near-term virus top. The S&P 500 historically looks four months out, and currently discounts declining earnings-per-share (we provisionally estimate $130 EPS in 2020 estimated versus $142 prior) and weak GDP through early August, but Equity Risk Premium is now attractive if deflation is avoided.

Given the bullish sentiment at Stifel, for the near term at least, we screened our 24/7 Wall St. research database looking for companies rated Buy that still are solid picks in what remains dangerous and somewhat uncharted investment waters.

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.

Chevron, which is among the companies with the largest corporate debt, this week became the latest major oil company to slash spending after halting its $5 billion-a-year share buyback and halving spending in the Permian Basin, which means a large decrease in projected output from America’s biggest shale region.

The California-based oil giant has said that it would lower projected 2020 capital spending by 20%, or $4 billion. The Permian will account for the largest single element of that reduction, translating into 125,000 fewer barrels of oil equivalent per day than previously forecast, a quantity equal to about 2.5% of the basin’s total current production.

Shareholders receive a hefty 6.42% dividend, which the analysts feel comfortable will remain at current levels. The Jefferies price target for the shares is $90, and the consensus Wall Street target is $90.43. Monday’s last trade in Chevron stock was reported at $80.39, which was up over 7% on the day.

Constellation Brands

If there is any company with products that stay in style, it is this one, which only has 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer.

The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.

The company made a gigantic $3.8 billion investment in cannabis company Canopy Growth last year to increase its holdings in the company. The record investment reflects a world in which marijuana has become ubiquitous as its counterculture stigma fades. While the pot stocks have been crushed, the long-term trend looks positive.

Investors receive a 2.11% dividend. Jefferies has a lofty $215 price target, while the consensus target is $191.72. Constellation Brands stock closed trading almost 8% higher on Monday to $142.26 a share.

This company has become the ultimate destination for the American consumer and has been besieged by shoppers since the coronavirus outbreak surfaced. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses and it buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend with gasoline prices still low, this major retailer may continue to see large revenue gains.

Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model could bode well for international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations.

Wall Street loves the company’s pricing authority on key items and the leading merchandising offerings, and the relatively new Costco co-branded card with Visa is a real positive. Add in the company’s growing online presence and the future looks bright.

Shareholders receive a 0.85% dividend. The $350 Merrill Lynch target price compares with the $323.46 consensus price objective, and Costco Wholesale stock closed on Monday at $305.12, up 5.7% on the day.

McDonald’s

The fast-food giant continues to revamp both stores and the menu, and it is a solid pick for more conservative accounts. 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 businesspersons, and it is one of the most valuable brands in the world.

The fast-food giant said it came across and purchased a stash of coveted N95 masks as it searched for non-medical-grade masks to distribute to McDonald’s workers nationwide. The company plans to donate 750,000 of them to the city of Chicago and 250,000 to the state of Illinois.

McDonald’s last week also announced workers will undergo wellness checks at the start of their shifts in which they are asked a series of questions about their health. Workers will be permitted to wear gloves, which the company had previously advised against because guidelines from the Centers for Disease Control and Prevention had said washing hands is better.

Shareholders receive a 2.82% dividend. Merrill Lynch has set a $180 price target. The consensus price objective is higher at $204.34, and McDonald’s closed at $177.04, up over 10% on Monday.

24/7 Wall St.
4 Merrill Lynch Buy-Rated Dividend Tech Stocks With Yields Up to Nearly 6%

PepsiCo

This top consumer staples stock fits the bill for worried investors. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch and Life cereals, and Rice-A-Roni side dishes.

Pepsi’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain Dew, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

The dividend yield is a solid 2.91%. Credit Suisse has a $144 price objective for PepsiCo stock. The $139.76 consensus estimate compares to the most recent close at $131.16.

The key for investors looking to add these top companies to portfolios is perhaps to start with smaller positions. While the coronavirus scare is similar to past health-related events, we still don’t know exactly how things will play out. While some more positive news has hit the airwaves and headlines recently, plus we had a gigantic Monday to start the holiday week, it’s still better to be safe rather than sorry. That noted, despite the big rally Monday, there is still some solid upside to the Stifel 2,750 target.