Even though stocks look shaky right now, we are still in a strong GDP growth environment. Here’s how to play that trend according to strategists at one of the world’s biggest investment firms.
“During strong GDP growth environments, companies returning the most cash to shareholders typically outperform firms investing for future growth,” says Goldman Sachs. This is because if the Fed raises rates to keep the economy in line, equities become less attractive vs bonds. The solution, according to the firm, is to find the most lucrative stocks that are paying high dividend yields and/ or investing aggressively in share buybacks.
We’ve done the hard work for you: Here are the 7 stocks with the highest trailing 12-month combined buyback and dividend yield, plus a coveted Buy-rating from the Street. We turned to TipRanks market data to pinpoint the most promising Buy-rated stocks from Goldman Sachs’ dividend basket. Let’s take a closer look at these top 7 stock picks now:
1. Marathon Petroleum (MPC – Research Report)
Trailing 12-month buyback + dividend yield: 16%
Analyst consensus: Strong Buy
This killer energy stock has 100% Street support right now.
“We like Marathon Petroleum for its diversified refining footprint across the Midwest, Rocky Mountains, Gulf Coast and West Coast, which gives the company access to both inland and waterborne crude supplies” cheers five-star RBC Capital analyst Brad Heffern (Track Record & Ratings).
He notes that MPC recently acquired ANDV, and achieving a $1 billion synergy target would be a major catalyst for shares. Luckily MPC says it will “put to rest” any doubt about the $1 billion synergy target at its analyst day on December 4.
Another key share driver could come from Marathon’s retail business, Speedway. According to Heffern this “is the most attractive retail franchise in our coverage universe.” He believes the extension of the Speedway model to the acquired ANDV stores could provide meaningful upside.
With shares at $67, Heffern is modelling for upside potential of over 35%. However, note that on average top analysts see upside potential of 60% from current levels!
2. CenturyLink (CTL – Research Report)
Trailing 12-month buyback + dividend yield: 15%
Analyst consensus: Strong Buy
Another top stock splashing the cash to shareholders is communications stock CenturyLink. Top 30 Oppenheimer analyst Timothy Horan (Track Record & Ratings) has just reiterated his CTL Buy rating with a $22 price target (16% upside potential).
He cheers CenturyLink’s merger with LVLT, which closed back on November 1, 2017. “We see the improved cost structure and tax position as very accretive” Horan explains. “The combination of LVLT and CTL is transformative… CTL has realized integration synergies sooner than expected and now looks to cost transformations to drive up FCF and defend their attractive yield.”
Here we can see that Horan’s optimism is shared by other top analysts:
3. Cisco Systems (CSCO – Research Report)
Trailing 12-month buyback + dividend yield: 15%
Analyst consensus: Moderate Buy
A popular tech stock pick, Cisco remains the dominant networking vendor with strong underlying fundamentals.
“With share repurchases helping to support the shares near term, we see opportunity to own Cisco” states Oppenheimer’s Ittai Kidron (Track Record & Ratings). Challenges including macro/ political uncertainty are already reflected in estimates and investor sentiment surrounding Cisco the analyst adds- and that’s with shares up 23% year-to-date.
He has a $50 price target on CSCO shares, citing opportunities in SaaS/Cloud, including security and collaboration, that should drive recurring revenue.
4. Anadarko Petroluem (APC – Research Report)
Trailing 12-month buyback + dividend yield: 13%
Analyst consensus: Strong Buy
Anadarko is an independent oil and gas stock with both US and international operations.
And good news for shareholders- the company is poised to deliver significant free cash flow in 2019: “At the current strip, we estimate that APC will generate $2.1 Bn of FCF in 2019, with much of that likely returned to shareholders” writes Jefferies’ Mark Lear (Track Record & Ratings). Indeed, his $84 price target suggests shares can surge 44%.
Overall, out of 13 analysts polled 12 rate the stock a buy with only 1 analyst staying sidelined. This includes 2 buy ratings from top analysts.
5. Corning (GLW – Research Report)
Trailing 12-month buyback + dividend yield: 13%
Analyst consensus: Moderate Buy
Keep a close eye on this optical products stock as it pushes for revenue diversification into growth segments. For example, 5G cellular technology is expected to help Corning increase content per smartphone, essentially enabling Corning to double its Rev from consumer electronics.
Top Susquehanna analyst Mehdi Hosseini (Track Record & Ratings) has just been on a trip to Corning’s Tech Center in Silicon Valley. Post-meeting, he reiterated his GLW Buy rating with a $38 price target. “GLW continues to execute well on the margin front, while also continuing to position new products for increased revenue diversification. Additionally, moderating capex spend in 2019 bodes well for a meaningful expansion in FCF margins, which in our view could be used to increase the share buyback budget” the analyst writes.
6. Hewlett Packard (HPE – Research Report)
Trailing 12-month buyback + dividend yield: 13%
Analyst consensus: Moderate Buy
While analysts are divided on the outlook for HPE, Oppenheimer’s George Iwanyc (Track Record & Ratings) is sticking to his bull thesis. Fresh from the company’s analyst day, the analyst shares these optimistic takeaways: “HPE is executing on its vision to pivot toward growth verticals (Edge) while reducing complexity in its cost structure and go-to-market approach. We are positive on its strategy and feel confident in its ability to execute on a large TAM opportunity ($325B) noting a relatively low (~9.4%) share.”
Moreover market volatility presents a compelling risk/reward scenario, and a strong capital return program (buybacks, dividend yield) limits downside. As a result the Oppenheimer analyst reiterates his Buy rating and $18 price target (15% upside potential).
7. NetApp (NTAP – Research Report)
Trailing 12-month buyback + dividend yield: 13%
Analyst consensus: Moderate Buy
Last but not least we have NetApp, a specialist in hybrid cloud data services. Riding in the stock’s favor is a recent upgrade from Goldman Sachs’ Rod Hall (Track Record & Ratings). Not only did he upgrade NTAP from Hold to Buy, but he also added the stock to the firm’s elite list of high conviction stocks.
Meanwhile Hall’s price target received a similar boost, from $76 to $91. The outlook has changed for NTAP, explains Hall, placing his increasingly bullish sentiment for the stock down to “catch up spending” in the storage markets set to continue well into 2019.
Plus NetApp continues to win share in the AFA market and is positioned to grow its software subscription revenue from the cloud as part of its Cloud Data Services. Hall calls concerns over competitor threats overblown as Dell/EMC has a “significant amount of work” ahead to bring its portfolio up to scratch.
Enjoy Research Reports on the Stocks in this Article:
Anadarko Petroluem (APC) Research Report
CenturyLink (CTL) Research Report
Cisco Systems (CSCO) Research Report
Hewlett Packard (HPE) Research Report
Marathon Petroleum (MPC) Research Report
Find the perfect stock picks for your portfolio, based on the latest top analyst recommendations. On TipRanks’ Stock Screener tool, you’ll find all the search filters you need to sort through all the data- including a ‘Strong Buy’ top analyst consensus. Go to the Stock Screener now.
