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STOCK MARKET 2018
ANALYST'S VIEW OF WALL ST
It is no secret that the bull market’s strength heading into 2018 is nearing uncharted territory. Wall Street strategists have recently raised their 2018 stock market expectations after the passage of tax reform. And investors still love their dividends, particularly safe and rising dividends.
One strategy that has been popular each year as investors rebalance and make changes is the Dogs of the Dow. While the term “dog” may sound quite negative, this is the 10 highest dividend yields in the Dow Jones Industrial Average.
24/7 Wall St. and its founders have tracked the Dogs of the Dow strategy for years now. Short-term interest rates have risen in 2017, but long-term rates remain lower than many strategists would have expected. Those Treasury rates also still look quite low by historical standards at a time when growth is picking up. Very few investors seem to be worried that interest rates are going to rise enough to wreck the stock market or the economy.
The 2017 Dogs of the Dow had an average yield of 3.6%, and the preliminary list of the Dogs of the Dow for 2018 looks to be closer to a yield of 3.1%. That being said, we currently have 11 “dogs” rather than 10 due to the controversy of General Electric. If we just use the 10 ‘dogs” then we have a median yield of closer to 3.3%.
One issue that has driven down the average yield for this preliminary 11 (which will be 10 on January 1) is that the Dow was up 25% so far in 2017, if you include dividends. As a reminder, as a stock price rises its yield comes down on a static basis without a company raising its payout.
Most Dogs of the Dow companies should be expected to raise their dividends in 2018. Also, many of the stock prices at the end of 2017 have implied upside to the Thomson Reuters consensus analyst price targets for the next 12 months.
While investors still love dividends, the reality is that the current Dogs of the Dow picked for 2018 are all serious laggards in 2017. Only Cisco has outperformed the Dow, and four of the Dogs were still negative in 2017.
Some of the top Dow stocks have now raised their dividends for 25 to 50 consecutive years. With repatriation of foreign cash and lower tax rates, some of these companies could handily raise dividends. Some may choose buybacks.
For a comparison, the yield on the 10-year Treasury was close to 2.45% and the 30-year Treasury was roughly 2.83%. We have used Thomson Reuters for consensus analyst target price data. We have offered a detailed view of the 2017 Dogs of the Dow for a comparison.
Here are the 11 candidates for the Dogs of the Dow in 2018. Again, there will be only 10 once the end of 2017 is final in a few days.
> Yield: 4.44%
Verizon Communications Inc. (NYSE: VZ) may still have a lower dividend than rival (and former Dow member and Dog) AT&T, but it has managed to get back to almost flat for 2017. Verizon has a history of raising its payouts year after year. Verizon’s consensus analyst target price is $51.83, while shares were last seen trading near $53.50.
> Yield: 3.93%
International Business Machines Corp. (NYSE: IBM) remains stuck in the mud. Despite the growth of cloud, artificial intelligence and blockchain, IBM’s core IT-services operation remains the lion’s share of the operation, and it is keeping its growth elsewhere from seeming impressive. IBM’s shares were down 8% so far in 2017. Trading at $153.50, it has a consensus target price of $163.74.
> Yield: 3.76%
Pfizer Inc. (NYSE: PFE) has underperformed the Dow, with a gain of 11% so far in 2017. It faces drug price pressures as a continued potential risk. The share price of $36.10 compares with the consensus target price of $38.29.
4. Exxon Mobil
> Yield: 3.67%
Exxon Mobil Corp. (NYSE: XOM) may remain the largest oil and gas giant of them all, but its shares were still down 7% so far in 2017. Perhaps it can find its mojo in 2018 with a higher floor on oil prices, and perhaps its large natural gas operations can finally pay off. Trading at $84.00, Exxon Mobil now has a consensus target of $86.50.
> Yield: 3.43%
Chevron Corp. (NYSE: CVX) did better in 2017 than rival Exxon, with a gain of more than 6% with a few days before year’s end. That being said, it is still way short of the Dow’s gains. The share price of $125.25 compares with the $128.55 consensus target.
> Yield: 3.41%
Merck & Co. Inc. (NYSE: MRK) was last seen down more than 4% so far in 2017, and it faces the same price-pressure risk as rival Pfizer ahead. Shares were trading at $56.45. The consensus analyst target is $65.23.
> Yield: 3.25%
Coca-Cola Co. (NYSE: KO) finally has generated close a 10% annual gain, but that still is less than half of the Dow as a benchmark. The company keeps managing to diversify away from sparkling sugar sodas, and that may continue to help ahead. Coca-Cola has a consensus analyst price target of $49.06. It was trading at $45.72.
> Yield: 3.01%
Cisco Systems Inc. (NASDAQ: CSCO) is the only one of the preliminary Dogs of the Dow for 2018 that has managed to outperform the Dow, with its 27.5% total return. Cisco should be a winner under tax reform and has billions of overseas dollars that it can repatriate back to the United States. Its $38.60 share price compares to a consensus price target of $38.92.24/7 Wall St.
10 Large-Cap Tech Stocks Expected to Outperform Apple and Amazon in 2018
9. Procter & Gamble
> Yield: 3.00%
Procter & Gamble Co. (NYSE: PG) was last seen up 9.5% so far in 2017, and activist investor Nelson Peltz has now been named to its board of directors. The company has raised its dividend for 61 consecutive years, and with shares at $92.60, it has a consensus target price of $93.53.
10. General Electric
> Yield: 2.74%
General Electric Co. (NYSE: GE) has had a pathetic 44% drop so far in 2017, and the departure of Jeff Immelt did not keep it from falling lower. It is debatable whether GE should even be allowed in the Dogs of the Dow now that it slashed its dividend in half. Shares were last seen at $17.55, and the consensus price target is still up at $21.99. That GE’s consensus analyst target was up at $28.50 just 90 days ago should spell out how painful owning GE has been.
11. Johnson & Johnson
> Yield: 2.40%
Johnson & Johnson (NYSE: JNJ) has now raised its dividend payment for 55 straight years. The shares were last seen up almost 22% so far in 2017, which is more impressive than all but Cisco’s performance against rival Dow Dogs. The consensus analyst target is $146.82, and shares traded near $140.00
HOT BIOTECH STOCKS
DECEMBER NEWSLETTER 8
Stocks have hit all-time highs too many times to easily count in 2017. The bull market is now nearing nine years old, and 2017 only has two trading session remaining before 2018 starts. The Dow Jones Industrial Average is up 25% and the S&P 500 is up almost 20% if you include dividends. The one trend that has prevailed for investors has been to buy all market pullbacks. Investors are also continuing to look for new investing and trading ideas to generate gains and income into 2018.
24/7 Wall St. reviews dozens of analyst research reports each day of the week. Our goal is to find new investing and trading ideas for investors and traders alike. Some daily analyst reports and research reports cover stocks to buy. Others cover stocks to sell or to avoid.
Additional color and commentary has been added on most of these daily analyst calls. Consensus analyst price targets mentioned and other valuation metrics are from the Thomson Reuters sell-side research service.
These were the top analyst upgrades, downgrades and other research calls from Thursday, December 28, 2017.
Argo Group International Holdings Ltd. (NASDAQ: AGII) was raised to Outperform from Market Perform with a $71 price target (versus a $60.85 prior close) at Keefe Bruyette & Woods.
Cellectis S.A. (NASDAQ: CLLS) was reiterated as Outperform and the price target was maintained at $40 (versus a $28.63 close) at Oppenheimer. The firm talked up the scarcity value of allogeneic CAR-T assets in a high conviction idea.
ForeScout Technologies Inc. (NASDAQ: FSCT) was reiterated as Buy and the price objective was raised to $35 from $30 (versus a $29.63 close) at Merrill Lynch. The firm sees a continued strong execution and positive valuation case for this network security player.
Mueller Water Products Inc. (NYSE: MWA) was reiterated as Outperform with a $15 target price (versus a $12.59 close) at Oppenheimer, noting that the core trends are supportive of its valuation.
PG&E Corp. (NYSE: PCG) was maintained as Hold at Argus after the utility suspended its dividend after recent fires. Trading at $44.68, PG&E has a 52-week range is $41.61 to $71.57, and the consensus analyst target price is $58.00.
Party City Holdco Inc. (NYSE: PRTY) was a recent winner after an accelerated share buyback will raise earnings, but Merrill Lynch has maintained its Neutral rating because the firm worries that the company is also raising its leverage and risk.
Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) was maintained as Buy at Argus, but the firm lowered its price target to $470 from $540. Most points remain positive in the call and its shares closed at $384.09.
Robert Half International Inc. (NYSE: RHI) was reiterated as Buy and the price target was raised to $65 from $58 (versus a $55.43 close) at Deutsche Bank.
Royal Gold Inc. (NASDAQ: RGLD) was down over 1% at $86.73 on its Mt. Milligan operation temporarily suspending mining on water shortages, its most important asset (close to 35% of expected 2018 revenue) Merrill Lynch has lowered 2018 and 2019 forecasts for earnings based on lower deliveries. Canaccord Genuity was more aggressive and downgraded Royal Gold to Hold from Buy and lowered its price target to $99 from $109. The 52-week trading range is $61.00 to $94.39.
Supernus Pharmaceuticals Inc. (NASDAQ: SUPN) was reiterated as Buy and the price target was raised to $54 from $50 (versus a $38.70 close) at B. Riley.
Susquehanna raised its price targets on credit card issuers:
Visa Inc. (NYSE: V) was raised to $148 from $126.
Mastercard Inc. (NYSE: MA) was raised to $180 from $170.
American Express Co. (NYSE: AXP) was raised to $130 from $106.
Discover Financial Services (NYSE: DFS) was raised to $85 from $69.
24/7 Wall St. has tracked 13 big upside calls from oil and gas analysts for 2018 picks now that oil is challenging $60 per barrel again.
Four companies should be big 2018 winners on 5G infrastructure spending.
Wednesday’s top analyst upgrades and downgrades included Callaway Golf, Capital One, Sarepta, Tesla, UnitedHealth, Wayfair and more. Tuesday’s top analyst calls included Agnico Eagle Mines, Apple, Embraer, FedEx, Nike, Unitil and more
For investors who have watched the staggering moves in bitcoin and somehow feel that they missed the bus, they were reminded last week when the cryptocurrency dropped back almost 35% just how insanely volatile the trade can be. While it may yet to prove to be the new standard for payment in the future, that sure won’t be the case anytime soon.
At 24/7 Wall St. we comb through reams of analyst reports looking for potential home runs, and what better time of year than right now to look for potential moon shots for 2018. We screened our extensive research database and found four companies rated Buy at various Wall Street firms with price targets that projected as much 100% upside from current levels.
While only suited for extremely aggressive accounts, these four stocks could provide investors with some much needed alpha for their portfolios.
This stock looks to be breaking out through a triple top formation. Array BioPharma Inc. (NASDAQ: ARRY) is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Its programs include these three cancer drugs: binimetinib, encorafenib and selumetinib (partnered with AstraZeneca).
Binimetinib and encorafenib are in Phase 3 trials in advanced cancer patients, including the COLUMBUS trial studying encorafenib in combination with binimetinib in patients with BRAF-mutant melanoma and has initiated BEACON CRC trial to study encorafenib in combination with binimetinib and cetuximab in patients with BRAF V600E-mutant colorectal cancer.
The analysts at SunTrust are bullish on the company’s recent spin-off and noted this in a research report:
While expected, it is positive to see that Array is spinning out ARRY-797. Yarra Therapeutics (private), an initially wholly owned subsidiary, will be focused on orphan diseases. This allows Array to remain focused on oncology. We view the news as incrementally positive, highlighted by the stock rising 11% this morning. We believe the spin could help Array realize the value of ‘797, yet allow the company to remain focused on becoming an oncology pure-play, better positioning Array as a potential M&A target, in our view.
The SunTrust and Wall Street consensus price target are both $16, and the shares closed trading Tuesday at $12.51.
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La Jolla Pharmaceuticals
This biotech company has been mentioned recently as a possible takeover candidate. La Jolla Pharmaceuticals (NASDAQ: LJPC) is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies intended to significantly improve outcomes in patients suffering from life-threatening diseases.
The company’s LJPC-501 is its formulation of angiotensin II for the potential treatment of catecholamine-resistant hypotension (CRH). It has initiated a Phase 3 trial of LJPC-501 for the treatment of CRH, called the Angiotensin II for the Treatment of High-Output Shock 3 (ATHOS) Phase 3 trial. LJPC-401 is its formulation of synthetic human hepcidin for the potential treatment of conditions characterized by iron overload, such as hereditary hemochromatosis, beta thalassemia, sickle cell disease and myelodysplastic syndrome.
A recent FDA approval is a huge plus, and the SunTrust analyst said this:
The company provided a corporate update on Giapreza (a novel formulation of angiotensin II), which received FDA approval 2 months ahead of schedule for the treatment of septic or other distributive shock. Given Giapreza’s broader than expected label, and the high levels of awareness among healthcare providers for a new drug in a setting with significant unmet needs, we believe the Street is likely underestimating the market opportunity, which we now estimate at ~$700 million in the U.S.
The SunTrust price target was raised to a staggering $65 from $57. The consensus target is $51.67, and shares closed Tuesday at $32.79.