The chatter about the 2021 change on Wall Street is getting louder, and we saw it last week as it was clear that the rotation trade is in full swing as the move to cyclical stocks, value and small caps continued. The bottom line is that the large-cap indexing that worked so well for the past few years is not working as well now. Before Monday’s big move, the S&P 500 was up only 1.4% in 2021, and that compares with a whopping 11.5% gain for the Russell 2000.
The question for many investors wanting to stay with larger-cap companies is what to do now, and the answer may very well be a shift to value.
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Value stocks tend to trade at a lower price relative to their fundamentals, such as dividends, earnings and sales, making them appealing to investors with longer time horizons. We screened the BofA Securities Value 10 List looking for companies rated Buy that pay solid and dependable dividends, and that had the lowest 12-month price-to-earnings (P/E) ratios. We found four that look like outstanding ideas now. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Allstate
Insurance companies tend to do well regardless of the economy, and this sector giant may be an outstanding pick for investors. It was one of the analyst’s top picks for 2021. Allstate Corp. (NYSE: ALL | ALL Price Prediction) is the largest publicly traded personal lines insurance company, with about 12% of the personal lines market (one in eight households).
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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.
The analysts noted this in February after the company posted earnings:
Allstate shares underperformed following a material earnings per share beat for the fourth quarter of 2020 results likely due to policy count decline. Ironically, Allstate’s periods of greatest share outperformance were simultaneous with periods of policy count decline. ALL shares currently appear trading at a P/E discount to commercial property and casualty peers unseen since the 2008-2009 global financial crisis.
Shareholders receive a 2.95% dividend. The BofA Securities price objective for the shares is a whopping $141. The Wall Street consensus target price is $125.14, and Allstate stock closed Monday’s trading at $109.72 a share, up almost 3% on the day.
HCA Healthcare
Positions in health care should continue to act well, and market leader is a good idea for more conservative investors looking for health care positioning. HCA Healthcare Inc. (NYSE: HCA) offers health care services. It provides diagnosis, treatments, consultancy, nursing, surgeries and other services, as well as medical education, physician resource center and training programs. It serves patients in the United States, operating from its network of approximately 185 hospitals and 2,000 sites of care.
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With its founding in 1968, HCA Healthcare created a new model for hospital care in the United States, using combined resources to strengthen hospitals, deliver patient-focused care and improve the practice of medicine. The company has conducted a number of clinical studies, including one that demonstrated that full-term delivery is healthier than early elective delivery of babies and another that identified a clinical protocol that can reduce bloodstream infections in ICU patients by 44%.
Shareholders receive a 1.09% dividend. BofA Securities has a $197 price target, while the consensus target is $193.47. HCA Healthcare stock close on Monday at $175.46.
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Morgan Stanley
This is one of Wall Street’s white-glove firms, and it may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.
Last year, this Wall Street investment bank agreed on a $13 billion purchase of discount brokerage E-Trade. With 5.2 million customers, it was once a revolutionary platform that “helped usher in a dramatic shift among financial services firms” and fueled the rise of indexes and exchange-traded funds, making investing vastly easier for do-it-yourself investors.
Investors in Morgan Stanley stock receive a 1.77% dividend. The $85 BofA Securities price target compares with the $83.80 consensus target and Monday’s close at $79.16 per share.
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Parker-Hannifin
This top industrial company looks poised for a solid 2021 and beyond. Parker-Hannifin Inc. (NYSE: PH) manufactures and sells motion and control technologies and systems for various mobile, industrial and aerospace markets worldwide.
The Diversified Industrial segment provides pneumatic, fluidic and electromechanical components and systems, as well as filters, systems and diagnostics solutions to monitor and remove contaminants from fuel, air, oil, water and other liquids and gases.
The Aerospace Systems segment offers flight control, hydraulic, fuel, fluid conveyance and engine systems and components for commercial and military airframe and engine programs. It also provides electronics thermal management heat rejection systems and single-phase and two-phase heat collection systems for radar, inverse synthetic aperture radar and power electronics.
Shareholders receive a 1.23% dividend. BofA Securities has set a $385 price objective. The consensus price target is $323.88. Monday’s last Parker-Hannifin stock trade hit the tape at $297.58, after rising almost 4% for the day.
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With solid upside to the BofA Securities price targets, and very reasonable P/E numbers, it makes sense to move some capital from higher flying momentum or technology plays to any or all of these top stocks. They are good ideas in a very pricey market that could be ripe for a correction.
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