As the stock market pushes to new all-time highs in the seasonally strongest time of the year, investors may feel they are running out of ideas for places to put money to work.
But one area is certain to keep attracting fresh investment: quality, large-cap stocks that offer a good mix of value and growth and are deemed relatively safe by institutional investors.
This morning I ran the Zacks Premium Screen for Large Caps with the Best Zacks Rank. Only eleven stocks made the cut for $25+ billion market cap and Zacks Rank of #2 or better.
Here I highlight five of them to buy and/or add to on any Santa Rally dips:
Bank of America Corp (BAC)
The $229 billion behemoth of banking became a Zacks #1 Rank last month as the fortunes of finance found new life with the sudden rise in long-term interest rates. As the yield curve has steepened and expectations for net interest margin — a bank’s lifeblood — expands, shares of BAC have rallied over 35% from $17 to $23.
Part of the inspiration for this rally is probably also a general sense that Dodd-Frank regulations will be rolled back and benefit most investment banks and asset managers, which is a significant part of BAC’s business in addition to retail deposits and business lending.
With 11% EPS growth projected next year and a P/E of just over 15X, BAC is not exactly a raging banking value anymore. But it will still likely remain a safer haven among big banks as its prospects and balance sheet improve in an expanding economy.
Broadcom Ltd (AVGO)
This $71 billion technology giant reported another beat-and-raise quarter last week and shares have made new all-time highs above $180 as analysts raised estimates. Trading at under 15X 2017 profit projects, AVGO sports a Zacks #2 Rank and a VGM (Value-Growth-Momentum) score of “A.”
Broadcom’s diversified businesses maintain its financial strength between two primary segments: Wired and optical infrastructure for telecoms and data centers and Wireless tech for smartphones. Major customer Apple provides steady cash flows for iPhone parts averaging over $10 per device. Meanwhile, AVGO remains a key “arms dealer” in the 100 Gigabit Ethernet buildout in the US, Europe, and China.
For the current fiscal year ending in October of 2017, AVGO is projected to see 24.5% revenue growth and a 22.5% EPS ramp. Accordingly, the majority of Wall Street investment banks raised their price targets on AVGO this month, pushing the average 12-month expectation toward $210. Thus, large investors will continue to find this a go-to name in Tech.
Synchrony Financial (SYF)
Synchrony Financial is a $30 billion consumer financial services company that offers private label credit cards, small and medium-sized business credit products, and promotional financing for consumer purchases. This Zacks #2 Rank is projected to see 8.5% revenue growth in 2017 which is expected to translate into 14.75% EPS growth.
The company has delivered 9 consecutive quarters of positive EPS surprises with the two most recent registering 7.35% and 5.45% in the September and June quarters, respectively.
Obviously the 27% share price jump since the election has been about the two main drivers for all of financial sector companies: a steepening yield curve and the hope of less regulation. This trend should continue for consumer financial companies with strong balance sheets and no surprises in credit and risk management.
Target Corporation (TGT)
This innovative $43 billion retailer continues to find ways to compete with Walmart and Amazon and maintain a consumer following. Recovering from negative top line results in the current fiscal year (ending January 2017), Target is expected to return to revenue growth next year.
After a 25% positive earnings surprise in Q3, analysts raised full-year estimates for 2017 from $5.25 to $5.40. That only represents 3.6% growth vs this year’s 11.2% advance.
But with a 3.1% dividend yield and a strengthening economy supporting consumer spending, chances are money will still be flowing into TGT shares next year.
UnitedHealth Group Inc (UNH)
The $152 billion giant of health insurance is a Zacks #2 Rank and is projected to grow revenues 8% next year with an 18% EPS advance. It’s Value and Growth Scores of “A” give it a composite VGM score of “A.”
My colleague Jeremy Mullin credited UNH as one of the 5 Dow Stocks Leading the Way to 20,000.
That trend will likely continue into the new year. So be sure to buy the blue chips, on the dips.
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