Here’s what stocks Bank of America is betting big on in 2019
New year, new stock portfolio?
While many have fears that an impending recession could be looming in the year ahead, with nearly half of U.S. CFOs believing the downturn is likely, it doesn’t mean you shouldn’t be bullish with your portfolio.
At the end of each year, Bank of America Merrill Lynch (BAML) publishes its list of its favorite stocks for next year to give its clients an idea on where it sees the market going.
While the report is typically held for clients only, Business Insider obtained a copy.
To be included in the list, a company’s shares must currently have a buy rating.
BAML also notes to those skeptical, that its list has proven to outperform the benchmark.
For example, 2018’s list has already generated a 3.2 percent rate since it was published, outperforming the S&P 500’s 1.6 percent return.
Here is BAML’s list of its 11 favorite stocks for next year.
1. Walt Disney (DIS)
Why: BAML says it’s one of the highest quality S&P 500 stocks.
Notes: “Strong free cash flow, medium equity duration, low leverage. Big catalysts in 2019 (Disney Streaming Services, etc.) Underweight by large-cap active funds.”
2. General Motors (GM)
Why: BAML cites its strong free cash flow and inexpensive valuations.
Notes: “Underweight by large-cap active funds Positive betas to both real and nominal rates. Both near-term and longer-term potential catalysts in the pipeline (trade war resolution, autonomous driving, etc.)."
3. Molson Coors Brewing (TAP)
Why: BAML says it’s high quality and inexpensive.
Notes: Plus, it has an “attractive FCF yield, above-market dividend yield, which historically does well in periods of rising volatility and underweight by large-cap active funds.”
4. ExxonMobil (XOM)
Why: BAML says it’s a more defensive energy stock with low sensitivity to oil.
Notes: “High quality, inexpensive, healthy free cash flow yield, attractive/growing dividend, low leverage Positively correlated to VIX historically, underweight by large-cap active funds."
5. Morgan Stanley (MS)
Why: BAML says it’s high quality and inexpensive.
Notes: “Dividend grower Potential beneficiary of less onerous regulatory backdrop Strong recent EPS revisions, BofAML EPS above consensus."
6. CVS Health (CVS)
Why: BAML says it’s also high quality, inexpensive and has low leverage.
Notes: It has “above-market dividend yield Potential synergies from acquisition of Aetna. Historically fares well in rising volatility environments."
7. Raytheon (RTN)
Why: BAML believes defense stocks should benefit from a higher defense budget.
Notes: “Hedge against geopolitical risks. Inexpensive (14x fwd. P/E), high quality, above-market FCF yield, low leverage. Historically fares well in periods of rising volatility. Underweight by large-cap active funds."
8. Microsoft (MSFT)
Why: BAML says it’s high quality and a dividend grower with medium-equity duration.
Notes: “Healthy balance sheet (net cash) [and is] investing in future growth (R&D spenders typically rewarded). BofAML EPS above consensus."
9. International Paper (IP)
Why: BAML says it’s both inexpensive and high quality with attractive dividend yield
Notes: “BAofML EPS Underweight by large-cap active funds."
10. Simon Property Group (SPG)
Why: BAML says it’s high quality with an attractive, growing dividend yield.
Notes: “BofAML EPS above consensus; high-quality portfolio based on Real Estate Investment Trusts (REIT) team's analysis of mall REIT portfolios. Underweight by large-cap active funds."
11. Public Service Enterprise Group (PEG)
Why: BAML says it’s high quality and has an attractive, growing dividend yield.
Notes: “Historically fares well in rising volatility environments. Underweight by large-cap active fund."