El-Erian best stocks list
On Monday, Allianz’s chief economic advisor, Mohamed El-Erian, said that the stock market would likely continue to shake off any weakness until the impact of the Federal Reserve’s policy plan became clear.
“Look what we discovered last week — we had a hiccup and immediately returned. And we shouldn’t be surprised, because the market is conditioned to buy on dips,” he explained.
Professional investors and strategists frequently say that small pullbacks of 5% to 10% are healthy and to be expected in a bull market. However, the recent rally in US stocks has gone an unusually long time without such a reversal.
El-Erian stated that a “major shock” would be required to break the investor’s tendency to buy any dip. These shocks could be the result of a Fed policy error or a “market accident,” he said.
Several central bank officials have recently called for the Fed to begin reducing its asset purchases in the coming months, a process known colloquially as “tapering.” However, El-Erian believes that the resurgence of Covid-19 will make it difficult for the Fed to taper its asset purchases later this year.
El-Erian has criticized the Fed’s approach, claiming that it has kept its accommodative policies in place for far too long. He stated that the next few months would be critical in determining whether he or the central bankers are correct.
“We won’t know whether we’ve made a major policy mistake until the end of the year. I believe we are. Inflation, I believe, will not be transitory. “I believe people underestimate the dynamics of inflation,” he said.
El-Erian has extensive experience working at the crossroads of markets and government policy, having served as an executive at PIMCO during the financial crisis and on President Barack Obama’s Global Development Council.
Morgan Stanley top stock is Uber
According to Morgan Stanley, Uber will become a significant success story for technology investors in the next years.
The investment firm has begun a series in which it chooses its top picks outside of the so-called “FAANG” tech stocks, beginning with Uber. The “FAANG” stocks are a group of mega cap tech names that include Facebook, Apple, Amazon, Netflix, and Google parent Alphabet.
In a note to clients on Friday, analyst Brian Nowak stated that Uber was approaching profitability, which could change the stock’s overall outlook.
“We see positive company-wide EBITDA in 4Q:21, and as we have seen with other cash-burning businesses turning the profit corner (such as SNAP in ’19/’20), we see a positive profit swing driving incremental investor interest and earnings power confidence,” according to the note.
Morgan Stanley rates the stock as overweight and sets a price target of $72 per share, which is 80% higher than where trading ended Friday.
“In our opinion, investors are not crediting UBER for its core Rides/Eats offering, platform advantages, or call options such as grocery delivery… or autonomous,” the note stated.
In 2021, Uber’s stock has plummeted by more than 21%. Nonetheless, it is still popular among Wall Street analysts. According to FactSet, 90% of analysts rate the stock as a buy or overweight.
Baird’s top stocks
The Baird research company has put forth its top suggestions for the remainder of the year and into 2022.
In a note to investors this week, the firm identified 63 stocks out of the 742 in its coverage universe, naming Tesla and Starbucks among the names it believes have high conviction and are most “actionable.”
Each stock on the list has an outperform rating, and the majority of them are in the healthcare, industrial, and technology sectors.
According to analyst Ben Kallo, Tesla is a favorite for gaining exposure in various areas of sustainable energy. He noted that, in addition to the factories it currently operates in California and Nevada, the automaker is completing factories in Berlin and Austin, and that, in addition to being an electric vehicle leader, it is expanding its energy business with solar and stationary storage.
“Tesla is on the cutting edge of autonomy and continues to expand its functionality,” he said.
According to analyst David Tarantino, Starbucks falls into the category of companies with internal drivers that can fuel strong growth in a slower-growth economy, such as increasing loyalty membership, compelling “beverage innovation,” and ongoing operations improvements. He went on to say that these are the kinds of companies Baird finds “attractive to own for 2022 and beyond.”
The coffee retailer has a post-pandemic annual growth model that calls for annual revenue growth of 8% to 10% and earnings growth of 10% to 12%.
Harley-Davidson, which is in its second year of recovery, is also on Baird’s list. According to Baird, retail sales in the United States have increased by 37% in the first half of this year, while dealer inventory is down 38% from the same period last year. Its stock is up about 7% year to date.
“The new leadership team has generated retail growth while pruning the bike lineup and slashing dealer inventory, fueling the recovery narrative,” said analyst Craig Kennison.
The Fed factor
There are numerous popular methods for locating dividend stocks, including examining dividend aristocrats, which are typically defined as stocks that have increased their payouts per share for at least 25 years.
However, Kevin Simpson, the founder and chief investment officer of Capital Wealth Planning, believes that investors looking to pick individual stocks should focus on names that provide strong growth rather than getting bogged down by rules of thumb.
“I don’t believe you should look specifically for companies with 25 or 50 years of dividend growth. We look at it over a five-year period and say,’show us companies that have increased their dividends by 10-to-15 percent over the last five years,’ and you’ll have a really successful portfolio there,” he says.
The pandemic added another wrinkle to this process, as some companies paused dividends ahead of time, waiting to see how the upheaval of daily life affected their businesses. Dividend freezes in 2020, according to Simpson, should not be viewed as a “red flag” by investors.
“Smart management will be fiscally responsible and will not try to raise the dividend simply because that is what they have always done. Now, if a company suspends or reduces its dividend, we remove those positions from our portfolio,” he said, adding that those stocks could be candidates to rejoin the fund if the dividend is reinstated.
Chevron, Nike, and Johnson & Johnson are among the companies in Capital Wealth’s enhanced dividend income portfolio, as are tech titans Apple and Microsoft. Simpson believes that those tech stocks make sense in a portfolio even if their payouts are low because their share prices have performed so well, resulting in a strong total return, and that investors should have a diverse portfolio to minimize sector risk.
Capital Wealth does not use a minimum dividend yield in its selection process, allowing it to include stocks with low payouts today but the potential for strong dividend growth in the future.
Growers of dividends
For investors looking to pick their own income plays, the list below includes some of the S&P 500‘s largest stocks that have increased dividends in the last year and have payouts of at least 3%. According to FactSet estimates, the stocks have strong future earnings per share growth prospects.
Investors should be wary of stocks with unusually high dividend yields. In some cases, this can be a sign that professional investors believe a dividend cut is on the way, making the stock appear cheap for a short period of time.
If investors want a broader exposure with less individual research, there are exchange traded funds that target dividend stocks, such as the Vanguard Dividend Appreciation ETF.
Aside from dividends, another way to generate income is to sell covered call options.
A covered call is a contract sold by an investor to an options trader that gives the trader the right to buy a stock that the investor currently owns at a predetermined price in the future. Essentially, the contract’s seller receives money up front, while the contract’s buyer receives potential upside if the stock rises above the pre-set strike price.
“Covered call writing is a way to reduce portfolio risk, but the trade-off is that you lose some upside,” Simpson explained. “However, I would give up some upside all day to help navigate some of the downside.”
