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As we have mentioned before, while government wonks and economic bureaucrats always bemoan a weak dollar and say they are advocating for stronger U.S. currency, the fact of the matter is the weaker the dollar, the cheaper our goods and services are overseas. It also helps to buoy the price of oil, as it is priced in U.S. dollars, and our increasing exports of the commodity get a boost.
Last week the dollar continued getting thrashed as the dollar index, or DXY, printed levels at its lowest since December 2014, near 91.00. Continued losses have led to suggestions that many bulls have given up on the currency. Toss in the fact that low inflation is giving Federal Reserve officials second thoughts about another rate hike this year, and you have all the ingredients to keep the greenback low.
We screened the Merrill Lynch research database for companies rated Buy that do a substantial amount of their business overseas. These four top stocks make good sense for investors looking to take advantage of the current dollar weakness.
The maker of tobacco products and wine posted very solid numbers in the first half of the year, and the third quarter is looking good as well. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy on Wall Street, and the company’s Marlboro brand remains one of the most recognizable in the world.
Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb along with strong share repurchase activity. The board also recently raised the dividend by 8.2%.
To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine, e-cigarettes and a 27% stake in brewer SABMiller, which together generated nearly 10% of its pre-excise tax revenue last quarter.
Altria investors receive a 4.21% dividend. The Merrill Lynch price target for the stock is $78, which compares with a Wall Street consensus estimate of $71.69. Shares traded Monday morning at $62.60.
This company remains a top Warren Buffet holding and offers not only safety, but an incredible strong worldwide brand. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers. And the company posted solid-second quarter results recently.
Investors receive a 3.2% dividend. Merrill Lynch has a $50 price target, while the consensus target is $47.44. Shares traded Monday at $46.45.
The fast-food giant does a ton of business overseas and still remains a solid pick for investors seeking dividends and a degree of safety. McDonald’s Corp. (NYSE: MCD) is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local business persons.
The company reported solid second-quarter results, but the U.S. store comparisons of just 1.8% were disappointing to investors. Merrill Lynch noted that charges and refranchising gains make the earnings numbers a bit dicey, so the firm lowered its estimate.
McDonald’s shareholders receive a 2.35% dividend. The $185 Merrill Lynch price target is well above the consensus price objective of $171.08. The shares were trading at $160.95.
Procter & Gamble
This stock also offers a very solid dividend and safety. Procter & Gamble Co. (NYSE: PG) is another solid consumer staples stock for conservative investors to consider. It sells lots of very well-known household items that are essential for everyday life. Brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn.
The company posted solid earnings last quarter, and many on Wall Street feel that the new focus on a slimmed down product portfolio will help spur earnings growth and return the company to its long-time premium consumer staples multiple.
P&G actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. While currency headwinds have weighed on earnings and projections, a weaker dollar scenario would bode well for the future.
Shareholders receive a 2.97% dividend. The Merrill Lynch price objective is $98. The consensus target is $91.59, and shares traded on Monday at $93.20
RECOMMENDED STOCK BUYS
It finally has started. After years of Federal Reserve bond buying to keep interest rates low, the central bank is beginning the process of trimming the gigantic balance sheet it has accumulated. While actually just a minimal move to start, the Fed will just let maturing bonds roll off, and the proceeds will not be reinvested. However, combined with an expected December rate increase, it’s more than enough to push rates higher, and that could affect some of the top U.S. banks.
A new report from Erika Najarian, the outstanding bank analyst at Merrill Lynch, makes the case that Fed unwind and ensuing rate increases will have different consequences for the banking sector, and she feels the risk/reward for three top companies in her coverage universe remains strong. All are rated Buy at Merrill Lynch.
This stock trades at a very reasonable 12.55 times estimated 2018 earnings and could respond well in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms, and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today formed through the merger of retail bank Chase Manhattan and investment bank JPMorgan.
The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.
The bank recently raised the dividend to $0.56 from $0.50, which was ahead of the of many Wall Street estimates. Top analysts also see share buybacks of $19.4 billion of stock through 2018, a huge positive for shareholders.
JPMorgan investors are paid a solid 2.36% dividend. The Merrill Lynch price target for the stock is $99, and the Wall Street consensus target is $95.12. The stock traded Friday morning at $94.70 a share.
This bank posted outstanding second quarter results, beating on the top and bottom line, and may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is another one of the white glove Wall Street firms that continues to show tremendous growth, and is running neck and neck with Goldman Sachs as the bank of choice for high-profile IPOs.
Trading at a price-to-earnings (P/E) multiple of 12.2 times estimated 2018 earnings, that seems extremely reasonable given the 2018 expectations for EPS growth of almost 15%. The company also has $570 billion in cash equivalents on its balance sheet, versus $296 billion in total debt. The dividend was raised earlier this year to $0.25 from $0.20, and the company is expected to buy back $5 billion in stock through 2018.
Second-quarter FICC trading revenues were $1.2 billion (down only 4% year over year, versus down about 15% for peers). Despite the decline in FICC, this was the fifth consecutive quarterly revenue run-rate above management’s target of $1 billion. Other capital markets revenues were better than expected. Separately, wealth management is also performing well.
Morgan Stanley investors are paid a 2.07% dividend. Merrill Lynch has a $51 price target, and the consensus price objective is $49.54. Shares traded on Friday at $48.00.24/7 Wall St.
Protect Your Portfolio and Move to These Safe Stocks Now
This is another stock for investors to look at now for safety, dividends and solid upside potential, and it was among the biggest winners in the analyst’s view. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.
Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue. The stock also remains a top Warren Buffett holding.
After some huge public relations stumbles, Wells Fargo’s sales issue should be largely behind it. The stock has lagged since the sales issue surfaced (underperforming the banking index by 20%). Most on Wall Street feel its successful Comprehensive Capital Analysis and Review, improvement in the efficiency ratio in the second quarter (with further improvement to come) and an attractive valuation make the company compelling going forward.
Wells Fargo shareholders receive a 2.9% dividend. The $62 Merrill Lynch price target is well above the consensus target of $57.83. Shares were last seen at $54.05.
Boeing Co.’s (NYSE: BA) share price rose by 3% a share last week to close Friday up more than $7 on the week. The stock’s year-to-date share price gain reached 64.7%, leaving Boeing without a real challenger as the best performing stock among the 30 stocks in the Dow Jones Industrial Average index.
All but nine Dow stocks have posted year-to-date gains with the best — other than Boeing — being Visa Inc. (NYSE: V), up 35.3%; Caterpillar Inc. (NYSE: CAT), up 34.2%; Apple Inc. (NASDAQ: AAPL), up 31.1%; and McDonald’s Corp. (NYSE: MCD), up 30.6%.
Apple dropped from second to fourth in the ranking as reviews of its new iPhones and Apple Watch did not wildly praise the new products. The company began shipping the new phones on Friday, and if the company follows past practice, we’ll know first-weekend sales figures on Monday.
Boeing had another big week with a new order from Japan Airlines for four 787s and a signed memorandum of understanding from Turkish Airlines for 40 787-9s.
On Thursday the company released its Southeast Asia demand projection for new airplanes over the next 20 years. The largest category of new demand is projected for single-aisle planes like the company’s 737 family. Boeing forecast that 3,230 new single-aisle planes will be needed to meet demand. Demand for small wide-bodies like the 787 are projected at 610 aircraft while demand for large wide-bodies (the 777X) is tallied at 320.
Also last week, Northrop Grumman Corp. (NYSE: NOC) announced an agreement to acquire Orbital ATK Inc. (NYSE: OA) in a deal valued at some $9.2 billion. Boeing’s defense and space division CEO, Leanne Caret, said that Boeing is continuing to explore opportunities for mergers or acquisitions. A good place to start looking for potential M&A might be the list of suppliers Boeing named in its bid for the Minuteman III missile systems upgrade.
Boeing stock closed at $256.45 on Friday, up about 10.1% for the day, in a 52-week range of $129.86 to $256.45, a new high posted Friday morning. The 12-month consensus price target rose by more than $10 a share last week to $266.85. The highest target rose from $302.00 to $325.00.
MERRIL LYNCH RECOMMENDS 3 BANKS AS BUY
The confounding effects of the Brexit have caught up with the United Kingdom. As the country tries to untangle itself from most of its decades-long relationship with the European Union, Moody’s decided its economic future has become riskier. Moody’s downgraded its sovereign debt to Aa2 from Aa1.
In a note to investors, Moody’s analysts explained why they took the action:
1. The outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise;
2. Fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.The extent to which these negotiations will hurt Britain’s trade with the EU is far from certain. Some EU governments want to make the United Kingdom’s exit particularly hard on it. Germany is among these. The Independent wrote recently:
German voters have been left unmoved by Theresa May’s plea for the UK to remain in the single market during a transition period as she set out her vision for Brexit two days before the country was due to go the polls.
In a landmark speech in Florence, Italy, Ms May said existing market arrangements should continue to apply during a period of about two years after Brexit is to come into effect on 29 March 2019.
May will be blamed if the U.K. economy is undermined by Brexit. Her position has prime minister is already unsteady.
The Moody’s decision on the United Kingdom also may speed the exit of major financial institutions from London and their relocation to several large EU cities, led by Frankfurt. Downgrades never come at a good time, but the Moody’s decision makes the acute problem of Brexit worse.
Frequent overdrafters at banks account for 9% of all accounts but paid 79% of all overdraft and not sufficient fund (NSF) fees, according to a report from the U.S. Consumer Financial Protection Bureau (CFPB).
The CFPB’s report, titled “Data Point: Frequent Overdrafters,” said very frequent overdrafters account for 5% of all accounts in the study but paid more than 63% of all overdraft and NSF fees.
CFPB defined frequent overdrafters as accounts with more than 10 overdrafts and NSFs combined in a 12-month period. Very frequent overdrafters are accounts with more than 20 overdrafts and NSFs combined in a 12-month period.
The report said frequent overdrafters tend to be more constrained by credit than non-overdrafters or infrequent overdrafters. Those who are frequent overdrafters also generally tend to have lower credit scores and are less likely to have a general purpose credit card. The median credit score of frequent overdrafters is 585 and 563 for moderately frequent and very frequent overdrafters, respectively.
The CFPB determined that account usage characteristics and circumstances of frequent overdrafters varied, which the agency accounted for using a method to distinguish six groups of frequent overdrafters.
Four of these groups constituting nearly 70% of frequent overdrafters have low end-of-day balances (medians between $237 and $439), low or moderate credit scores (medians between 532 and 661) and low or moderate monthly deposits (with medians between $1,516, and $2,724). Another group constituting 20% of frequent overdrafters has low end-of-day balances (median of $140), low monthly deposits (median of $1,313) and no credit score. The remaining group, constituting about 11% of frequent overdrafters, has higher end-of-day balances (median of $1,403), higher monthly deposits (median of $7,828) but only moderate credit scores (median of 635).
Those who have a general purpose credit card have less available credit on such cards than non-overdrafters or infrequent overdrafters.
The CFPB dataset contained information on about 240,000 active accounts, including roughly 48,000 accounts belonging to frequent overdrafters. This dataset is representative of the more than 40 million accounts in the study banks it analyzed. To characterize annual account activity, CFPB focused on the 12 months from July 2011 through June 2012.
The agency said its sample comes from a small number of large banks and cannot be considered fully representative of the checking account market as a whole. “Nevertheless, based on our market observations, we believe it is likely to be similar to what one would observe at any institution that offers similar checking account and overdraft products,” said the CFPB in the report.