12 High-Yield Stocks From Deutsche Bank's Best Long Ideas
Last month's global market selloff following the Brexit decision was a doozy for investors who had to endure extreme market volatility only to be followed up by three days of rallying by stocks.
Still, the market volatility opened up lots of opportunity to buy stocks that were beaten down from worries over Brexit. Following the selloff, Deutsche Bank issued a report on June 28 with 42 best long ideas from its equity analysts with the most compelling "risk/reward from current levels." Granted, the list was compiled following two days where the Dow Jones Industrial Average had triple-digit selloffs (only to be followed by a three-day rally).
TheStreet culled the list and found 12 stocks with dividend yields above 2.5% and strong fundamental stories. We included a snippet of why Deutsche Bank analysts like each of these stocks.
June Return: -1.2%
DB Price Target: $35
Dividend Yield: 3.75%
"Basis for our Buy rating is our primary research giving us conviction on a stronger than anticipated ramp for Cisco's
new switching, routing, security, wireless, and Cloud IT Services solutions -- heading into FY15/16," wrote analyst Vijay Bhagavath. "We note a reasonable Q/Q setup from a consensus view in FY15 -- suggesting potential for upside surprises into Oct/Jan Q - and easier comps."
Cisco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Cramer and Jack Mohr, Action Alerts research director, wrote in a June 29 update:
On Tuesday, Cisco announced its plans to acquire CloudLock, a global leader in Cloud Access Security Broker (CASB) platform market, for $293 million (plus any equity awards and retention bonuses for employees who join Cisco). The acquisition aims to bolster Cisco's Security and Services offerings and is expected to close at the beginning of next year.
Overall, while we recognize that the transaction is inconsequential from a sales perspective at this point, it is further indication of Cisco's commitment to higher margin and higher growth businesses that will help expand the trading multiple over time. Importantly, the move reinforces Cisco's increased focus on a software-centric, subscription-based model that allows for a more compelling, differentiated business mix and highly visible revenue streams.
June Return: -6.7%
DB Price Target: $59
Dividend Yield: 3.33%
Investors of Wells Fargo
have been concerned over "sluggish (and poor quality) EPS coming out of 1Q," wrote analyst Matt O'Connor. "However, in 2Q, earnings quality should improve as GE revenues kick in, mortgage activity rises (the 1Q pipeline rose 34%), liquidity is deployed, and legal costs moderate."
Wells Fargo is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Cramer and Jack Mohr, Action Alerts research director, wrote in a June 30 update:
While the bank did pass CCAR, it did not make any updates to its capital return programs, although it did note that they were under review and the bank would continue to provide returns within its target net payout ratio range of 55%-75%. This does not come as a surprise as Wells already boasts a 3.2% dividend and had a prior, large repurchase authorization that is ongoing.
Furthermore, when it comes to earnings, we again note that Wells is less tethered than some of its peers to a high-interest rate environment as it derives almost half its revenues from a fee-based model (the revenue comes in for that business regardless of net interest margins) and has been expecting rates to remain lower for longer.
June Return: -11.1%
DB Price Target: $31
Dividend Yield: 3.17%
Kennedy-Wilson
is a "top value pick in the REITs space. Extreme valuation discount with the U.S. business alone worth $24/sh. Astute capital allocators that consistently generate strong investment returns," wrote analyst Vin Chao.
June Return: 2.9%
DB Price Target: $160
Dividend Yield: 3.52%
"We like [Boeing
] as the cash flow growth and deployment story is underappreciated and everyone is short the stock and few are long," wrote analyst Myles Walton. "We see execution risk for the name at near-decade low and see the 787 having far more profit potential than the bears would ever believe (margins have expanded from -48% to 1% over the last 8 quarters and should be at 10%+ cash gross margins by 4Q16)."
June Return: 1.5%
DB Price Target: $43
Dividend Yield: 3.48%
Pfizer
is a "preferred stock given an attractive risk/reward at current levels, continued growth for key products such as Ibrance and Prevnar, potentially under-appreciated pipeline coupled with a shareholder friendly management team that will continue to return cash to shareholders and consider value-enhancing deals," wrote analyst Gregg Gilbert.
June Return: 1.6%
DB Price Target: $68
Dividend Yield: 4.53%
Western Digital
is "one of three remaining HDD (hard disk drive) companies in a consolidated industry; we expect this consolidation to be positive for prices, driving better profitability for HDD companies," wrote analyst Sherri Scribner. "The shift to cloud and capacity-driven segments remains positive for margins and profitability longer term. Western Digital has expanded into the faster-growing SSD (solid-state drive) market with the acquisition of SanDisk."
June Return: 2%
DB Price Target: $205
Dividend Yield: 2.64%
Everest Re
"trades at a discount to book with a 10% ROE. Arguably, its earnings are at the bottom of its pricing cycle. Very low impact from interest rate volatility. Shares should rally after Canada wildfire disclosure," wrote analyst Joshua Shanker.
June Return: -8.8%
DB Price Target: $55
Dividend Yield: 2.6%
"With its initiation of a quarterly dividend, at a solid 2.6% yield, and authorization of a $100MM share buyback program (4.5% of its market cap), Trinseo
has taken another key step in its evolution of becoming a premier diversified chemical company," wrote analyst David Begleiter. "Coupled with its impressive deleveraging, growing earnings track record, reduced sponsor ownership (Bain owns 40% of the outstanding shares versus 80% a year), the reasons for Trinseo's valuation discount versus its peers have largely been removed. TSE is still the cheapest stock in Chemicals at 4.6x '16E EBITDA (vs peers at 7.5x), and an industry best '16E FCF yield of 12.5%, (vs peers at 6%)."
June Return: 12.9%
DB Price Target: $55
Dividend Yield: 2.86%
CyrusOne
is a "top growth pick in our REITs universe," wrote analyst Vin Chao. "Revenues tied to secular growth in data usage and the migration from owned to outsourced data center infrastructure. Below average EBITDA multiple and cheapest AFFO multiple for one of the highest 2-year EBITDA growth profiles in the space with the current backlog significantly de-risking 2017 growth estimates."
June Return: -0.81%
DB Price Target: $49
Dividend Yield: 2.77%
"As we look out to the end of 2016, we believe some of the overhands for [Abbott Labs
] should start to life (i.e. visibility on Alere, product approvals for St. Jude) and as such the stock should appreciate," wrote analyst Kristen Stewart. "In 2017, we believe ABT shares could be a top performer in the space."
June Return: 7.6%
DB Price Target: $125
Dividend Yield: 2.71%
Johnson & Johnson
is "well-positioned for growth across all divisions including pharma despite its patent expirations," wrote analyst Kristen Stewart. "Upcoming catalysts include: earnings July 19 and upcoming drug approvals and potential Remicade launch."
June Return: 4.9%
DB Price Target: $98
Dividend Yield: 2.74%
"Our Buy rating on [Eli Lilly
] is based on continued momentum in its diabetes franchise, under-the-radar immunology franchise opportunities ... an underappreciated animal health franchise, potential to be first to market with an Alzheimer's drug and continued momentum in diabetes franchise. Solanezumab Phase 3 readout could be a positive catalyst," wrote analyst Gregg Gilbert.