If you had asked investors in the middle of March this year if they thought the U.S. stock indexes would reach all-time highs a mere six months later, they probably would have been thrilled just to get to even at that point. In fact, after a 35% sell-off in a month, many people likely were ready to get out of the stock market forever. Yet, with interest rates at generational record lows, the equity markets remained a positive alternative.
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The question investors face now, just over three weeks from perhaps the most important election in over a century, is what to do now and for 2021. Given that the stock market is seemingly fully valued at current levels, with the exception of lagging sectors like energy, the best idea for next year could very well be a solid income and growth portfolio.

In a new BofA Securities research report, the income and growth portfolio team make some rebalancing and weighting changes to the firm’s portfolio for clients. They noted this when making those changes:

The portfolio shifts are modest as uncertainty remains, including COVID19, the US election, relations with China and global growth. However, as we approach the end of 2020 and think about investing for 2021 and beyond, we expect we will have more clarity on these issues, which in turn, hopefully suggests the worst is behind and that global growth will recover. This is consistent with the outlook of many of BofA Global Research Strategists.

We screened the portfolio looking for stocks that are rated Buy and pay solid dividends. Most importantly, we kept an eye out for value, as that could be a recurring theme next year. Five stocks look like solid ideas for balanced income and growth portfolio investors. While all are rated Buy at BofA Securities, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Abbott Laboratories

This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.

The company’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.

Its Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnose cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from samples, and detect and measure infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.

New interim clinical data results on its ID NOW COVID-19 rapid test confirm the data submitted to the FDA in March for Emergency Use Authorization and the interim results that Abbott shared in its May 21 press release. The data also speaks to the important role played by reliable point-of-care testing that is available in convenient and accessible locations where people can get immediate results.

Investors receive a 1.33% dividend. The BofA Securities price target for the shares is $122, and the Wall Street consensus target is $115.53. Abbott Laboratories stock closed Thursday’s trading at $108.54.

Chevron

This integrated leader is a safer way for investors looking to be positioned in the energy sector. 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.

Back in the spring, at the height of the pandemic, Chevron slashed 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.

Investors receive a 6.86% dividend, which still appears to be safe. BofA Securities has a $96 target, while the consensus target is $97.13. Chevron stock closed at $75.22 on Wednesday.

This top bank stock has been trading at some of the lowest levels since 2016, and it is on the BofA Securities US 1 list. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.
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Trading at a still very cheap 7.2 times estimated 2020 earnings, Citigroup stock looks very reasonable in what remains a volatile market and in a sector that has lagged dramatically.

Note that there is the potential for a consent order to be placed against the bank as federal regulators potentially weigh taking actions against Citigroup over deficiencies in the bank’s risk and control functions. That has weighed heavily on shares, perhaps offering even more opportunity.

The Federal Reserve Board recently announced an enforcement action against Citigroup that requires it to correct several longstanding deficiencies. The bank has been slapped with a $400 million penalty by the Office of the Comptroller of the Currency for longstanding deficiencies in its risk management and internal controls processes. Both the OCC and the Federal Reserve have accused the bank of failing to implement effective risk and internal controls measures that complement its size, complexity and risk profile.

While this action may seem harsh, for interested investors who have been waiting for the judgment and penalties, it should take some weight off the stock as it does not seem overly punitive to the bank.

Investors receive a 4.56% dividend. The $74 BofA Securities price target is well above the $65.72 consensus target. Citigroup stock closed at $44.72.

Home Depot

This remains the undisputed leader in the home improvement retail category. Home Depot Inc. (NYSE: HD) is the world’s largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.

Home Depot stores sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance and professional service programs to do-it-yourself, do-it-for-me and professional customers.

With consumer retail floor traffic picking up since Labor Day, and the holiday shopping season already well underway, shares of Home Depot make sense for investors looking for a retail idea that stays in favor all year long. The home improvement giant is a solid addition to growth and income portfolios.

Shareholders receive a 2.11% dividend. BofA Securities has set a giant $330 price target. The consensus target is $302.72, and Home Depot stock was last seen at $284.52.

Lockheed Martin

This is one of the top aerospace and defense stocks to buy, and many on Wall Street are expecting a very solid continuation of U.S. and foreign defense spending in 2021. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.

Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.

Investors receive a 2.68% dividend. The BofA Securities price objective is $500. The consensus figure is $435.95, and Lockheed Martin stock closed most recently at $388.59.

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These five large-cap leaders are priced right, pay solid and dependable dividends and look to be well positioned for 2021, regardless of who wins the presidential election. In addition, they are all attractively priced in a market that is overbought and probably could use a 10% correction.

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