Markets are turning around after 2018’s fourth-quarter swoon, with general gains seen on the Dow Jones, the NASDAQ, and the S&P 500 indexes. Since bottoming out on Christmas Eve – what a lousy present that was! – the Dow is up 2,900 points to 24,706 and the NASDAQ is up almost 1,000 points to 7,157, gains of 13% and 15% respectively. While these numbers don’t recoup all the end-of-year losses, they certainly started 2019 on the right foot.
So now it’s time to figure out where to invest for the best effect in 2019. We’ll use the TipRanks database to unpack four classic value stocks with ‘Strong Buy’ ratings, rock-solid dividends, and plenty of positive upside potential.
AT&T, Inc. (T – Research Report)
The phone company survived the Ma Bell anti-trust breakup, and has grown beyond its original base of landline telephone service to become the second largest provider of wireless and mobile service in the US. Today, despite the relatively low share price, AT&T is one of the most reliable value stocks around.
To start with, AT&T finalized its acquisition of Time Warner this past June, giving the company control of some solid content creators – as well as the TNT, CNN, and TBS networks – on which to build a mobile streaming service. That streaming service, for its part, will take advantage of AT&T’s switch to 5G, which will expand throughout 2019. The company’s plan is to use increased revenues from these initiatives to pay down $185 billion in accumulated debt while also maintaining cash reserves sufficient to support a dividend yield close to 7%.
So, the future looks upbeat for this venerable telecom provider. That 7% dividend yield is the result of a raise last quarter – making 2018 the 35th year in a row that AT&T raised the dividend payout. The next dividend payment is scheduled for Feb 1, at $0.51 per share, giving 2019 a projected annual payout of $2.04 per share.
AT&T’s longevity and reliability have won over market analysts, despite the company’s high debt. T received 8 ‘buy’ ratings last month, including 3 rating upgrades. Cowen’s Colby Synesael (Track Record & Ratings) laid out the case for the upgrades: “[T]he dividend is safe and the stock is cheap. The advertising strategy, while still unproven, could drive significant upside in outer years. While execution remains a risk, the reward is attractive.” Synesael gives T a $36 price target, suggesting a 16% upside to the stock.
Also weighing in on T was Simon Flannery (Track Record & Ratings) of Morgan Stanley. He pointed out the dividend raise, saying, “[S]uch an increase, which would not be that notable normally, takes on added significance due to the company’s high leverage and desire to de-lever, and as a signal of confidence in the recent 2019 business and financial outlook.” Flannery set a $37 price target, for a 19% upside. He has been following AT&T for eight years, and has an 83% success rate when recommending this stock.
The analyst consensus on AT&T is a ‘Strong Buy,’ based on 13 ‘buy’ ratings and 3 ‘holds.’ The average price target is $35, implying a 13% upside for T.
Boeing Company (BA – Research Report)
Boeing is starting 2019 on the right note – with plenty of new commercial aircraft orders that will keep the company busy and growing through 2021. The company is a prime example of the latest Bureau of Labor Statistics jobs report, which showed that the last two years have seen manufacturing jobs in the US increase by well over 400,000. Between defense contracts and cutting-edge commercial planes, Boeing showcases much that is right with American industry.
The company’s stock performance has reflected that strong position. While BA shares were dragged down by the general market fall at the close of the year, and bottomed out below $300 on Christmas Eve, they have gained almost 20% since Dec 26. The stock remains $30 below its all-time high of $392, reached back in October, but is on an upward trajectory.
And of course, there is Boeing’s dividend. Like AT&T, Boeing’s dividend is famously reliable. While the yield is lower than T’s, at just 2.3%, the stock’s high valuation puts the annual payout per share over $8. The next payment, of $2.05, is scheduled for early March.
Market analysts have taken note of Boeing’s strengths. On Jan 9, Sheila Kahyaoglu (Track Record & Ratings), of Jefferies, wrote, “Boeing remains a top pick, with rising deliveries and productivity leading to 16% annual earnings growth through 2021. The company’s focus on productivity should translate to superior free cash flow, which is undervalued at current share levels.” She expects free cash flow per share to hit $30 by 2020, and gives the stock an 8% upside with a $394 price target.
Also on Jan 9, Morgan Stanley analyst Rajeev Lalwani (Track Record & Ratings) set an aggressive $450 price target and upgraded his rating to ‘buy.’ In his comments, Lalwani said, “We foresee compounding growth coming from buybacks, production hikes, and margin improvement (15-20%), all from a management that has proven to be best-in-class.” His price target suggests a 23% upside to Boeing’s stock, and his record on rating BA is 6 out of 6 – with a 28% return.
McDonald’s Corporation (MCD – Research Report)
The original fast food giant continues to realize the gains of its ongoing improvement plan. Stores are being both modernized and standardized, while the menu is being streamlined to focus on a combination core products and customer favorites. While much of the cost of restaurant upgrades is being borne by individual franchisees, McD’s corporate headquarters has committed up to $6 billion to the project.
In addition, McDonald’s benefits from universal name recognition, a huge customer base, and a proven business model at the grass roots level. These advantages have seen the company through decades in the business, and made it the leader in fast food burgers. As a result, when much of the stock market swooned in December, MCD outperformed – losing only 8%, and posting gains of 7% since Christmas.
McDonald’s, like Boeing, offers a dividend of modest yield that is boosted by a high share valuation. The dividend yield is 2.54%, but the share price of $182 makes the annual payout $4.64 per share. And even though the company has committed billions in cash to restaurant improvements, there is still enough available to continue the dividend payments. It’s a testament to the company’s overall strength.
Longbow analyst Alton Stump (Track Record & Ratings) noticed the salient fact underlying that strength: “U.S. McDonald’s franchisees indicate that same-store sales were up 2.5-3.0% in 4Q18. This is ahead of consensus of +2.3%.” An increase in same-store sales ensures the company’s cash flow – essential, as noted above, to pay for improvements and dividends – and shows that the store improvement program is working. Stump gives MCD a $194 price target, for a modest 6% upside.
On Jan 10, John Staszak (Track Record & Ratings) of Argus Research wrote of MCD, “The company is expected to benefit from the launch of new promotional offers, store renovations, and the increased use of its mobile order-and-pay system.” This connects back to the increase in same-store sales, and the success of the renovation plans. McD’s is looking up, and Staszak’s price target, $210, and upside prediction, at 15%, reflect that.
Like the other stocks in this article, McD’s holds a ‘Strong Buy’ on the analyst consensus. That rating comes from 19 ‘buys’ and 6 ‘holds.’
Microsoft Corporation (MSFT – Research Report)
The software giant is our last value stock today. At $107 per share, it carries a premium price, and with $827 billion in market cap, it is the world’s second largest publicly traded company. As a value proposition, however, MSFT boasts a 218% gain in share price over the last five years, and steady dividend payout over that same time, ranging from 3.6% to 1.6%.
Microsoft’s next dividend is scheduled for Feb 20. The 1.79% yield will make the per-share payment just 46 cents, annualized to $1.84, but the company pays out reliably. For a long-term investor, the dividend is the icing on the cake.
Of the giant tech companies, Microsoft was the best performer in 2018, rising 18% for the year, and that performance has gained the notice of top market analysts. Five-star analyst, and #2 overall in the TipRanks database, Ross MacMillan (Track Record & Ratings) on Dec 17 reiterated his ‘Buy’ rating for MSFT, and set a price target of $124. His target suggests a 16% upside to the stock.
Overall, MSFT’s ‘Strong Buy’ consensus rating comes from 18 recent ‘buys,’ and only 1 ‘sell.’
Enjoy Research Reports on the Stocks in this Article:
AT&T, Inc. (T) Research Report
Boeing Company (BA) Research Report
McDonald’s Corporation (MCD) Research Report
Microsoft Corporation (MSFT) Research Report
We pulled the information for this article from the TipRanks Stock Screener tool. The Stock Screener gives you the filters you need to sort through 5000 listed companies, and find the right investment for your situation. Go to the Stock Screener Tool now.
