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Bearish Morgan Stanley Strategist Says Sell the Rally Now: 7 Ultra-Safe Stocks With Huge Dividends
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It never fails. Just when it seems like the financial world has things in good working order, the Silicon Valley Bank episode emerges, and in a quick 48 hours it is game over. Because the Federal Reserve has backstopped the bank, uninsured depositors likely will get (most) of their money bank eventually, and venture capital companies who are drooling over the bank’s loan book will take on many of the start-ups who need to fund payrolls. But once again, the smartest people in the room failed, and failed miserably.
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Morgan Stanley’s Mike Wilson is one of Wall Street’s most bearish equity strategists, and with good reason. He feels that the effects of the fastest Federal Reserve rate tightening since the early 1980s has yet to be truly felt, and when it is, it could be very painful. His advice? Sell any market rallies, until we make new bear market lows. That’s a long way from here.
We screened our 24/7 Wall Street equity research universe looking for safe stocks with big dividends, and also offer investors a place to move capital to until we print those potential bear market lows, lows that could be as far down as 3,200 on the S&P 500, or perhaps even lower. Seven stocks look like great ideas now, and all pay dependable and big dividends. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Altria
This maker of tobacco products offers value investors a great entry point now as it has been hit as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer, which some feel is worth more than $10 billion and may be a segment of the company that could be sold. Altria posted outstanding fourth-quarter results and also announced a shareholder-friendly $1 billion stock buyback plan.
Investors receive an 8.04% dividend. Stifel has a $50 target price, while the consensus target is $49.65. Altria stock closed on Tuesday at $46.74.
AT&T
The legacy telecommunications company has been going through a long restructuring, has lowered its dividend and has sold off or merged underperforming assets. AT&T Inc. (NYSE: T) provides telecommunications, media and technology services worldwide.
Its Communications segment offers wireless voice and data communications services and sells handsets, wireless data cards, wireless computing devices with carrying cases and hands-free devices through its own company-owned stores, agents and third-party retail stores.
AT&T also provides data, voice, security, cloud solutions, outsourcing and managed and professional services, as well as customer premises equipment for multinational corporations, small and midsized businesses, and governmental and wholesale customers. In addition, it offers broadband fiber and legacy telephony voice communication services to residential customers.
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It markets its communications services and products under the AT&T, Cricket, AT&T Prepaid and AT&T Fiber brand names. The company’s Latin America segment provides wireless services in Mexico and video services in Latin America. This segment markets its services and products under the AT&T and Unefon brand names.
Shareholders receive a 6.06% dividend. Raymond James has a Strong Buy rating for AT&T stock, and its $25 price objective compares with a $21.13 consensus target and the most recent close at $18.44 a share.
Citigroup
This top bank stock has rallied nicely off the lows, and Warren Buffett bought $2.5 billion worth of shares last summer. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations and governments a broad range of financial products and services.
The company offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. And it operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still very cheap 8.98 times estimated 2023 earnings, this stock looks very reasonable in what remains a volatile stock market, as well as in a sector that has lagged dramatically, especially after the recent bank failures.
Citigroup stock comes with a 4.20% dividend. Oppenheimer’s $87 price target is a Wall Street high. The $58.32 consensus target is closer to Tuesday’s close at $47.40, which was up almost 6% on the day as the big banks bounced back.
Dow
This stock certainly offers investors growth and income potential. Dow Inc. (NYSE: DOW) is a leading materials science company and was formed from the merger of Dow and DuPont in 2017 and the subsequent spin-off 2019. The company is organized into three principal divisions: Performance Materials & Coatings (23% of EBITDA), Industrial Intermediates & Infrastructure (27%) and Packaging & Specialty Plastics (51%).
The company’s segments include Agricultural Sciences, which is engaged in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The Consumer Solutions segment consists of Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions-Silicones businesses.
The Infrastructure Solutions segment consists of Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers and Infrastructure Solutions-Silicones businesses. Performance Materials & Chemicals consists of Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes businesses. The Performance Plastics unit consists of Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons businesses.
The dividend yield here is 5.08%. Credit Suisse has set its price objective at $68, and Dow stock has a $58.41 consensus target. Tuesday’s close was at $52.29.
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Energy Transfer
The top master limited partnership is a safe way for investors looking for energy exposure and income. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.
Energy Transfer is a publicly traded limited partnership with core operations that include complimentary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquid (NGL) and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.
After the purchase of Enable Partners in 2021, Energy Transfer owns and operates more than 114,000 miles of pipelines and related assets in all the major U.S. producing regions and markets across 41 states, further solidifying its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating (formerly known as Energy Transfer Partners), the company also owns Lake Charles LNG, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco and the general partner interests, and 39.7 million common units of USA Compression Partners.
Investors receive a 9.46% distribution. The $18 Morgan Stanley price target is higher than the $16.81 consensus target. Energy Transfer stock closed at $12.34 on Tuesday.
Newell Brands
This top consumer goods stock is a safe play for investors worried about a toppy market, and it has backed up big recently. Newell Brands Inc. (NASDAQ: NWL) is a manufacturer and marketer of consumer products with six reporting segments: Writing (Sharpie, Paper Mate, Waterman, Parker), Home Solutions (Rubbermaid, Calphalon, Goody), Tools (Irwin, Lenox), Commercial Products (Rubbermaid Commercial Products, Rubbermaid Healthcare), Baby & Parenting (Graco, Aprica) and Jarden (Yankee Candle, Jostens, Oster, Sunbeam, Mr. Coffee, K2, Marmot, Rawlings, Coleman, First Alert and many more).
Consumer staples stocks like Newell tend to be solid ideas in times of inflation and rising rates. In 2021, the company’s cash distributions to shareholders were close to $400 million. During the period, Newell produced roughly $600 million, which included an abnormally large $350 million in cash spent on an inventory buildup, which the company attributed to preparation for sales growth. With a dividend payout ratio below 70%, Newell should continue to easily support the large and tempting dividend.
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Shareholders receive a 7.07% dividend. Newell Brands has a Strong Buy rating at Raymond James. Its $17 price target compares with the $16.09 consensus. On Tuesday, shares closed over 3% higher at $12.18.
Walgreens
This huge drugstore chain operator is a safe retail play for investors looking to add health care now, and it trades at a cheap 7.5 times 2023 earnings expectations. Walgreens Boots Alliance Inc. (NASDAQ: WBA) operates as a pharmacy-led health and beauty retail company. It operates through three segments.
The Retail Pharmacy USA segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also provides specialty pharmacy services and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States; and six specialty pharmacies.
The Retail Pharmacy International segment sells prescription drugs and health and wellness, beauty, personal care and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as online and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides and Ahumada in the United Kingdom, Thailand, Norway, the Netherlands, Mexico and elsewhere, and 550 optical practices, including 165 on a franchise basis.
The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home health care supplies and equipment, as well as provides related services to pharmacies and other health care providers.
Walgreens Boots Alliance stock investors receive a 5.77% dividend. Loop Capital recently started coverage with a $45 target price. The consensus target is $41.58, and Tuesday’s close was at $33.29.
While Wilson might be considered a perma-bear by some on Wall Street, his rationale for being negative makes sense. Earnings are expected to plunge as the year progresses, the effects of rising interest rates will be felt more and more, consumer debt is skyrocketing, and delinquent accounts that are missing payments on debt are as well. Like choosing a bank these days, the bigger the better, and these stocks all fall in the bigger category.
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