As we head in to the final month of what has been a tremendous year for the stock market, the 24/7 staff is reviewing what the major Wall Street firms are recommending for the stretch run and in 2014. The third-quarter earnings season wrapped up in November with stocks providing solid earnings for the quarter. The fourth quarter is expected to be solid again, if not spectacular.
Merrill Lynch, like many of the firms we cover on Wall Street, is cautiously optimistic about the market for 2014. While few see the kind of straight up rally we witnessed this year, and many expect a correction that could be large, overall the S&P 500 should be higher by this time next year. The Merrill Lynch stocks are all Buy-rated by the firm, and represent all the major sectors in the index.
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Archer Daniels Midland Co. (ADM) fits the mold of all the picks at Merrill Lynch this year. It is underowned and almost out of favor on Wall Street. The company can raise its dividend, and it is inexpensive on a valuation basis. Investors are paid a 1.8% dividend. The Merrill Lynch price target for the global agriculture giant is $44. The Thomson/First Call estimate is $43. ADM closed Thursday at $41.47.
Caterpillar Inc. (CAT) is a name that is out of favor on Wall Street and Merrill Lynch likes that. The analysts point to the high foreign sales prospects for 2014, and the fact that the stock is underowned by portfolio managers. They also see strength in energy-related profits offsetting weakness in mining globally. Shareholders are paid a 2.9% dividend. Merrill Lynch has a $100 price target. The consensus estimate is closer to $90, and Caterpillar closed Thursday at $84.41.
CenturyLink Inc. (CTL) is another name that appears to be a contrarian play. The Merrill Lynch team views the stock as inexpensive. They also see the generous dividend as well covered, and the stock buyback program can grow. Shareholders are paid an outstanding 7% dividend. The Merrill Lunch price target is $41, and the consensus stands at $37. CenturyLink closed Thursday at $30.65.
Citigroup Inc. (NYSE:C) remains on the Merrill Lynch list of stocks to buy for the second year in a row. The firm cites the bank's global exposure, inexpensive valuation and the ability to benefit from a steeper yield curve as three main reasons to own the stock. Investors are paid a tiny 0.1% dividend. The Merrill Lynch price target is $58. The consensus estimate is at $58.50. Citigroup closed Thursday at $51.06.
Cisco Systems Inc. (CSCO) is another seemingly out-of-favor large cap stock. While the company gave very poor forward estimates in November, the Merrill Lynch analysts see a solid dividend grower with top global sales capability. Investors are paid a very solid 3.20% dividend. The Merrill Lynch price target is posted at $25, the same as the consensus estimate. Cisco closed Thursday at $20.91.
DaVita Healthcare Partners Inc. (DVA) is the Merrill Lynch health care pick for 2014. The company provides kidney dialysis services for patients suffering from chronic kidney failure or end stage renal disease in the United States. It primarily operates kidney dialysis centers, and it provides acute inpatient dialysis and related lab services primarily in dialysis centers and contracted hospitals. Merrill Lynch again sees the stock as underowned on Wall Street and very inexpensive valuation-wise. The Merrill Lynch price target is $70, and the consensus is posted at $63. DaVita closed Thursday at $57.12.
Exxon Mobil Corp. (XOM) fits the Merrill Lynch theme for 2014 well. The energy giant is underowned and very inexpensive compared to many large cap energy names. It is expected to continue its large share buyback program and increase the dividend. Investors receive a 2.7% dividend now. The Merrill Lynch price target for the stock is $110, though the consensus figure is much lower at $96. Exxon closed Thursday at $94.13.
General Motors Co. (GM) makes the list and was also a huge new buy for Kyle Bass and his Hayman Capital hedge fund. With the final government sale of stock coming, the overhang of impending shares hitting the market will soon be over. The company also announced the end of Chevy sales in Europe and will focus on Asian and domestic market share gains. Merrill lynch has put a $56 price target on the automaker. The consensus is posted at $48. GM closed Thursday at $39.09.
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NextEra Energy Inc. (NEE) is the Merrill Lynch utility stock to buy for 2014. The company provides power in the growing southeast United States. The Merrill Lynch team sees it as a solid dividend and growth play. Investors are paid a 3% dividend. The Merrill Lynch price target is $94, while the consensus target is at $92.50. NextEra closed Thursday at $83.59.
Nucor Corp. (NUE) is the ultimate contrarian play. The rebound in commercial building is expected to be a great boost for 2014 earnings. Wall Street is very underwhelmed with steel stocks, and this may be an outstanding play. Investors are paid a 2.8% dividend. Merrill Lynch has a $60 price target, and the consensus is at $55. Nucor closed Thursday at $51.86.
The Merrill Lynch plan for 2014 is pretty clear. The firm is cautious of the large market rise this year and playing contrarian and out-of-favor names across the board. After a more than 20% gain in the S&P 500 this year, this could end up being a top strategy for gains in 2014.