NEW YORK (
-- Given the volatility the market's endured since August, it's still too early to get confident about a positive finish for 2011.
Europe's leaders seem to have done enough to placate Wall Street for now but the major U.S. indices are still beholden to the latest headlines from across the pond. After Friday's rally, the
Dow Jones Industrial Average
is up more than 5% for the year, but that gain is the result of an 8.5% surge in the past two weeks. The
is flat on a price basis, so it really could go either way.
Whatever the rest of the year brings, S&P Capital IQ is feeling pretty bullish about 2012, especially the first half of the year. The firm lifted its year-end 2012 target for the S&P 500 to 1400 from 1360 on Wednesday, citing improved economic data of late and a belief that the low of 1100 in early October concluded a "near miss" correction phase. The index closed Friday at 1255.
The feeling is the rally will come early with the S&P 500 possibly reaching 1400 as soon as the first quarter then becoming vulnerable to another correction phase in the second and third quarters.
Sam Stovall, chief equity strategist at S&P Capital IQ, said in commentary Friday that the fact that the current bull market is entering its fourth year also bodes well with the average price gain coming in at 9.5% in previous instances, more than twice the average advance in the third year. The firm's suggested model portfolio is 60% stocks and 40% fixed income.
"We recommend that a hypothetical 'moderate' investor have a 45% exposure to U.S. equities, 15% holding of foreign stocks, a 25% weighting to bonds, which is below the normal 30% exposure, and a 15% holding of cash, which is up from our normal 10% recommendation," Stovall said.
As for individual stocks, S&P Capital IQ ran a screen to find high quality names for individual investors using its MarketScope Advisor research platform. The
met criteria of growing earnings over the past 10 years, having a dividend yield of 3% or more, and ratings from S&P Capital IQ's analysts of either strong buy or buy complemented by proprietary Quality Rankings of B+ or higher.
The full list of stocks highlighted by S&P Capital IQ is as follows:
Royal Bank of Canada
Here's some background and a bit of analysis on five of these names: GE, Hasbro, DuPont, Altria and AT&T.
Underlining S&P's point about these companies having a history of raising dividends,
on Friday, bringing its forward annual yield to 4%.
Shares of the Dow component rose more than 3% on Friday to $16.84, but the stock is still down more than 10% so far in 2011 as revenue flattened out in the past two quarters. Wall Street is very bullish though with 14 of the 17 analysts covering GE at either strong buy (5) or buy (9), and the median 12-month price target sitting at $20. The stock's forward price-to-earnings ratio is 10.8X.
Sterne Agee, which had discussed the potential for a dividend increase earlier in the week, weighed in on Friday, calling the move "no surprise" and saying the next step may be for the company's financial arm, GE Capital, to start paying a dividend back to its parent, although that would require the approval of regulators.
"GE Capital has also been very vocal about resuming the dividend back to the parent company sometime in FY2012," the firm noted. "This payment will equate to 45% of net income ($7.4B in earnings on our FY12 model), and will be paid on a full year basis, even if only one payment is made. After the GE Capital investor meeting there is a higher level of confidence that GE Capital has the financial strength, liquidity and reserves to pay the dividend to the parent, but little faith in the regulator's ability to be able to familiarize themselves with GE Capital's operations and approve the dividend payment before
The firm estimates a GE Capital contribution could add 20-to-25 cents a share to the annual payout, and notes a return to typical yield levels seen in the past would mean a big spike higher for the stock.
"Greater confidence in GE's industrial businesses, higher profitability, lower delinquencies and adequate provisions for losses as well as secured funding at GE Capital for FY12, could result in a better quality earnings and a reversion to the 2.5%-3% historical yield, implying significant upside to the current share price," Sterne Agee said.
has had a rough time of it in 2011 with the toy maker's shares falling more than 20%. The company's most recent earnings report was a disappointment as both its profit of $1.27 a share and revenue of $1.38 billion fell short of consensus views but CEO Brian Goldner was unbowed.
"We begin the fourth quarter with a number of encouraging factors supporting our full-year outlook," he said on Oct. 17. "We have a great line up of innovative, sought-after toys and games for the holiday, many of which are only recently hitting retail shelves; our point-of-sale both in the U.S. and internationally is positive and showing good momentum; our U.S. retail inventories are down versus a year ago; and we continue to experience very strong trends in our international business."
Hasbro shares closed Friday at $36.76, so the stock has bounced 20% since hitting a 52-week low of $31.36 on Oct. 4. The company has been aggressively buying its stock, repurchasing 5.6 million shares during the third quarter at a cost of $211 million, so Goldner is putting the company's money where his mouth is. The stock's forward annual yield is 3.2% and its forward P-E ratio sits at 11X.
gave the market a scare on Friday as the Dow component lowered its earnings outlook for fiscal 2011, citing slowing growth because of global economic uncertainty.
The stock fell 3.2% to $45.04 on the day, putting it down nearly 7% on the year. The diversified conglomerate, whose products include chemicals, coatings, and materials used in electronics products, now expects a profit of $3.87 to $3.95 a share for the year, which still represents year-over-year growth of 18-to-20%, but is below the consensus view of analysts polled by
for earnings of $4.03 a share.
DuPont said it's seeing softening demand for consumer electronics, and that the housing and construction markets remain weak, and it plans to provide a forecast for fiscal 2012 at its annual investor conference spanning Dec. 12-13.
Wall Street is mildly bullish on the stock with 11 of the 19 analysts covering DuPont at strong buy (5) or buy (6). Jefferies maintained its buy rating following the lower outlook but the firm cut its price target to $54 from $70 and said it expects the company to be cautious about 2012 next week. It still believes the valuation proposition for the stock is intact.
"We still expect DuPont to target a 10%-13% CAGR
compound annual growth rate through 2016, implying a longer-term earnings target of $6.25-$7.25
per share," the firm said. "We expect DuPont to stress its operating leverage to China's 5-year plan to improve food production, food safety, energy efficiency and other modernization initatives."
At its current level, DuPont shares have a forward annual dividend yield of 3.4% and a P-E ratio of 10.4X.
shares carry a hefty 5.6% forward annual dividend yield, more than double what the 10-year Treasury bond is paying these days. The stock closed Friday at $28.78, up 25 cents on the day and nearly 16% year-to-date.
The Richmond, Va., company is a classic sin stock with cigarette brands like Marlboro and Virginia Slims and wine brands like Columbia Crest. The stock has a forward P-E ratio of 13X, but Wall Street is kind of lukewarm with analyst coverage split between six holds, four buys and two strong buys.
Probably the biggest knock on Altria is the business isn't really growing anymore. Quarterly revenue has sat right around $4 billion for the past three years. The stock is sitting just below its 52-week high of $29.05, reached on Dec. 1, so investors may want to wait for a dip to build a position. The company is due to report its fiscal fourth-quarter results on Jan. 23 and analysts are expecting a profit of 49 cents a share in the three-month period on revenue of $4.2 billion.
's deal for T-Mobile may be on life support but the company does have plenty of redeeming qualities, including a stock with an eye-popping dividend yield of 5.9% and a reasonable forward P-E ratio of 11.7X.
Another big positive, of course, is the company's affiliation with
, and with the competition of
, the more smartphones sold the better.
Wall Street is mixed on the shares, which were down 1.8% year-to-date as of Friday's close at $29.03. Of the 34 analysts covering the stock, 18 rate it as a hold. Collins Stewart is neutral, the equivalent of a hold, with a price target of $29, but the firm lifted its earnings view on AT&T on Friday, citing this week's disclosure that the company has sold six million smartphones in the first two months of its fiscal fourth quarter ending in December.
"With much stronger than expected reception by consumers for the iPhone 4S and much lower price points for the earlier models, we now expect total iPhone sales at AT&T to reach 7.0mm (4.5mm prior) and 15.5mm (13.9mm prior) units respectively for 4Q11 and 2012," the firm said. "However, we believe that iPhone represents the majority of the smartphone sales and that the percentage of iPhone sales new to AT&T will likely continue to decline, as many customers waited for the delayed launch of the iconic device."
Investors jumping in on AT&T will be going against the grain to some extent with sentiment a bit murky on the company right now but that's historically been the time to act that's produced the big payoff when the tide turns.
>>To see these stocks in action, visit the
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Written by Michael Baron in New York.
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